Arbitration In IndiaA Mere assertion of fraud, duress or coercion is insufficient to challenge the Settlement Agreement under Section 34 of the Arbitration and Conciliation Act

The Hon’ble Delhi High Court in the case of Usha Bansal v. M/S Genesis Finance Co. Ltd. [O.M.P. (COMM) No:- 422/2023] And  Sanjeev Bansal v. M/S Genesis Finance Company Ltd., [O.M.P (COMM) No:- 473/2023], decided on  08.12.2023, held that a settlement agreement entered mutually by the parties cannot be challenged under Sec 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “A&C Act”) on the grounds of weak evidence of it being entered into by coercion or fraud.

 FACTS

M/S Genesis Finance Co. Ltd. (hereinafter referred to as “Respondent”) had granted loan facilities to Mrs. Usha Bansal (hereinafter referred to as “Petitioner No.1”) and Sanjeev Bansal (hereinafter referred to as “ Petitioner No.2” and collectively referred as “Petitioners”)  which was repayable along with the interest calculated at the rate of 24% p.a. as per the terms and conditions of the loan agreement dated 30.09.2015.

In order to secure the loan facility, an equitable mortgage was created by the Petitioners of their entire freehold built-up property, and the original title documents of the property were also deposited with the Respondent. On 29.10.2021, the Respondent sent a notice in order to recall the entire loan amount as well as the interest, whereby a total sum of Rs. 14,23,35,065/- as of the date was due.

The Petitioners had confirmed and acknowledged that as of 28.12.2021 their total liability in the loan account due towards the Respondent was Rs. 14,76,05,315/- (Rupees Fourteen Crores Seventy-Six Lakhs Five Thousand Three Hundred and Fifteen) and the Petitioners had offered to pay Rs. 7,00,00,000/ (Rupees Seven Crores Only) by 28.12.2022 with an interest at the rate of 24% per annum as per MOU dated 28.12.2021 for the release of their property which was attached as mortgage to secure the loan.  The Respondent therefore agreed to release the original title documents of the property attached upon the receipt of the total sum of INR 7 Crores by 28.02.2022.

However, due to the failure of Petitioners to make the payment,  the Respondent filed an application dated 18.01.2022 in the prescribed format of Schedule I of the Commercial Courts (Pre-Institution Mediation & Settlement) Rules, 2018 which was referred to Delhi High Court Mediation and Conciliation Centre, Delhi High Court, New Delhi.

Various mediation sessions were held between the parties and both the parties constructively participated in the process of mediation for an amicable resolution of their dispute.

Through, the mediation proceedings, another settlement agreement dated 14.03.2022 (hereinafter referred to as the “impugned settlement agreement” )was entered between the parties wherein it was decided that the Petitioners would pay Rs. 7 Crores along with interest at the rate of 14% p.a. in the manner prescribed in the settlement agreement.

It was also mentioned in the settlement agreement that the dispute falls with the Commercial Courts Act, 2015 (hereinafter referred to as “CC Act”) and parties have arrived at the settlement and given their consent that the same be considered an Arbitral Award in agreed terms under sub-section (4) of section 30 of the A&C Act and section 12(a) clause (4) and clause (5) of CC Act. The said settlement agreement was signed by  Petitioner No.1 on behalf of Petitioner No.2, under coercion.

Thus, the present Petitions were filed under Section 34 of the Act ) in order to challenge the impugned settlement agreement.

ISSUES BEFORE THE DELHI HIGH COURT

• Whether the present Petitions have been filed within the period of limitation?
• Whether the impugned settlement agreement warrant interference in the exercise of the jurisdiction under Section 34 of the A&C Act?
• Whether there is any coercion, fraud, or duress caused to the Petitioner by the Respondent?

CONTENTIONS OF THE PARTIES

Petitioner No.1 admitted  that he had  signed the impugned settlement agreement whereas the Petitioner No.2  has averred that she had neither signed the impugned settlement agreement nor  had authorized , Petitioner No.1  to sign on her behalf.

Moreover, it was contended that the parties have not received the copy of the impugned settlement agreement and further they came to know of the same when they received a copy of the execution Petition filed by the Respondent.

It was contended by the Petitioners that the impugned settlement agreement was signed by the Petitioners under “undue influence and coercion” by the Respondent  relying on the communication dated 17.05.2021 which was addressed by the Respondent to the Petitioners and the total amount payable by the petitioners was Rs. 3,87,90,299/- Henceforth, it was contended that  the impugned settlement agreement fails to acknowledge the significant escalation of the liability from Rs. 3,87,90,299/- to Rs. 14,23,35,065/- within a period of five-months.

Moreover, the Petitioners alleged that the interest rate stipulated in the impugned settlement agreement is unreasonably high and that the learned Mediator acted in an illegal and mala fide manner by simply recording the terms and conditions sent by the Respondent.

The Respondents on the other hand have argued that petitioner no.1  has not denied that the email id from which the communications were made by her husband regarding the settlement agreement  belongs to her and that  an authority letter was sent from the same email id and it contained her signature.

The said email clearly records the authorisation of petitioner No.1 in favour of her husband to appear, to represent, to act and to sign on her behalf for the purpose of proposed settlement with the respondent.

It has been contended that Petitioner No.1  was very well aware of the ongoing mediation proceedings and that an email was duly sent to the Delhi High Court Mediation and Conciliation Centre intimating that Petitioner No.2  was duly authorised to represent her in the mediation proceedings and that the plea of petitioner no.1 to completely deny any knowledge of settlement proceedings cannot be accepted.

DECISION AND FINDINGS

The  High Court denied the contention of Petitioner No.1   that she was not aware that the impugned settlement agreement was baseless and not found to be true.

The Hon’ble High Court pointed out that emails record the authorization of Petitioner No.1 in favor of Petitioner 2 to appear, to represent,  act, and to sign on her behalf for the purpose of an impugned settlement agreement with the Respondent.

The Hon’ble High Court further held that after giving the benefit of the doubt regarding the limitation issue, no merit lies in the argument put forth by the Petitioners that the impugned settlement agreement is tainted by fraud, coercion, etc., and/or that the mediator was negligent in conducting the mediation proceedings.

Thus the Hon’ble Delhi High Court held that the lack of credible evidence supporting the plea of fraud, coercion or duress affirms the binding nature of the impugned settlement agreement. Moreover, an objective reading of the impugned settlement agreement reveals that the parties had free consent and mutual intention to establish a final binding contract. Accordingly, the court dismissed the Petitions.

AMLEGALS REMARKS

The Honourable Delhi High Court in the present case has upheld the validity of the Settlement Agreement done between the parties through mediation. The court has held that a bare plea of petitioners that they have entered into the settlement agreement through fraud and coercion cannot be justified if they lack proper evidence and has insufficient grounds to address it under A&C Act 1996.

The court clarified the parameters for challenging Settlement Agreements. Settlements based on amicable grounds like mediation and conciliation cannot be challenged on any malicious grounds. The court, in its analysis, emphasized the binding nature of settlements entered voluntarily, rejecting the baseless claims of coercion and fraud.  This judgement reaffirms the enforceability of Alternative Dispute measures that should be adhered to reduce the burden of the courts.

-Team AMLEGALS, assisted by Ms. Yagya Moolchandani (Intern)

For any query or feedback, please feel free to get in touch with rohit.lalwani@amlegals.com or himanshi.patwa@amlegals.com