[Cites 25, Cited by 0]
Bombay High Court
Mumbai Metro One Private Limited vs Hindustan Construction Company on 18 December, 2025
Author: Abhay Ahuja
Bench: Abhay Ahuja
2025:BHC-OS:25300
13.IA-1969-2025.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
Digitally signed
by KANCHAN IN ITS COMMERCIAL DIVISION
KANCHAN PRASHANT
PRASHANT DHURI
DHURI Date:
2025.12.18
20:02:37 +0530
INTERIM APPLICATION NO. 1969 OF 2025
IN
COMMERCIAL SUMMARY SUIT NO. 3 OF 2025
Mumbai Metro One Private Limited ... Applicant
In the matter between:
Hindustan Construction Company ...Plaintiff
Versus
Mumbai Metro One Private Limited ...Defendant
Mr. Karl Tamboly a/w Mr. Tushad Kakatiya a/w Mr. Paresh Patkar, Mr.
Kartik Hede, Mr. Ayaan Zariwalla and Ms. Bhakti Chandan i/b Mulla
and Mulla & CBC, Advocate for the Applicant/Defendant.
Mr. Shanay Shah a/w Ms. Viloma Shah a/w Mr. Ativ Patel & Mr.
Harshad Vyas i/b. AVP Partners, Advocate for the Respondent/Plaintiff.
CORAM : ABHAY AHUJA, J.
RESERVED ON : 10th OCTOBER 2025
PRONOUNCED ON : 18th DECEMBER 2025
ORDER. :-
1. This Interim Application has been filed by the Defendant seeking
to refer the suit to Arbitration under Section 8 of the Arbitration and
Conciliation Act, 1996 and accordingly dispose of Commercial
Summary Suit No. 3 of 2025.
2. The background facts leading to the filing of this application has
been stated in the Application as under:
13.IA-1969-2025.doc
2.1 The Applicant is a private limited company and statedly is
operator/concessionaire of Mumbai Metro Line - 1 project, operating
between Versova, Andheri and Ghatkopar in Mumbai. The Respondent
is a company operating inter alia in the infrastructure and construction
sector.
2.2 The Applicant appointed the Respondent as a contractor to
execute various works in respect of the Mumbai Metro Line - 1 project
(between Versova - Andheri - Ghatkopar). Thereafter parties entered
into a contract agreement dated 16th August 2010 (the "Contract")
which set out the terms and conditions between the parties. The Clause
19.7 of the said contract provided for reference to arbitration. The said
clause is reproduced as under:
19. CLAIMS, DISPUTES, CONCILIATION AND
ARBITRATION
19.1 ...
......
19.7 If the efforts to resolve all or any of the disputes,
differences or controversy through negotiation fail,
then such disputes or differences, whatsoever arising
between the Parties, arising out of or relating to
construction, measuring, operation or effect of the
Contract or the breach thereof shall be referred to
arbitration in accordance with the following
provisions:
13.IA-1969-2025.doc
(a) Matters to be arbitrated upon shall be referred
to a sole arbitrator if the total value of the claim is
upto Rupees ten (10) million and to a panel of three
(3) arbitrators if total value of claims is more than
Rs.10 million. The sole arbitrator shall be appointed
mutually by the Parties and in case the Parties fail to
agree on the sole arbitrator, then the sole arbitrator
shall be appointed in accordance with the provisions
of the Arbitration and Conciliation Act, 1996. In the
arbitration panel each Party shall nominate one (1)
arbitrator each and the third arbitrator shall be chosen
by the two (2) arbitrators nominated by the Parties.
The arbitrator(s) shall be appointed within a period of
thirty (30) days from the date of receipt of written
notice/demand of appointment of arbitrator from
either Party.
(b) The arbitration proceedings shall be held in
Mumbai. The language of proceedings, documents
and communication shall be English.
(c) The award of the sole arbitrator or the award by
majority of three arbitrators as the case may be shall
be binding on all Parties."
2.3 It is submitted that during the course of the works, disputes arose
regarding certain performance bank guarantees furnished by the
Respondent under the Contract. In view of the aforesaid arbitration
clause, the Respondent preferred an application under Section 9 of the
Arbitration and Conciliation Act, 1996 (the "Arbitration Act") whereby
inter alia release of performance bank guarantees was sought.
13.IA-1969-2025.doc
2.4 During the pendency of the said application the parties entered
into a Settlement Agreement dated 28th March 2024 ( the "Settlement
Agreement") whereby the Applicant agreed to return the performance
bank guarantees furnished by the Respondent and pay a sum of
Rs.9,00,00,000 (Rupees Nine Crores Only) to the Respondent towards
full and final settlement of the disputes between the parties.
2.5 It is submitted that the Applicant returned the performance bank
guarantees to the Respondent as well as issued the final taking-over
certificates. The Application under Section 9 of the Act was disposed of
as infructuous with liberty to the Plaintiff to adopt appropriate
proceedings to recover the amount of Rs. 9 Crores in terms of the
Settlement Agreement.
2.6 It is submitted that the Applicant was in financial difficulty due
to which the amount of Rs. 9 Crores under the Settlement Agreement
remained unpaid. In view of the same, the Respondent on 1 st March
2025 filed the Commercial Summary Suit on the basis of the Settlement
Agreement towards the settlement of its outstanding dues.
13.IA-1969-2025.doc
2.7 It is submitted on behalf of the Applicant that the Settlement
Agreement was executed in furtherance of the Contract, and in view of
obligations arising there under, as well as Work Orders bearing
numbers 23534303, 23523192 and 2523272. Accordingly, any disputes
arising under the Settlement Agreement would also be required to be
settled by way of Arbitration.
3. The Respondent/Plaintiff objects to the grant of any reliefs in the
Application on the ground that Settlement Agreement has superseded
the Contract and that being so, the Contract no longer exists. It is
further stated that there is no arbitration clause in the Settlement
Agreement and on this ground alone, this Application ought to be
dismissed.
4. Further it is submitted that Article 2 of the Settlement Agreement
provides the governing law and a jurisdiction clause which expressly
omits the arbitration clause and only provides for courts at Mumbai to
have jurisdiction over the subject matter thereof.
5. In rejoinder, the Applicant has submitted that the Settlement
Agreement, in the absence of express written intent, could not have
13.IA-1969-2025.doc
superseded the Contract, and the arbitration clause contained therein
applies to the disputes arising out of the Settlement Agreement as well.
It is further stated that the arbitration clauses contained in a contract
are separate and autonomous, and survive even after the termination of
the main contract.
6. Mr. Karl Tamboly, Learned Counsel appearing for the Applicant
has submitted that the reference under Section 8 would be necessitated
in view of the Arbitration Clause contained in the contract agreement
dated 16th August 2010.
7. Mr. Tamboly, has submitted that the recitals of the Settlement
Agreement more particularly Recital E make it expressly clear that it
arises in furtherance of the Contract and the Work Orders, and is
therefore intrinsically linked to the same. The said recital contained in
the Settlement Agreement is usefully reproduced as under:
"E. Further the Employer and the Contractor have jointly
reconciled the total amounts that are due and payable to
the Contractor under the Contract and WO and the Parties
have agreed that the total amount, due and payable to the
Contractor by the Employer under the Contract and WO,
towards, full and final settlement, is Rs.9,00,00,000/-
(Rupees Nine Crores Only) ("Settlement Amount"), as per
the details given in Annexure-1."
13.IA-1969-2025.doc
8. Next, Mr. Tamboly had drawn this Court's attention to the
Contract Agreement dated 16th August 2010, Clause 1 of the Agreement
which states the following documents constitute the Contract (a) Work
Order dated July, 2010 (b) Contract Agreement dated August, 2010, (c)
Schedules to the Contract Agreement dated August 2010, (d)
Conditions of Contract signed on August 2010, (e) Schedules to the
Conditions of Contract dated August 2010, (f) Employer's
Requirements - Drawings, (g) Employer's Requirements - Technical
Specifications (including Appendices) signed on August, 2010; (h)
Employer's Requirements - General Specifications (including
Appendices) signed on August 2010; (i) Other Tender Documents; and
(j) Tender.
9. Learned Counsel would submit that the Clause 1.1.18 and Clause
1.1.19 which defines "Contract" and the "Contract Agreement" which is
reproduced as under:-
"1.1.18 "Contract" means the agreement between the
Employer and the Contractor for the Execution of the
Works, including the Work Order, the Contract
Agreement, the Conditions of Contract, the Schedules,
the Employer's Requirements, the Tender, Other
Tender Documents and such further documents which
are listed in the Contract Agreement and includes any
amendment thereto made in accordance with the
13.IA-1969-2025.doc
provisions hereof.
1.1.19 "Contract Agreement" means the agreement
entered into by the Parties along with the Pricing
Document and scope of Works and includes any
amendment thereto made in accordance with the
provisions hereof."
10. Mr. Tamboly has also taken this Court through the Clause 19 to
the Contract which provides for Claims, Disputes and Arbitration,
clause 19.1 which sets out the procedure for claims and particularly
clause 19.1(f) which is reproduced as under :
"19.1 (f) Notwithstanding anything contained in the
Contract, the Employer shall not be liable for any claim for
any matter, arising out of or in connection with the Contract
or the Execution of the Works, unless the Contractor shall
have given a notice to the Employer in respect thereof, in
writing, within sixty (60) days from the date of issuance of
the Final Taking Over Certificate. It is clarified for the
avoidance of doubt for any such claim under this Clause
19.1(f), the Contractor shall still be required to comply with
the procedure set out under Clause 19.1(a) to 19.1(e)."
11. Mr. Tamboly has submitted that Settlement Agreement was
executed in furtherance of the Contract and Work Orders, and as the
Contract contains a provision for the settlement of disputes through
arbitration, in Clause 19.7 thereof accordingly this dispute arising
under the Settlement Agreement would also be required to be settled
13.IA-1969-2025.doc
by way of arbitration. Learned Counsel would submit that the
arbitration agreement contained in Clause 19.7 is wide enough to cover
the dispute raised by the Respondent which arises out of the original
contract.
12. Mr. Tamboly has submitted that the Settlement Agreement does
not operate to supersede and / or override the Contract, the principle
that an arbitration agreement is separate and severable from the main
contract is now settled law, and is statutorily recognized under Section
16(1) of the Arbitration Act. It is only in cases where the main contract
is alleged to be void, illegal, or executed under fraudulent
circumstances, that the arbitration agreement also ceases to hold force.
Mr. Tamboly has relied upon the decision of the Hon'ble Supreme Court
in Interplay between Arbitration Agreements under Arbitration and
Conciliation Act, 1996 and Stamp Act, 1899 In re, 1 in support of his
contention.
13. It is submitted therefore that the reliefs as sought for in this
Application be granted.
14. On the other hand, Mr. Shanay Shah, Learned Counsel for the
Respondent has opposed the Application and would submit that this
(2024) 6 SCC 1
13.IA-1969-2025.doc
application is nothing but merely an attempt to derail the entire
proceedings. Mr. Shah would submit that it is an admitted fact that the
Defendant has failed and neglected to pay the admitted amount of Rs.
9 Crores as the execution of the Settlement Agreement is not disputed.
That there is an explicit admission of liability and this application
proceeds on an erroneous basis.
15. Mr. Shah, has submitted that a bare perusal of the Settlement
Agreement will make it evident that the Contract has been
superseded/novated/abrogated by the Settlement Agreement. Mr. Shah
would submit that the same is evident from Article 5(i) and Article 5(ii)
of the Settlement Agreement which is reproduced as under:
"ARTICLE 5 MISCELLANEOUS
The Employer and the Contractor agree that the
obligations as listed in Article 1 hereto are the full
and final obligations to be performed by
either/both of the Parties.
This Settlement Agreement supersedes any/all
consideration, contemporaneous negotiations,
understanding and agreement, whether written or
oral, agreed upon by the Parties."
16. Mr. Shah has submitted that therefore in light of the Article 5 (i)
and (ii) the arbitration agreement contained in the Contract can have
no nexus to the Settlement Agreement.
13.IA-1969-2025.doc
17. Mr. Shah has also submitted that the Article 2 of the Settlement
Agreement sets out the governing law and jurisdiction wherein it is
categorically mentioned that this Settlement Agreement shall be
governed and construed in accordance with the laws of India and
courts of Mumbai will have exclusive jurisdiction. That as the
Settlement Agreement is silent on arbitration and as there is novation
of contract and the previous contract does not survive the claim for
non-payment of outstanding dues under the Settlement Agreement is
not arbitrable.
18. Mr. Shah would draw this Court's attention to the Order dated
24th September 2024 passed in the Commercial Arbitration Petition (L)
No. 34225 of 2023 and submit that the order records the categorical
admission of the Applicant/ Defendant that it is in fact liable to pay the
outstanding amount of Rs. 9 Crores and provided liberty to the Plaintiff
to adopt appropriate proceedings to recover the admitted amount of
Rs. 9 Crores. Mr Shah, would submit that if at all the arbitration clause
contained in the Contract also applied to the Settlement Agreement,
the observations made in the Order dated 24 th September 2024 would
never have been made.
13.IA-1969-2025.doc
19. Mr. Shah would submit that after the Section 9 Petition was
disposed of, the Plaintiff addressed a legal notice calling upon the
Defendant to pay a sum of Rs. 9 Crores along with interest at the rate
of 18% a within a period of 14 days. Mr. Shah would draw attention of
this Court to the response of the Applicant/Defendant dated 3 rd January
2025 wherein the Applicant/Defendant has categorically admitted its
obligations under the Settlement Agreement and requested for a few
months time from the Respondent/Plaintiff. Mr. Shah would submit
that even in this response the Applicant/Defendant has admitted its
liability.
20. Mr. Shah would place reliance on the decision of the Delhi High
Court in the case of Larsen and Toubro Limited v. Ireo Victory Valley
Private Limited2 submitting that the facts of this case are identical to
the present application wherein the Court was dealing with a similar
question of the survival of the arbitration clause in a contract after the
contract is superseded by the execution of Settlement Agreement and
submitted that if a mutual settlement supersedes the original contract,
the original arbitration clause would not survive. Mr. Shah would
submit that therefore in light of this decision this Court ought not to
refer the dispute to arbitration.
2024 SCC OnLine Del 2882
13.IA-1969-2025.doc
21. Mr. Shah has submitted that the findings of the Hon'ble Supreme
Court in Interplay between Arbitration Agreements under Arbitration
and Conciliation Act, 1996 and Stamp Act, 1899 In re(supra) do not
disturb the settled position of law namely that if the parties put an end
to a validly executed contract, the arbitration clause of the original
contract also perishes with it and has relied on the decision of this
Court in the case of BKS Galaxy Realtors LLP v. Sharp Properties and
Others.3
22. Mr. Shah has submitted that a reference under Section 8 of the
Arbitration Act as sought by the Applicant can only be made only if the
matter in an action is also subject matter of Arbitration Agreement, and
therefore this Court is required to ascertain whether the action in
present Suit is also subject matter of Arbitration and has relied on the
decision of this Court in the case of Capri Global Capital Limited v.
M/s. Divya Enterprise and Others4 in support. Mr. Shah has further
submitted that the Hon'ble Supreme Court in the decision of Zenith
Drugs & Allied Agencies Pvt Ltd. v. Nicholas Piramal India Limited 5 has
laid down the following conditions to be satisfied for referring the
2024 SCC OnLine Bom 3514
2025: BHC-OS:18363
(2020) 17 SCC 419
13.IA-1969-2025.doc
parties to arbitration under Section 8 of the Act:-
(i) there is an arbitration agreement
(ii) a party to the agreement brings an action in the court against
the other party;
(iii) subject matter of the action is the same as the subject matter
of the arbitration agreement
(iv) the opposite party applies to the judicial authority for
referring the parties to arbitration before it submits his first
statement on the substance of the dispute.
23. Mr. Shah has submitted that the present summary suit as clearly
stated in paragraphs 69, 70 and the prayers in the Plaint has been filed
under Order XXXVII of the Code of Civil Procedure, 1908 ("CPC") on
the basis of the Settlement Agreement and the subsequent default of
the Defendant to repay the admitted amounts in terms of the
Settlement Agreement and therefore the dispute between the parties is
not an arbitrable dispute as the Settlement Agreement having an
independent governing law and jurisdiction clause which expressly
omits the arbitration clause and only provides for Courts at Mumbai to
have jurisdiction over the subject matter.
24. In rejoinder, Mr. Tamboly would contend that the
Respondent/Plaintiff themselves moved the Arbitration Court after the
13.IA-1969-2025.doc
Settlement Agreement and the Petition under Section 9 was only
disposed of as infructuous as the reliefs claimed under the Section 9
were satisfied and nothing survived. Therefore, it would be incorrect on
the part of the Respondent/Plaintiff that in view of the order passed in
the Section 9 Petition, the arbitration clause does not survive.
25. Mr. Tamboly, has further relied on the decision of this Court in
Shree Siddhivinayak Classic Construction Pvt Ltd & Anr v. IIFL Finance
Limited & Anr.6 where in an Application under Section 11, wherein the
disputes and differences between the parties relating to a Settlement
Agreement, the existence of an arbitration agreement itself was in
doubt owing to a subsequent settlement having been reached between
the parties, the Court in this decision referred the dispute to
Arbitration. Mr. Tamboly would submit that in light of this decision this
Court ought to refer this dispute to Arbitration.
26. Mr. Tamboly has submitted that even in cases where a settlement
agreement was purported to supersede a prior contract courts have
rightly distinguished that it was only in cases where the main contract
was expressly superseded, rescinded, or overridden by a subsequent
contract, that the arbitration clause contained in main agreement
2025 BHC-OS : 12113
13.IA-1969-2025.doc
would also cease to have force and has relied on the following
decisions:-
(i) Gold Prism Realty Pvt Ltd v. M/s. Paradigm Ambit Buildcon7
(ii) Sirajuddin Kasim and Another v Paramount Investments Limited 8
27. Learned Counsel has submitted that the decision of the Delhi
High Court in the case of Larsen and Toubro Limited v. Ireo Victory
Valley Private Limited (supra) is based on the judgments of the Hon'ble
Supreme Court in the case of Union of India v. Kishorilal Gupta & Bros 9
and Damodar Valley Corporation K.K.Kar10 and that the Hon'ble
Supreme Court in paragraphs 115 and 116 of the decision in Interplay
between Arbitration Agreements under Arbitration and Conciliation
Act, 1996 and Stamp Act, 1899 (Supra) noted that the separability
doctrine has undergone a significant evolution, spurred in part by the
enactment of the Arbitration and Conciliation Act, 1996 and the
inclusion of Section 16 therein. Mr. Tamboly has submitted that
therefore these developments have rendered the decisions of the
Hon'ble Supreme Court in Union of India v. Kishorilal Gupta & Bros
(supra) and Damodar Valley Corporation v K.K.Kar (supra) redundant.
2019:BHC-OS:11039
(2010) 8 SCC 557
1959 SCC OnLine SC 6
(1974) 1 SCC 141
13.IA-1969-2025.doc
28. Mr. Tamboly has submitted that the findings of this Court in BKS
Galaxy Realtors LLP v. Sharp Properties and Others (supra) would have
to be read in the context in which they were rendered. That in that
case, the Court concluded that the arbitration clause could not be said
to have survived upon the Sale Deed being executed, since upon such
execution, the prior Agreement for Sale would indisputably come to an
end, however, in the present case the question of whether the
Settlement Agreement has completely superseded the Contract is a
question which is at large and that following the dictum of the Hon'ble
Supreme Court in Interplay between Arbitration Agreements under
Arbitration and Conciliation Act, 1996 and Stamp Act, 1899 (Supra)
this dispute between the parties about whether the subsequent
agreement does or does not supersede the prior agreement must also
be referred to the arbitral tribunal, as in any event, Section 16 of the
Arbitration Act makes it clear that the arbitral tribunal is competent to
rule on its own jurisdiction, and any objection thereto can be raised
before the Arbitral Tribunal once constituted.
29. I have heard the Learned Counsel at length and considered the
rival contentions. The hearing of this Application was concluded on 10 th
October 2025 and the order was reserved.
13.IA-1969-2025.doc
30. As noted above the Interim Application is filed under Section 8 of
the Arbitration and Conciliation Act seeking to refer the disputes to
Arbitration.
31. Under Section 8 of the Arbitration Act, an action brought before
the Court in a matter which is the subject of an Arbitration Agreement
needs to be referred to arbitration. Section 8 of the Arbitration Act is
reproduced for reference:-
"8. Power to refer parties to arbitration where there is an
arbitration agreement.--
[(1)A judicial authority, before which an action is brought
in a matter which is the subject of an arbitration agreement
shall, if a party to the arbitration agreement or any person
claiming through or under him, so applies not later than the
date of submitting his first statement on the substance of
the dispute, then, notwithstanding any judgment, decree or
order of the Supreme Court or any Court, refer the parties
to arbitration unless it finds that prima facie no valid
arbitration agreement exists.]
(2) The application referred to in sub-section (1) shall not
be entertained unless it is accompanied by the original
arbitration agreement or a duly certified copy thereof:
[Provided that where the original arbitration agreement or
a certified copy thereof is not available with the party
applying for reference to arbitration under sub-section (1),
13.IA-1969-2025.doc
and the said agreement or certified copy is retained by the
other party to that agreement, then, the party so applying
shall file such application along with a copy of the
arbitration agreement and a petition praying the Court to
call upon the other party to produce the original arbitration
agreement or its duly certified copy before that Court.]
(3) Notwithstanding that an application has been made
under sub-section (1) and that the issue is pending before
the judicial authority, an arbitration may be commenced or
continued and an arbitral award made.
32. Thus an application under Section 8 of the Arbitration act can be
made only if the subject matter of the suit is also the same as the
subject-matter of arbitration and only those disputes which are
specifically agreed to be resolved through arbitration can be the
subject-matter of arbitration; and upon satisfaction of the same, the
Court can refer the parties to arbitration.
33. The Hon'ble Supreme Court in the decision of Zenith Drugs and
Allied Agencies Private Ltd v. Nicholas Piramal India Ltd (Supra) has
laid the following conditions which have to satisfied under Section 8
for referring the parties to arbitration:
(i) there is an arbitration agreement;
(ii) a party to the agreement brings an action in the court against
13.IA-1969-2025.doc
the other party;
(iii) subject-matter of the action is the same as the subject matter
of the arbitration agreement;
(iv) the opposite party applies to the judicial authority for
referring the parties to arbitration before it submits his first
statement on the substance of the dispute.
34. Therefore a reference under Section 8 of the Arbitration Act can
be made only if the matter in an action is also subject of an Arbitration
Agreement. Therefore, this Court is required to ascertain whether the
action in the present Suit is also the subject matter of Arbitration.
35. The Summary Suit has been filed for a sum of Rs.9,00,00,000/-
being the principal amount along with Rs.1,35,44,384/- as interest at
the rate of 18% per annum from 27 th April 2024 till filing of the suit.
The said amount is claimed under the Settlement Agreement and
admittedly there is no arbitration clause in the Settlement Agreement.
Mr. Tamboly has sought to trace the arbitration clause to the Contract
which was entered into for carrying out civil works by the Plaintiff for
the Defendant in 2010. Owing to disputes between the parties the
Plaintiff had instituted a Petition under Section 9 of the Arbitration Act
against the Defendant and the disputes between the parties were
settled in terms of the Settlement Agreement.
13.IA-1969-2025.doc
36. In Zenith Drugs & Allied Agencies Pvt Ltd. v. Nicholas Piramal
India Limited (supra) the Hon'ble Supreme Court has relying on the
decision of the Hon'ble Supreme Court in the case of Yogi Agarwal v.
Inspiration Clothes & U11 observed that filing application under Section
8 of the Act should relate to the arbitration agreement or to be
applicable to the dispute. Paragraph 15 of the decision is usefully
quoted as under:-
"15. Observing that filing application under Section 8 of the
Act should relate to the arbitration agreement or to be
applicable to the dispute, in Yogi Agarwal v. Inspiration
Clothes & U, it was held as under:
"9. When a defendant invokes Section 8 of the Act by
alleging existence of an arbitration agreement, he should
establish that such arbitration agreement related to, or is
applicable to, the suit transaction/contract. The parties may
enter into different contracts at different points of time or
may enter into a series of unrelated transactions. It is
possible that in regard to some, they may provide for
arbitration. Obviously, the existence of an arbitration
agreement with reference to some other transaction/contract
to which the plaintiff was or is a party, unconnected with the
transactions or contracts to which a suit relates, cannot be
considered as existence of an "arbitration agreement" in
regard to the suit transactions/contracts."
(2009) 1 SCC 372
13.IA-1969-2025.doc
37. In Larsen and Toubro Limited v. Ireo Victory Valley Private
Limited (supra) the Delhi High Court had the occasion to consider a
very similar fact situation as the present case wherein the Delhi High
Court held that if a mutual settlement supersedes the original contract,
the original arbitration clause would not survive. Paragraphs 32 and 33
are relevant and are usefully quoted as under:-
"32. In B.L Kashyap and Sons Ltd v. Mist Avenue Private Ltd .,
2023:DHC:3996, the Court laid down the principles as to
cases in which the arbitration clause can be invoked from the
original contract. The said principles are as under:
"23. For the purposes of the present case, the following
principles emerge from these authorities:
a. An arbitration clause contained in an agreement which is
void ab initio cannot be enforced as the contract itself never
legally came into existence.
b. A validly executed contract can also be extinguished by a
subsequent agreement between the parties.
c. If the original contract remains in existence, for the
purposes of disputes in connection with issues of repudiation,
frustration, breach, etc., the arbitration clause contained
therein continues to operate for those purposes.
d. Where the new contract constitutes a wholesale novation
of the original contract, the arbitration clause would also
stand extinguished by virtue of the new agreement.
24. An application of these principles requires an
13.IA-1969-2025.doc
interpretation of the subsequent agreement between the
parties-in this case, the MOU-to determine whether the
arbitration clause in the original agreement remains
enforceable."
33. The above stated judgment holds that in cases where
there is a subsequent Settlement Agreement, a valid contract
can be extinguished. The Settlement Agreement in the
present case is the subsequent agreement, whose
interpretation would show that the arbitration clause in the
original agreement would not be enforceable as this is a full
and final settlement with respect to the contract and will be
treated as a foreclosed document. The text of the Settlement
Agreement is clear to the effect that this is a final settlement
and MOU, with respect to the disputes and claims that arose
between the parties in consideration to the contract and that
there are no pending claims, neither any future claims were
permitted to be raised."
38. In the case of BKS Galaxy Realtors LLP v. Sharp Properties and
Others (supra) this Court while dealing with an appeal against an order
rejecting the Application under Section 8 of the Arbitration Act held
that as there is only a general reference of the prior agreement in the
subsequent Memorandum of Understanding between the parties there
is absence of any specific reference to the arbitration agreement in the
subsequent agreement and therefore there is no incorporation of the
13.IA-1969-2025.doc
arbitration agreement by reference in the Memorandum of
Understanding.
39. Thus in cases where the parties therein enter into a subsequent
agreement to a contract settling the disputes between the parties the
Court has to examine whether the subsequent agreement supersedes
the Original Contract and whether the arbitration clause contained in
the Original Contract survives and is incorporated in the Settlement
Agreement.
40. The Settlement Agreement as can be seen is between the
Defendant and the Plaintiff. The recitals and in particular recital 'E'
clearly indicates that the outstanding amount of Rs.17,99,80,506/- has
been reconciled jointly by the parties and the parties have agreed that
the total amount, due and payable to the contractor, viz. the Plaintiff by
the employer, viz. the Defendant under the contract and the work
order, towards full and final settlement is Rs.9 Crores. In recital 'F', it
has been recorded that other than the amount stated in recital 'E'
above, the parties unequivocally state and declare that there are no
monies which are balance, outstanding and unpaid from the Defendant
to the Plaintiff. The said recitals are usefully quoted as under :
13.IA-1969-2025.doc
A. The Employer is Concessionaire for a period of 35
years to build, own, operate and transfer, Mumbai Metro
Line - 1 in the city of Mumbai.
B. The Employer has engaged the Contractor for
construction, installation, testing and commissioning of
civil works, by entering into a Contract Agreement
("Contract") dated 16th August 2010.
C. Under the said Contract, Employer issued following
Work Orders ("WO") bearing Nos.23534303, 23523192
and 23523272 to Contractor to perform the Works as
specified under the terms of the Contract.
D. Further Contractor raised several invoices, out of
which, invoices amounting to Rs.17,99,80,506/- (Rupees
Seventeen Crores Ninety-Nine Lakhs Eighty Thousand
Five Hundred and Six Only), are payable to Contractor
towards outstanding invoices.
E. Further the Employer and the Contractor have
jointly reconciled the total amounts that are due and
payable to the Contractor under the Contract and WO and
the parties have agreed that the total amount, due and
payable to the Contractor by the Employer under the
Contract and WO, towards full and final settlement, is
Rs.9,00,00,000/- (Rupees Nine Crores Only) ("Settlement
Amount"), as per the details given in Annexure-1.
F. Other than the amount stated in Para E above (that
is payable by the Employer to the Contractor as per
Annexure-1), the parties unequivocally state and declare
that there are no monies which are balance, outstanding
and unpaid from the Employer to the Contractor.
41. The Settlement Agreement supports by recording that in
consideration of the mutual agreements, covenants, representations
and warranties set forth in the contract/work order, and for other good
13.IA-1969-2025.doc
and valuable consideration, the receipt and sufficiency of which is
acknowledged by the parties, the parties have agreed as contained in
Articles 1 to 5 of the said Agreement.
42. In Article 1, the terms of settlement have been set out in clause
(iii) thereof, the Plaintiff has agreed that all the disputes raised under
the contract/work order shall be withdrawn/not proceeded in
consideration of the settlement. Accordingly, on 24 th September 2024,
after recording the submissions on behalf of the parties and in
particular on behalf of the Defendant that the Petition stood worked
out, the Petition was disposed of as infructuous with liberty to the
Plaintiff who was the Petitioner therein to adopt the appropriate
proceedings to recover the admitted amount of Rs.9 Crores in terms of
the Settlement Agreement. Moreover Article 2 of the Settlement
Agreement sets out the governing law and jurisdiction wherein it is
categorically mentioned that this Settlement Agreement shall be
governed and construed in accordance with the laws of India and
courts of Mumbai will have exclusive jurisdiction. However the said
clause does not include an alternate dispute resolution mechanism.
43. The perusal of the clauses and the language of the Settlement
Agreement leave no manner of doubt that the Settlement Agreement
13.IA-1969-2025.doc
clearly modified and superseded the Contract. I agree with Mr. Shah,
that it is evident from reading of the Article 5(i) and Article 5(ii) of the
Settlement Agreement that the Contract has no nexus with the
Settlement Agreement. The Settlement Agreement has intentionally
departed from the dispute redressal mechanism provided under the
Contract by adding a governing law and jurisdiction clause without
adding an alternate dispute resolution mechanism and thus expressly
excluding the arbitration agreement contained in the Contract. There is
also no specific reference to the arbitration clause of the Contract in the
Settlement Agreement, and therefore in the light of the above facts, the
arbitration clause of the Contract does not get incorporated or become
applicable or govern the rights of the parties when the parties have
settled their differences and compromised the matter and entered into
a Settlement Agreement which is a different agreement. Therefore the
arbitration clause in the prior Contract cannot be read into the terms of
the Settlement Agreement unless expressly mentioned in the
Settlement Agreement.
44. The Settlement Agreement has overriden the Contract and the
claims therein and the Parties agreed to a full and final settlement
amount of Rs. 9 Crores. The Settlement Agreement makes it
13.IA-1969-2025.doc
abundantly clear that it is a full and final settlement irrespective of
whatever claims were raised under the Contract and Work Order.
Therefore if all the claims are dealt with and settled no issues under the
Contract are left to be adjudicated upon in arbitration.
45. The Applicant has in fact acted upon the Settlement Agreement
and in terms of the Settlement Agreement, the Applicant handed over
the performance bank guarantees and the final take over certificate to
the Respondent. The Applicant has thus recognized that Settlement
Agreement is binding between the parties but has failed to repay the
settlement amounts within the stipulated timeline
46. Even in response dated 3rd January 2025 to the letter sent by the
Plaintiff on 10th December 2024 the Applicant has stated that with an
intent to resolve the matter amicably and to not precipitate the issues,
they entered into a Settlement Agreement with the Respondent on 28 th
March 2024 and forthwith returned the Bank Guarantees. The
Applicant has also recognized that the Settlement Agreement paved the
way for resolving the Section 9 Petition filed by the Respondent herein.
In paragraph 14 of the said letter the Applicant has categorically stated
13.IA-1969-2025.doc
that it is committed to liquidate its obligations and is keen to honor the
Settlement Agreement but has been delayed in its ability in making
such payment.
47. There are no claims raised by the Respondent/Plaintiff which
arise out of the Contract at all as the full and final settlement amount
in the Settlement Agreement was agreed to irrespective of the claims
under the Contract and WO. Therefore the only claim is in respect of
non-payment of the amount due under the Settlement Agreement
which the Applicant/Defendant has acknowledged and not refuted.
48. In the present case, the Settlement Agreement makes a reference
to the Contract but does not incorporate the Contract or the arbitration
agreement in the Settlement Agreement and in fact as per Article 5 (ii)
of the Settlement Agreement, the Settlement Agreement superseded
any/all consideration, contemporaneous negotiations, understanding
and agreement, whether written or oral, agreed upon by the Parties.
Further, there is a governing law and jurisdiction clause in the
Settlement Agreement but no reference to alternate dispute resolution
mechanism.
13.IA-1969-2025.doc
49. The judgments which have been relied upon by the Applicant/
Respondent in support of its contention that the issue of whether the
Settlement Agreement supersedes the Contract is also an arbitrable dis-
pute and the same ought to be referred to arbitration are not applicable
in the present case. The facts of the aforesaid decisions are clearly dis-
tinguishable from the facts of the present case.
50. In the case of Shree Siddhivinayak Classic Construction Pvt. Ltd.
and Anr. V IIFL Finance Limited and Anr. (supra) an application was
made under Section 11 of the Arbitration Act and in that case there was
an arbitration agreement between the Applicant and the Respondent,
that agreement was assigned by the Respondent to a third party, the Re-
spondent continued to collect amounts under the Loan Agreement even
after the assignment agreement was entered into, and the relationship
between the Applicant and the third party was governed by the assign-
ment agreement for some time before a new settlement was reached
between them. These facts are clearly distinguishable from the facts of
the present case where there was a new settlement agreement entered
into between the parties which specifically contained a governing law
and jurisdiction clause but did not include an arbitration clause.
13.IA-1969-2025.doc
51. Similarly the case of Gold Prism Realty Pvt. Ltd. v M/s. Paradigm
Ambit Buildcon (supra) is also distinguishable on facts as that was also
a matter under Section 11 of the Arbitration Act and the settlement in
this case did not contain any mention of a governing law and jurisdic-
tion clause unlike the present case.
52. The case of Sirajuddin Kasim and another v. Paramount Invest-
ments Limited (supra) is also distinguishable on facts as in that case
one of the Petitioners was not a party to the settlement agreement and
hence his rights were not superseded by the settlement agreement.
53. Further, the aforesaid decisions are in applications under Section
11 of the Arbitration Act and as is settled law, the nature and scope of
issues arising for consideration in an application under Section 11 of
the Arbitration Act for appointment of the Arbitrator are far narrower
than those arising in an application under Section 8 of the Arbitration
Act seeking reference of the parties to a suit to arbitration. While
considering an application under Section 11 of the Arbitration Act, the
Chief Justice or his designate would not embark upon an examination
of the issue of 'arbitrability' or appropriateness of adjudication by a
private forum, once he finds that there was an arbitration agreement
13.IA-1969-2025.doc
between or among the parties, and would leave the issue of
arbitrability for the decision of the arbitral tribunal. If the arbitrator
wrongly holds that the dispute is arbitrable, the aggrieved party will
have to challenge the award by filing an application under Section 34
of the Arbitration Act, relying upon Sub-Section 2(b) (i) of that section.
But where the issue of 'arbitrability' arises in the context of an
application under Section 8 of the Act in a pending suit, all aspects of
arbitrability have to be decided by the Court seized of the suit and
cannot be left to the decision of the Arbitrator. This view of the Hon'ble
Supreme Court in the decision of Booz Allen and Hamilton Inc. Versus
SBI Home Finance Limited and Others 12 has also been followed by this
Court in the case of Capri Global Capital Limited v. M/s. Divya
Enterprise (Partnership Firm) and Others (supra).
54. It is also pertinent to refer to decision of the Hon'ble Supreme
Court in Interplay between Arbitration Agreements under Arbitration
and Conciliation Act, 1996 and Stamp Act, 1899 (Supra) relied upon by
the Applicant which itself in paragraph 164 holds that the provisions of
Section 8 and Section 11 of the Arbitration Act cannot be read as laying
down a similar standard. The paragraph 164 is usefully quoted as under:-
2011) 5 SCC 532
13.IA-1969-2025.doc
"164. The 2015 Amendment Act has laid down different
parameters for judicial review under Section 8 and Section 11.
Where Section 8 requires the Referral Court to look into the
prima facie existence of a valid arbitration agreement, Section
11 confines the Court's jurisdiction to the examination of the
existence of an arbitration agreement. Although the object and
purpose being both Sections 8 and 11 is to compel parties to
abide by their contractual understanding, the scope of power of
the Referral Courts under the said provisions is intended to be
different. The same is also evident from the fact that Section 37
of the Arbitration Act allows an appeal from the order of an
Arbitral Tribunal refusing to refer the parties to arbitration
under Section 8, but not from Section 11. Thus, the 2015
Amendment Act has legislatively overruled the dictum of Patel
Engg, where it was held that Section 8 and Section 11 are
complementary in nature. Accordingly, the two provisions
cannot be read as laying down a similar standard."
55. Therefore for the reasons discussed above, the reliance on the
decisions in the cases of Shree Siddhivinayak Classic Construction Pvt
Ltd & Anr v. IIFL Finance Limited & Anr (supra), Gold Prism Realty Pvt
Ltd v. M/s. Paradigm Ambit Buildcon (supra) and Sirajuddin Kasim and
Another v Paramount Investments Limited (supra) is misplaced and
does not advance the case of the Applicant.
13.IA-1969-2025.doc
56. The Applicant has also sought to canvas that the decisions of the
Hon'ble Supreme Court in Union of India v. Kishorilal Gupta & Bros
(supra) and Damodar Valley Corporation v K.K.Kar (supra) on which
the Delhi High Court has relied upon in Larsen and Toubro Limited v.
Ireo Victory Valley Private Limited (supra) are rendered redundant in
view of what has been held by the Hon'ble Supreme Court in Interplay
between Arbitration Agreements under Arbitration and Conciliation
Act, 1996 and Stamp Act, 1899 (Supra). In the decision of BKS Galaxy
Realtors LLP v. Sharp Properties and Others this Court has held that the
findings of the Hon'ble Supreme Court in Interplay between Arbitration
Agreements under Arbitration and Conciliation Act, 1996 and Stamp
Act, 1899 (Supra) do not disturb the finding in Union of India v
Kishorilal Gupta & Bros (supra), namely that if the parties put an end
to a validly executed contract, the arbitration clause of the original
contract also perishes with it. Applying the aforementioned decisions
to the facts of the present case, it is clear that the parties have entered
into a Settlement Agreement superseding any previous agreement
between the parties and specifically incorporating a governing law and
jurisdiction clause without incorporating an alternate dispute resolution
clause and hence the Contract and the arbitration clause contained in it
13.IA-1969-2025.doc
are no longer applicable and it is the Settlement Agreement that
prevails between the parties.
57. Section 16(1) (b) of the Arbitration Act provides that a decision
by the arbitral tribunal that the contract is null and void shall not entail
ipso jure the invalidity of the arbitration clause. But this does not in any
way suggest that when the parties consciously enter into a subsequent
agreement that finally determines their rights, the arbitration clause
embedded in the prior contract survived independently of that contract.
58. Even otherwise the judgments relied upon by the Applicant do
not advance the case of the Applicant in as much as the construction of
a judgment should be made in light of the factual matrix involved
therein and the clauses of the agreement therein. In the facts of the
present case, in view of the Settlement Agreement executed between
the parties superseding and novating the Contract containing a
Governing Law and Jurisdiction clause but not including an arbitration
clause, thereby rendering the arbitration clause contained in the earlier
Contract inapplicable and incapable of being invoked.
59. The Settlement Agreement is a separate agreement between the
parties which does not contain any arbitration clause. The Settlement
13.IA-1969-2025.doc
agreement having superseded the Contract and as it does not make a
specific reference to arbitration despite containing a specific governing
law and jurisdiction clause, no case is made out under Section 8 of the
Arbitration Act.
60. Ergo the dispute involved in the Suit cannot be referred to
Arbitration. The Interim Application accordingly stands dismissed.
(ABHAY AHUJA, J.)
