The Bombay High Court in the case of Vishwajit Sud & Co. v. L&T Stec JV, Mumbai, [Arbitration Application no. 295 of 2021 decided on 26.07.2022], held that a dispute under contract discharged by settlement cannot be referred to Arbitration.
Two Sub-Contract Agreements were executed between Vishwajit Sud & Co. (hereinafter referred to as the “Applicant”) and L & T Stec JV, Mumbai (hereinafter referred to as the “Respondent”) dated 10.08.2017 and 22.09.2018, wherein the Applicant was appointed as sub-contractors for work of excavation.
The Applicant’s primary work under the sub-contract was completed and the amounts under the sub-contract became due and payable to the Applicant. However, the Respondent refused to make payment of such amounts.
According to the Applicant, the Respondent coerced the Applicant to agree to the settlement terms for release of payment, and forced the Applicant to sign the unilaterally drafted Minutes of the Meeting on 21.05.2021. Even after the Applicant signed the said Minutes of the Meeting, the Respondent did not release the payment.
Aggrieved, the Applicant invoked the Arbitration Agreement through Notice on 25.06.2021 and called upon the Respondent to appoint an Arbitral Tribunal. The Applicant thereafter sent a letter of unconditional withdrawal of Notice invoking Arbitration on 02.07.2021.
The Applicant further demanded its due payment from the Respondent through emails dated 15.08.2021 and 23.09.2021. The Applicant again invoked the Arbitration Agreement through Notice dated 18.10.2021 calling upon the Respondent to appoint an Arbitral Tribunal.
The Respondent responded to the Notice invoking Arbitration through its Letter dated 15.11.2021, denying the claims of the Applicant and stating that the payments would be governed by the terms of the Settlement Agreement. Subsequently, no payments were made by the Respondent, nor was the Arbitral Tribunal appointed.
Hence, the present application has been filed by the Applicant under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the “Act”) for the appointment of Arbitral Tribunal.
ISSUE BEFORE THE HIGH COURT
Whether the resolution of a dispute by Settlement Agreement excludes the arbitrability of the dispute?
CONTENTIONS OF THE PARTIES
The Applicant submitted that there already existed a valid Arbitration Agreement, which was invoked by the Applicant. The Applicant argued that the question relating to the accord and satisfaction or existence of settlement between the parties had to be adjudicated by the Arbitral Tribunal.
The Respondent primarily contended that the parties had entered into a Settlement Agreement on 02.07.2021, and all the disputes in regard to the sub-contract were put to an end. The Respondent argued that the Applicant had not supressed these facts and thus, did not come to the Court with clean hands. Further, the Respondent denied the existence of the Arbitration Agreement after the Settlement Agreement was already entered into for settlement of claims arising from the sub-contract.
The Respondent submitted that the Applicant’s pleading of coercion or duress is ex-facie and patently untenable, as the settlement had been arrived at between the parties through mutual negotiations of amicable resolution of the claims, and that the Applicant had signed and entered into the Settlement Agreement out of their free will and volition.
DECISION AND FINDINGS
The High Court observed that both the parties were persons of commerce who were acquainted with the contractual terms and conditions, and also the consequences of their actions within commercial contracts.
The High Court opined that it was quite clear that the parties had agreed to settlement through the Settlement Agreement formed on 31.10.2020, and signed on 21.05.2021. The High Court noted that the Notice invoking Arbitration dated 25.06.2021 sent by the Applicant stated that the settlement amount was not appropriate, but in the Letter of the Applicant dated 02.07.2021 withdrawing the Notice invoking Arbitration, the Applicant stated that Settlement Agreement was conclusive and the dispute stood amicably settled.
The High Court observed that the Settlement Agreement was a valid document executed on a stamp paper, and that the Letter of the Applicant dated 02.07.2021 stated it purported to withdraw the Notice invoking Arbitration in complete sound mind and without any coercion or duress.
Thus, the High Court held that the Settlement Agreement was of accord and satisfaction between the parties. The High Court relied on the decision in Union of India v. Kishorilal Gupta and Bros. [AIR 1959 SC 1362] and held that when there is accord and satisfaction between the parties, the Arbitration Clause will perish from the original contract.
The High Court further relied on the case of Union of India & Ors. v. Onkar Nath Bhalla & Sons [(2009) 7 SCC 350], where the Supreme Court held that the Arbitrator cannot be appointed when there is accord and satisfaction between the parties. Reliance was also placed on the decision in ONGC Manglore Petrochemicals Ltd. v. ANS Constructions Ltd. & Anr. [(2018) 3 SCC 373], where the Supreme Court held that the High Court cannot appoint an Arbitrator when a full and final settlement already existed between the parties.
The High Court cited the case of Vidya Drolia & Ors. v. Durga Trading Corporation [(2021) 2 SCC 1],where the Supreme Court had held that in a dispute where there is accord and satisfaction and no claim certificate has been issued, it need not be referred to Arbitration.
The High Court held that there was a valid Settlement Agreement between the parties and there was no fraud, coercion, undue influence or duress by the Respondent. The High Court observed that the claims of the Applicant were false and ingenuine, and hence, the matter cannot be arbitrated due to accord and satisfaction of terms of the Settlement Agreement. Thus, the High Court dismissed the Application.
In the present decision, the High Court noted that as the dispute was already settled by the way of a Settlement Agreement, the parties could later invoke the Arbitration Clause under the main contract. The High Court relied upon the Applicant’s Letter dated 02.07.2021, wherein the Applicant had itself stated that the dispute was amicably settled and that Applicant had entered into the Settlement Agreement without any coercion or duress.
Thus, when the Applicant had itself accepted the Settlement Agreement and the payments stipulated thereof, and also waived off the right to raise any claim/dispute or undertake any legal proceedings in future with regards to the main contract, the Applicant cannot at a later stage seek to invoke Arbitration for a dispute arising from the main contract.
-Team AMLEGALS, assisted by Mr. Rishav Kumar (Intern)
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