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TMI Blog2024 (9) TMI 606X X X X Extracts X X X X X X X X Extracts X X X X ..... arties, 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arises from the impugned judgment and order dated 22.09.2023 passed by the High Court of Gujarat at Ahmedabad in Arbitration Petition No. 209 of 2021 wherein the High Court after assigning detailed reasons for allowing the application filed by the Respondent for the appointment of an arbitrator, directed that the said application be listed before the appropriate bench in accordance with the roster for the purpose of passing appropriate order for appointment of arbitrator. 4. The SLP(C) No. 3792 of 2024 arises from the impugned judgment and order dated 01.12.2023 passed by the High Court of Gujarat at Ahmedabad in Arbitration Petition No. 209 of 2021 wherein relying upon the judgment and order dated 22.09.2023 referred to above passed by a co-ordinate bench in the self-same arbitration application, the High Court allowed the application of the Respondent for the appointment of an arbitrator and thereby appointed Justice K.A. Puj, former Judge of the High Court of Gujarat as an arbitrator to resolve the disputes between the parties. A. FACTUAL MATRIX 5. The Appellant, SBI General Insurance Co. Ltd., is a Private Sector General Insurance Company engaged in the business of providing ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,19,967/- from the Appellant, yet on 24.12.2018, a consent letter was issued by the Respondent to the surveyor accepting the assessment of loss made by the surveyor, i.e., at Rs. 84,19,579/-. In the consent letter, the Respondent stated that in view of the detailed discussion it had with the surveyor as regards the volumetric calculation of the quantity of cotton bales said to have been damaged, it was ready to accept the quantity to be 3,17,085.30 kg as against its initial claim of 4,41,111.58 kg. 12. After addressing the consent letter as aforesaid to the surveyor, the Respondent signed an advance discharge voucher dated 04.01.2019, confirming the receipt of Rs. 84,19,579/- from the Appellant as the full and final settlement towards their claim. The discharge voucher also stated, inter alia, that the Respondent was discharging the Appellant of the liability arising under its claim. 13. Subsequent to the signing of the advance discharge voucher, the Appellant released the claim settlement amount of Rs. 84,08,957/- on 31.01.2019. 14. Thereafter, in relation to the claim arising out of the second fire incident, the Appellant released a total amount of Rs. 4,86,67,050/- in three inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid by you. Since we have not received the copy of surveyor report, we are unable to take further action. Once again, you are requested to provide the copy of survey report along with all enclosures thereof. Please consider this letter as a notice. Yours Faithfully For KRISH SPINNING 16. The Respondent, on the same day, sent an email to the Appellant with a copy of the aforesaid letter calling upon the Respondent to take appropriate and necessary action. The contents of the said email are reproduced hereinbelow: Sir, This is in reference to the above subject, today at around 04:00 pm, or personnel visited your office to hand over a letter requesting you to provide the complete survey report of our fire claim No. -513768 for loss dated 28/05/2018. You, in turn returned the letter without accepting it, asking to get the letter signed by our Mr. Ashwinkumar N. Kacha and resubmit the same. We wish to inform that Mr. Ashwinkumar Kacha is busy with medical emergency, and we will submit the letter signed by him, when he is relieved from the medical emergency. Attached herewith, is the copy of the said letter for your kind reference and necessary action. Thanks Regards 17. The Appellant r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Appellant to release the balance payment of the claim amount arising out of the first fire incident. The Respondent, in the said notice, alleged, inter alia, that he had signed the consent letter and the advance discharge voucher under the apprehension that if he would not have signed the said documents, then the claim in relation to the second fire incident, which was pending on the date of the signing of the discharge voucher, would have been detrimentally affected. Thus, the discharge voucher could be said to have been signed under coercion, undue influence, and without free will and volition of the Respondent. The Respondent further stated that it had sent the protest letter dated 25.10.2019 immediately after receiving the final instalment in relation to the claim arising out of the second fire incident. The Respondent further stated that in the event of the Appellant's denial or failure to pay the balance amount within a period of 15 days, the legal notice should be treated as notice invoking arbitration. 19. The Appellant replied to the aforesaid legal notice on 16.03.2020 refuting the allegations made by the Respondent, alleging them to be mala fide and an after-th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed to refer the disputes to the arbitration under Clause 13 of the policy, on the other hand, the Petitioner disputes such case on various grounds. It was stated that amount of Rs. 92,00,388/- is wrongfully deducted while making payment of Rs. 84,19,579/ inasmuch as total claim lodged was Rs. 1,76,19,967/-. 6.1 Therefore, the above aspects indeed travels to the adjudicatory realm, which is the function to be discharged by the arbitrator. When the claim is disputed, it is the arbitrator who may competently decide the claim. Arbitrability of the dispute is also to be decided by the arbitrator. While exercising the powers Under Section 8 of the Arbitration and Conciliation Act, 1996, such questions cannot be gone into by this Court and when there is an arbitration clause, the aspects are to be decided by the arbitrator for such purpose. 6.2 Following observations of the Supreme Court in Oriental Insurance Co. Ltd. v. Dicitex Furnishing Ltd. [2019:INSC:1234 : (2020) 4 SCC 621], may be pertinently noticed, ...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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween the parties thereby indicating that a distinct understanding was arrived at between them. No plea or assertion has been made by the Respondent, nor any prima facie evidence has been adduced to establish that the Appellant had made the execution of the discharge voucher a pre-condition to the payment of the claim, or offered the amount on a take it or leave it basis . Seen thus, the test laid down by this Court in paragraph 52(iv) of the National Insurance Co. Ltd. v. Boghara Polyfab reported in 2008:INSC:1057 : (2009)1 SCC 267 can neither be said to have been alleged nor satisfied. 26. It was further submitted that there has been an inordinate delay on the part of the Respondent in levelling allegations of coercion. Such allegations came to be so levelled for the first time in the arbitration notice dated 02.03.2020, that is, almost 14 months after the payment of the subject claim and five months after the payment of the second claim. The counsel submitted that the claim amount as per the assessment of the loss by the surveyor was known to the Respondent since 24.12.2018, thereby indicating that the allegations of coercion were an afterthought. 27. In support of his aforesai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, otherwise payment towards the admitted amount would not have been released and her client would have been put in immense difficulties. She submitted that mere signing of the discharge voucher by her client would not imply that there was consensus in arriving at the full and final settlement. The counsel submitted that the coercion, though subtle, was very much real and thus in such a situation where the settlement is not voluntary, but under duress, the arbitration Clause can be invoked to refer the disputes to arbitration. 32. The counsel also submitted that it cannot be said that there was an inordinate delay in raising the plea of coercion as the letter dated 25.09.2019 was sent by her client to the Appellant within 11 days of the receipt of final payment in relation to the second insurance claim. However, the Appellant provided a copy of the surveyor's report only on 07.11.2019 based on which the notice of arbitration was issued on 02.03.2020. 33. The counsel, in the last, submitted that the issues raised by the Appellant are subject matter of arbitration by the tribunal and not of the referral court, which has to limit its scrutiny to the issue of arbitrability in view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant, whereas the said arbitration Clause envisages reference to arbitration only in cases where liability is admitted and there is a dispute as regards the quantum of liability. 37. However, we find no merit in the aforesaid submission of the Appellant. It is evident from the record that the Appellant had admitted its liability with respect to the first claim and had even disbursed an amount of Rs. 84,19,579/- in pursuance of the signing of the advance discharge voucher by the Respondent. Thus, it is clearly a case of admission of liability by the Appellant. However, the quantum of liability is in dispute as the amount claimed by the Respondent is at variance with the amount admitted by the Appellant. Thus, the dispute being one of quantum and not of liability, it falls within the ambit of the conditional arbitration Clause as contained in the insurance policy. 38. One another preliminary objection raised by the Appellant was that the claim sought to be referred to arbitration is a deadwood claim and thus the application for appointment of arbitrator ought to have been rejected at the outset by the High Court. It is clear from the facts as discussed in the preceding paragraphs th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment in respect of the claims of the insured. 42. The concept of discharge of a contract by accord and satisfaction is embodied in Section 63 of the Indian Contract Act, 1872, which provides that the promisee may, inter alia, accept any substituted obligation in place of the original promise made to him, and such acceptance on the part of the promisee would amount to the discharge of the contract. Section 63 along with the illustrations is reproduced hereinbelow: 63. Promisee may dispense with or remit performance of promisee.-Every promisee may dispense with or remit, wholly or in part, the performance of the promisee made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit. Illustrations (a) A promises to paint a picture for B. B afterwards forbids him to do so. A is no longer bound to perform the promise. (b) A owes B 5,000 rupees. A pays to B, and B accepts, in satisfaction of the whole debt, 2,000 rupees paid at the time and place at which the 5,000 rupees were payable. The whole debt is discharged. (c) A owes B 5,000 rupees. C pays to B 1,000 rupees, and B accepts them, in satisfaction of his claim on A. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the High Court. 45. To answer the aforesaid contention of the Appellant, the question that needs to be considered is whether the full and final settlement of claims arising under a contract, is by itself sufficient to preclude any future arbitration in respect of such settled claims? 46. It is indeed so that 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. 47. 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. a. Whether the arbitration agreement contained in a substantive contract survives even after the underlying contract is discharged by accord and satisfaction ? 48. Arbitration for the purpose of resolving any dispute pertaining to any claim which has been fully and finally settled between the parties can only be invoked if the arbit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the obligations undertaken by each party in favour of the other may cease. It survives for the purpose of measuring the claims arising out of the breach, and the arbitration Clause survives for determining the mode of their settlement. The purposes of the contract have failed, but the arbitration Clause is not one of the purposes of the contract. (Emphasis supplied) 53. Thus, even if the contracting parties, in pursuance of a settlement, agree to discharge each other of any obligations arising under the contract, this does not ipso facto mean that the arbitration agreement too would come to an end, unless the parties expressly agree to do the same. The intention of the parties in discharging a contract by accord and satisfaction is to relieve each other of the existing or any new obligations under the contract. Such a discharge of obligations under the substantive contract cannot be construed to mean that the parties also intended to relieve each other of their obligation to settle any dispute pertaining to the original contract through arbitration. 54. Although ordinarily no arbitrable disputes may subsist after execution of a full and final settlement, yet any dispute pertain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out prejudice or by issuing no-dues certificate . (Emphasis supplied) 57. The position that emerges from the aforesaid discussion is 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 Boghara Polyfab (supra), 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. 58. It was further held in Boghara Polyfab (supra) that the mere execution of a full and final settlement receipt or a discharge v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... settlement of all claims, is the Court, on an application Under Sections 9(b) and 33 of the Act, entitled to enquire into the truth and validity of the averment as to whether there was or was not a final settlement on the ground that if that was proved, it would bar a reference to the arbitration inasmuch as the arbitration Clause itself would perish. xxx xxx xxx 6. It appears to us that the question whether there has been a full and final settlement of a claim under the contract is itself a dispute arising upon or in relation to or in connection with the contract. These words are wide enough to cover the dispute sought to be referred. The Respondent's contention is that the contract has been repudiated by the Appellant unilaterally as a result of which he had no option but to accept that repudiation because if the Appellant was not ready to receive the goods he could not supply them to him or force him to receive them. In the circumstances, while accepting the repudiation, without conceding that the Appellant had a right to repudiate the contract, he could claim damages for breach of contract. Such a claim for damages is a dispute or difference which arises between himself and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to arbitration and hence the application of the Respondent Under Section 20 of the Indian Arbitration Act should have been allowed and the matters in dispute between the parties, including the question whether or not there was discharge of the contract by accord and satisfaction should have been referred to arbitration. (Emphasis supplied) 63. However, the position on the issue witnessed a change with subsequent decisions of this Court in P.K. Ramaiah and Co. v. Chairman and Managing Director, National Thermal Power Corporation reported in 1994 Supp (3) SCC 126 and Nathani Steels Ltd. v. Associated Constructions reported in 1995 Supp (3) SCC 324. 64. In P.K. Ramaiah (supra), the decision in Damodar Valley (supra) was distinguished on facts, and it was held that once full and final settlement is arrived at, no arbitral dispute subsists, and hence there can be no referral to arbitration. The relevant observations made therein are as follows: 6. [....] If there is an arbitrable dispute, it shall be referred to the named arbitrator. But there must exist a subsisting dispute. Admittedly the Appellant acknowledged in writing accepting the correctness of the measurements as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as they directly affect the issue at hand. 68. The role to be played by the Chief Justice or his designate in the appointment of an arbitrator has been at the heart of number of decisions of this Court. In Konkan Railway Corporation Ltd. v. Rani Construction (P) Ltd. reported in 2002:INSC:56 : (2002) 2 SCC 388, a five-Judge Bench of this Court observed that the power exercised by the referral court Under Section 11 of the Act, 1996 is an administrative power and thus the Chief Justice or his designate do not have to decide any preliminary issue at that stage. Accordingly, it held that any issues pertaining to non-arbitrability, validity and existence of the arbitration agreement are to be decided by the arbitrator. 69. The aforesaid view occupied the field till a seven-Judge Bench of this Court in SBP Co. v. Patel Engg. Ltd. reported in 2005:INSC:526 : (2005) 8 SCC 618, characterised the power conferred upon the Chief Justice or his designate Under Section 11 of the Act, 1996 as a judicial power and not merely administrative power. This Court held that the Chief Justice or his designate had the right to decide all preliminary issues at the referral stage Under Section 11(6) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kind. In a case where the claimant contends that a discharge voucher or a no-claim certificate as been obtained by fraud and the other side contests the correctness, the Chief Justice 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 certificate or settlement agreement, prima facie, appears to be lacking in credibility, there may not be a necessity to refer the dispute for arbitration at all. xxx xxx xxx 23. The present case in our opinion appears to be a case falling in the category of exception noted in Boghara Polyfab [2008:INSC:1057 : (2009) 1 SCC 267] (p.284, para 25). As to the financial duress or coercion, nothing of this kind is established prima facie. Mere allegation that no-claim certificates have been obtained under financial duress and coercion, without there being anything more to suggest that, does not lead to an arbitrable dispute. The conduct of the contractor clearly shows that no-claim certificates were given by it voluntarily, the contractor accepted the amount voluntarily and the contract was disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to the Supreme Court and the High Court, as the case may be; and ii. Secondly, the power of appointment Under Section 11 be clarified to be an administrative power and not a judicial one. iii. Thirdly, the scope of interference Under Sections 8 and 11 respectively of the Act, 1996 be restricted only to those cases where the court finds that no arbitration agreement exists or is null and void. 74. The Law Commission suggested the insertion of Section 11(6-A) in the Act, 1996. The aforesaid recommendations of the Commission were taken note of by the Parliament and accordingly the Act, 1996 was amended in 2015 to incorporate Section 11(6-A), which reads thus: (6A) The Supreme Court or, as the case may be, the High Court, while considering any application Under Sub-section (4) or Sub-section (5) or Sub-section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement. 75. Interestingly, Section 11(6-A) was omitted by the 2019 amendment to the Act, 1996 on the basis of a report of the High-Level Committee to Review the Institutionalisation of Arbitration Mechanism in India. However, in the absence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by placing satisfactory material on record before the Chief Justice or his Designate to exercise power Under Section 11(6) of the Act, which has been considered by this Court in New India Assurance Co. Ltd. case [...] xxx xxx xxx 17. It is true that there cannot be a Rule of its kind that mere allegation of discharge voucher or no claim certificate being obtained by fraud/coercion/undue influence practised by other party in itself is sufficient for appointment of the arbitrator unless the claimant who alleges that execution of the discharge agreement or no claim certificate was obtained on account of fraud/coercion/undue influence practised by the other party is able to produce prima facie evidence to substantiate the same, the correctness thereof may be open for the Chief Justice/his Designate to look into this aspect to find out at least prima facie whether the dispute is bona fide and genuine in taking a decision to invoke Section 11(6) of the Act. 18. In the instant case, the facts are not in dispute that for the two incidents of fire on 25-9-2013 and 25-10-2013, the Appellant Company based on the Surveyor's report sent emails on 5-5-2016 and 24-6-2016 for settlement of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary disputes are to be examined by the arbitrator and are not for the Court to be examined within the limited scope available for appointment of arbitrator Under Section 11(6) of the Act. Suffice it to say that appointment of an arbitrator is a judicial power and is not a mere administrative function leaving some degree of judicial intervention; when it comes to the question to examine the existence of a prima facie arbitration agreement, it is always necessary to ensure that the dispute resolution process does not become unnecessarily protracted. 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 agreement to be referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9) 2 SCC (Civ) 785] as not having laid down the correct law but dismiss this appeal for the reason given in para 3 above. (Emphasis supplied) 80. A two-Judge Bench of this Court in Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd. reported in 2019:INSC:1292 : (2020) 2 SCC 455 was called upon to determine the scope of judicial interference at the stage of Section 11(6) petition wherein the plea of claims being time barred was taken by the Defendant. Referring to the principal of competence- competence enshrined in Section 16 of the Act, 1996 and the legislative intent behind the introduction of Section 11(6-A) to Act, 1996 by the 2015 amendment, this Court held that the issue of limitation being a mixed question of law and fact should be best left to the tribunal to decide. The referral court should restrict its examination to whether an arbitration agreement between the parties exists. The relevant observations are reproduced hereinbelow: 7.10. In view of the legislative mandate contained in Section 11(6-A), the Court is now required only to examine the existence of the arbitration agreement. All other preliminary or threshold issues are left to be decided by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. v. CCE [ITW Signode (India) Ltd. v. CCE, 2003:INSC:647 : (2004) 3 SCC 48] a three-Judge Bench of this Court held that the question of limitation involves a question of jurisdiction. The findings on the issue of limitation would be a jurisdictional issue. Such a jurisdictional issue is to be determined having regard to the facts and the law. Reliance is also placed on the judgment of this Court in NTPC Ltd. v. Siemens Atkeingesellschaft [NTPC Ltd. v. Siemens Atkeingesellschaft, 2007:INSC:229 : (2007) 4 SCC 451], wherein it was held that the Arbitral Tribunal would deal with limitation Under Section 16 of the 1996 Act. If the tribunal finds that the claim is a dead one, or that the claim was barred by limitation, the adjudication of these issues would be on the merits of the claim. Under Sub-section (5) of Section 16, the tribunal has the obligation to decide the plea; and if it rejects the plea, the arbitral proceedings would continue, and the tribunal would make the award. Under Sub-section (6) a party aggrieved by such an arbitral award may challenge the award Under Section 34. [...] (Emphasis supplied) 81. In Union of India v. Pradeep Vinod Construction Co. reported in 2019: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eview by the court for determining whether an arbitration agreement is in existence. Section 8 states that the judicial review at the stage of reference is prima facie and not final. Prima facie standard equally applies when the power of judicial review is exercised by the court Under Section 11 of the Arbitration Act. Therefore, we can read the mandate of valid arbitration agreement in Section 8 into mandate of Section 11, that is, existence of an arbitration agreement . 147.6. Exercise of power of prima facie judicial review of existence as including validity is justified as a court is the first forum that examines and decides the request for the referral. Absolute hands off approach would be counterproductive and harm arbitration, as an alternative dispute resolution mechanism. Limited, yet effective intervention is acceptable as it does not obstruct but effectuates arbitration. 147.7. Exercise of the limited prima facie review does not in any way interfere with the principle of competence- competence and separation as to obstruct arbitration proceedings but ensures that vexatious and frivolous matters get over at the initial stage. 147.8. Exercise of prima facie power of judici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itrator to resolve the issues that have arisen. (Emphasis supplied) 84. Speaking in the specific context of limitation and accord and satisfaction , this Court in Vidya Drolia (supra) held that the procedural and factual disputes, like the one in the present litigation, should be left for the arbitrator to decide, who in turn, would be guided by the facts as determined by him and the law applicable. However, while re-iterating the position established in Mayavati Trading (supra), i.e., the principal of minimal interference at the stage of Section 11(6) petitions by referral courts in light of the introduction of Section 11(6-A) to the Act, 1996, this Court in Vidya Drolia (supra) carved out an exceptional category of cases in which interference by the referral court was permissible thus: 154.1. Ratio of the decision in Patel Engg. Ltd. [SBP Co. v. Patel Engg. Ltd., 2005:INSC:526 : (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 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... INSC:524 : (2021) 16 SCC 743 wherein it was held that the prima facie review as laid down in Vidya Drolia (supra), in exceptional cases, warrants interference by the court to protect the wastage of public money. 21. The jurisdiction of this Court Under Section 11 is primarily to find out whether there exists a written agreement between the parties for resolution of disputes through arbitration and whether the aggrieved party has made out a prima facie arbitrable case. The limited jurisdiction, however, does not denude this Court of its judicial function to look beyond the bare existence of an arbitration Clause to cut the deadwood. A three-Judge Bench in Vidya Drolia [Vidya Drolia v. Durga Trading Corporation, 2020:INSC:697 : (2021) 2 SCC 1, paras 236, 237, 244.3, 244.4, 244.5, 244.5.1-244.5.3 : (2021) 1 SCC (Civ) 549], has eloquently clarified that this Court, with a view to prevent wastage of public and private resources, may conduct prima facie review at the stage of reference to weed out any frivolous or vexatious claims. 87. In BSNL v. Nortel Networks (India) (P) Ltd., reported in 2021:INSC:175 : (2021) 5 SCC 738, this Court explained the scope of primary examination regarding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat such an aspect with regard to accord and satisfaction of the claims may/can be considered by the Court at the stage of deciding Section 11 application, it is always advisable and appropriate that in cases of debatable and disputable facts, good reasonably arguable case, the same should be left to the Arbitral Tribunal. Similar view is expressed by this Court in Vidya Drolia [Vidya Drolia v. Durga Trading Corporation, 2020:INSC:697 : (2021) 2 SCC 1: (2021) 1 SCC (Civ) 549]. 91. Therefore, in the facts and circumstances of the case, though it is specifically observed and held that aspects with regard to accord and satisfaction of the claims can be considered by the Court at the stage of deciding Section 11(6) application, in the facts and circumstances of the case, the High Court has not committed any error in observing that aspects with regard to accord and satisfaction of the claims or where there is a serious dispute will have to be left to the Arbitral Tribunal. 92. However, at the same time, we do not agree with the conclusion arrived at by the High Court that after the insertion of Sub-section (6-A) in Section 11 of the Arbitration Act, scope of inquiry by the Court in Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Act, 1996 and the introduction of Section 11(6-A). Thus, in our view, the intention of this Court in Vidya Drolia (supra) was not to hold that despite the 2015 amendment, the position regarding accord and satisfaction would continue to be one which was taken in Boghara Polyfab (supra). Vidya Drolia (supra) only went a step ahead from the position in Mayavati Trading (supra) to create an exception that although the Rule is to refer all questions of accord and satisfaction to the arbitral tribunal, yet in exceptional cases and in the interest of expediency, ex facie meritless claims could be struck down. 90. In NTPC Ltd. v. SPML Infra Ltd. reported in 2023:INSC:334 : (2023) 9 SCC 385, a two-Judge Bench of this Court was again faced with the issue of accord and satisfaction in the context of a Section 11 petition for appointment of arbitrator. Placing reliance on Vidya Drolia (supra), this Court gave the Eye of the Needle test to delineate the contours of the power of interference which the referral court may exercise Under Section 11 of the Act, 1996. The first prong of the said test requires the court to examine the validity and existence of the arbitration agreement which inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nheres 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 v. Durga Trading Corporation, 2020:INSC:697 : (2021) 2 SCC 1, para 154.4: (2021) 1 SCC (Civ) 549] [...] 27. The standard of scrutiny to examine the non-arbitrability of a claim is only prima facie. Referral Courts must not undertake a full review of the contested facts; they must only be confined to a primary first review [Vidya Drolia v. Durga Trading Corporation, 2020:INSC:697 : (2021) 2 SCC 1, para 134: (2021) 1 SCC (Civ) 549] and let facts speak fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ajapura Homes (P) Ltd., 2021:INSC:524 : (2021) 16 SCC 743, paras 22, 26: paras 18, 20] 92. The position that emerges from the aforesaid discussion of law on the subject as undertaken by us can be summarised as follows: i. There were two conflicting views which occupied the field under the Arbitration Act, 1940. While the decisions in Damodar Valley (supra) and Amar Nath (supra) took the view that the disputes pertaining to accord and satisfaction should be left to the arbitrator to decide, the view taken in P.K. Ramaiah (supra) and Nathani Steels (supra) was that once a full and final settlement is entered into between the parties, no arbitrable disputes subsist and therefore reference to arbitration must not be allowed. ii. Under the Act, 1996, the power Under Section 11 was characterised as an administrative one as acknowledged in the decision in Konkan Railway (supra) and this continued till the decision of a seven-Judge Bench in SBP Co. (supra) overruled it and significantly expanded the scope of judicial interference Under Sections 8 and 11 respectively of the Act, 1996. The decision in Jayesh Engineering (supra) adopted this approach in the context of accord and satisfaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the disputes to arbitration. This view, however, was overruled in Mayavati Trading (supra) which reiterated the view taken in Duro Felguera (supra) and held that post the 2015 amendment to the Act, 1996, it was no more open to the Court while exercising its power Under Section 11 of the Act, 1996 to go into the question of whether accord and satisfaction had taken place. vi. The decision in Vidya Drolia (supra) although adopted the view taken in Mayawati Trading (supra) yet it provided that in exceptional cases, where it was manifest that the claims were ex- facie time barred and deadwood, the Court could interfere and refuse reference to arbitration. Recently, this view in the context of accord and satisfaction was adopted in NTPC v. SPML (supra) wherein the eye of the needle test was elaborated. It permits the referral court to reject arbitration in such exceptional cases where the plea of fraud or coercion appears to be ex-facie frivolous and devoid of merit. 93. Thus, the position after the decisions in Mayavati Trading (supra) and Vidya Drolia (supra) is that ordinarily, the Court while acting in exercise of its powers Under Section 11 of the Act, 1996, will only look into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent underlying the Arbitration Act. 186. The purpose of vesting courts with certain powers Under Sections 8 and 11 of the Arbitration Act is to facilitate and enable arbitration as well as to ensure that parties comply with arbitration agreements. The disputes which have arisen between them remain the domain of the arbitral tribunal (subject to the scope of its jurisdiction as defined by the arbitration clause). The exercise of the jurisdiction of the courts of the country over the substantive dispute between the parties is only possible at two stages: a. If an application for interim measures is filed Under Section 9 of the Arbitration Act; or b. If the award is challenged Under Section 34. Issues which concern the payment of stamp-duty fall within the remit of the arbitral tribunal. The discussion in the preceding segments also make it evident that courts are not required to deal with the issue of stamping at the stage of granting interim measures Under Section 9. (Emphasis supplied) 95. We would like to analyse and elaborate some of the observations from the aforesaid decision which are highly pertinent to the dispute at hand. a. Arbitral Autonomy 96. The principle of judicial n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween themselves, in a manner which they structure, are the exercise of basic rights of liberty, association and property and a bulwark against governmental oppression. Gary B. Born, Internation Commercial Arbitration, 3rd Ed. (2021), pp. 696 100. In Hayter v. Nelson reported in [1990] 2 Lloyd's Rep. 265, 272, it was observed that the modern view in line with the basic principles of the English law of freedom of contract and indeed International Conventions is that there is no good reason why the Courts should strive to take matters out of the hands of the tribunal into which the parties have by agreement undertaken to place them . b. Negative Competence-Competence 101. Section 16 of the Act, 1996 recognises the doctrine of competence- competence and empowers the arbitral tribunal to Rule on its own jurisdiction. The policy consideration for the same is, firstly, to recognise the intention of the parties in choosing arbitration as the method for resolving the disputes arising out of the contract and secondly, to prevent the parties from initiating parallel proceedings before courts and delaying the arbitral process. 102. The negative aspect of competence-competence is aimed at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . App. 2003) wherein arbitrators were given the power to decide regarding whether a settlement agreement was reached replacing or canceling original agreement. 106. In Howsam v. Dean Witter Reynolds, Inc. reported in 537 U.S. 79, 84 (U.S.S. Ct. 2002), it was observed by the US Supreme Court that the presumption is that the arbitrator should decide allegation[s] of waiver, delay, or alike defense to arbitrability. c. Judicial Interference under the Act, 1996 107. The parties have been conferred with the power to decide and agree on the procedure to be adopted for appointing arbitrators. In cases where the agreed upon procedure fails, the courts have been vested with the power to appoint arbitrators upon the request of a party, to resolve the deadlock between the parties in appointing the arbitrators. 108. Section 11 of the Act, 1996 is provided to give effect to the mutual intention of the parties to settle their disputes by arbitration in situations where the parties fail to appoint an arbitrator(s). The parameters of judicial review laid down for Section 8 differ from those prescribed for Section 11. The view taken in SBP Co. (supra) and affirmed in Vidya Drolia (supra) that Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l or the court enforcing the arbitral award. 112. The aforesaid approach serves a two-fold purpose - firstly, it allows the referral court to weed out non-existent arbitration agreements, and secondly, it protects the jurisdictional competence of the arbitral tribunal to Rule on the issue of existence of the arbitration agreement in depth. 113. Referring to the Statement of Objects and Reasons of the Arbitration and Conciliation (Amendment) Act, 2015, it was observed in In Re: Interplay (supra) that the High Court and the Supreme Court at the stage of appointment of arbitrator shall examine the existence of a prima facie arbitration agreement and not any other issues. The relevant observations are extracted hereinbelow: 209. The above extract indicates that the Supreme Court or High Court at the stage of the appointment of an arbitrator shall examine the existence of a prima facie arbitration agreement and not other issues . These other issues not only pertain to the validity of the arbitration agreement, but also include any other issues which are a consequence of unnecessary judicial interference in the arbitration proceedings. Accordingly, the other issues also include examinati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt is diluting the sanctity of accord and satisfaction or is allowing the claimant to walk back on its contractual undertaking. On the contrary, it ensures that the principal of arbitral autonomy is upheld and the legislative intent of minimum judicial interference in arbitral proceedings is given full effect. Once the arbitral tribunal is constituted, it is always open for the Defendant to raise the issue of accord and satisfaction before it, and only after such an objection is rejected by the arbitral tribunal, that the claims raised by the claimant can be adjudicated. 118. Tests like the eye of the needle and ex-facie meritless , although try to minimise the extent of judicial interference, yet they require the referral court to examine contested facts and appreciate prima facie evidence (however limited the scope of enquiry may be) and thus are not in conformity with the principles of modern arbitration which place arbitral autonomy and judicial non-interference on the highest pedestal. 119. Appointment of an arbitral tribunal at the stage of Section 11 petition also does not mean that the referral courts forego any scope of judicial review of the adjudication done by the arbit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 123. 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, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hopelessly time- barred? 128. On the first issue, it was observed by us that the Limitation Act, 1963 is applicable to the applications filed Under Section 11(6) of the Act, 1996. Further, we also held that it is the duty of the referral court to examine that the application Under Section 11(6) of the Act, 1996 is not barred by period of limitation as prescribed Under Article 137 of the Limitation Act, 1963, i.e., 3 years from the date when the right to apply accrues in favour of the applicant. To determine as to when the right to apply would accrue, we had observed in paragraph 56 of the said decision that the limitation period for filing a petition Under Section 11(6) of the Act, 1996 can only commence once a valid notice invoking arbitration has been sent by the applicant to the other party, and there has been a failure or refusal on part of that other party in complying with the requirements mentioned in such notice. 129. Insofar as the first issue is concerned, we are of the opinion that the observations made by us in Arif Azim (supra) do not require any clarification and should be construed as explained therein. 130. On the second issue it was observed by us in paragraph 67 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determination by the arbitrator. Such an approach gives true meaning to the legislative intention underlying Section 11(6-A) of the Act, and also to the view taken in In Re: Interplay (supra). 134. The observations made by us in Arif Azim (supra) are accordingly clarified. We need not mention that the effect of the aforesaid clarification is only to streamline the position of law, so as to bring it in conformity with the evolving principles of modern-day arbitration, and further to avoid the possibility of any conflict between the two decisions that may arise in future. These clarifications shall not be construed as affecting the verdict given by us in the facts of Arif Azim (supra), which shall be given full effect to notwithstanding the observations made herein. F. CONCLUSION 135. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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