Calcutta High Court
M/S. Gpt Infraprojects Limited vs Union Of India & Anr on 28 January, 2025
Author: Shampa Sarkar
Bench: Shampa Sarkar
OCD-76
ORDER SHEET
IN THE HIGH COURT AT CALCUTTA
ORIGINAL SIDE
COMMERCIAL DIVISION
AP-COM/514/2024
M/S. GPT INFRAPROJECTS LIMITED
VS
UNION OF INDIA & ANR.
BEFORE:
The Hon'ble JUSTICE SHAMPA SARKAR
Date : 28th January, 2025.
Appearance:
Mr. Samrat Sen, Sr. Adv.
Mr. Paritosh Sinha, Adv.
Mr. Amitava Mitra, Adv.
Ms. Manali Bose, Adv.
...for the petitioner.
Mr. Moti Sagar Tiwari, Adv.
Mrs. Sarda Sha, Adv.
. . . for the respondents.
The Court: Sur-rejoinder filed on behalf of the respondents is taken on
record.
This is an application for appointment of a learned Arbitrator in terms of
Clause 64 of the Indian Railways Standard General Conditions of Contract. The
petitioner was a successful bidder in a tendering process.
According to the petitioner, disputes cropped up between the parties,
inter alia, with regard to non-payment of the cost incurred for additional work,
losses suffered for delayed completion, compensation and damages. The petitioner
contends that the Indian Railways Standard General Conditions of Contract (GCC)
was applicable to the contract entered into between the parties. The Letter of
Acceptance would indicate so. The contract provided reciprocal and inter-linked
obligations to be performed by both the parties. The petitioner could not be called
upon to perform its obligation, until the respondents honoured their own
commitments under the contract. The obligations to be performed by the
respondents were set out in the contract document. The petitioner contends to
have taken all precautions, measures and steps to perform its obligation but the
delay, in execution and completion of the work was attributable to the inability of
the respondents to hand over hassle free site. According to the petitioner, although
the time period for completion of the contract was 24 months from the date of
issuance of the Letter of Acceptance, ultimately the entire work was completed on
June 30, 2022, after a delay of about five and half years from the original
stipulated date of completion. A certificate of completion was issued by the
respondents dated October 6, 2022. The value of the contract was also revised. In
the interregnum, prices escalated. As such, the petitioner raised claims, inter alia,
with regard to the additional cost, losses incurred for the delay, compensation etc.
According to the petitioner, the respondents committed a breach and they were
liable to compensate the petitioner for such breach. The petitioner submitted a list
of claims to the Deputy Chief Engineer by a letter dated July 4, 2023. Those claims
were denied by a letter dated July 13, 2023.
It has been averred that in terms of Clause 63 of GCC, by a letter dated
September 8, 2023, the petitioner submitted its list of claims to the General
Manager, South Eastern Railway. From a letter dated September 9, 2023 issued by
the Assistant Deputy General Manager, South Eastern Railway which was
allegedly received by the petitioner on December 9, 2023, the petitioner was made
aware of a letter addressed to the CAO (Con), South Eastern Railway, whereby, the
addressee was requested to examine the issues raised by the petitioner and the
petitioner was called upon to submit a waiver under Section 12(5) read with
Section 31A(5) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to
as the said Act). By a letter dated December 15, 2023, the petitioner communicated
to the respondents that it was not willing to waive the applicability of the provision
of Section 12(5) read with Section 31A(5) of the said Act.
From the aforementioned document, the petitioner submits that it was
clear that the Railway authorities had accepted that there was a live dispute which
was required to be adjudicated by an arbitration process. The only objection of the
Railway authority was with regard to the claim of the petitioner to appoint an
independent Arbitral Tribunal. The nominee of the petitioner was not acceptable to
the Railways.
Under such circumstances, this application was filed before this Court
for appointment of an Arbitral Tribunal. The legal issue raised by the petitioner in
the application was that the law prohibited unilateral appointment of an Arbitrator
or appointment of Arbitrators from a panel to be supplied by a particular party to
the agreement.
The respondents appeared before the Court and raised the issue of
accord and satisfaction.It was alleged that the petitioner had willingly signed the no
claim certificate upon accepting payment in full and final satisfaction of the
amount payable under the contract and with a further indication that the
petitioner would not seek arbitration in respect of the agreement. When such
submission was made by the respondents, they were given an opportunity to file an
affidavit-in-opposition. In the affidavit-in-opposition, the Railways annexed certain
letters and documents in support of such claim. The first of such letter is dated
March 27, 2023, written by the Deputy General Manager-Commercial of the
petitioner. The letter, inter alia, stated that the measurement which has been
mentioned was accepted and the work was executed and completed. Full and final
settlement of claim was also recorded against the agreement, except the final PV
bill and GST claims. It was further contended that apart from the final PV bill and
GST claims, there was no further unresolved issue and arbitration would not be
resorted to. The next document is the standard form for the no claim certificate
which was signed by the petitioner. The form provided that the contractor would
not seek arbitration against the claims mentioned in the agreement. According to
the respondents, there was no live dispute as the petitioner had accepted by
signing the said document that, no further claims survived and the petitioner
would not seek arbitration.
In the affidavit-in-reply, the petitioner annexed documents to answer and
deal with the contentions of the respondents.
A letter dated February 22, 2023 was written by the petitioner to the Deputy
Chief Engineer which, inter alia, stated that the petitioner had to sign the 'No Claim
Certificate' on being informed that unless the said Certificate was signed in the
attached format, payments, such as final bill, bank guarantee for security deposit,
etc. would not be released only. The petitioner contended in the said letter that it
was suffering from acute fund crunch and economic duress and requested early
payment. The said letter precedes the signing of the 'No Claim Certificate'. By a
letter dated March 9, 2023, the petitioner informed the respondent that the
Certificate was signed as desired by the Railways in full and final settlement of
claims, except final PV bill and GST claim. Thereafter, the payment was released
sometime in April and May, 2023.
By a letter dated July 4, 2023, the Deputy Chief Engineer, South Eastern
Railway was requested to release payment of the pending dues. A list of claims was
annexed to the said letter. By a letter dated July 13, 2023, the Deputy Chief
Engineer/Con/GRC denied each and every claim of the petitioner with remarks.
The petitioner answered to such item-wise refusal by its letter dated July 15, 2023.
In the said letter, the petitioner specifically recorded that the Railways had coerced
the petitioner to issue a 'No Claim Certificate' by withholding the final dues for the
works carried out by the petitioner and, thereby, caused irreparable financial loss
to the petitioner and pushed the petitioner into economic duress. In such backdrop
of the matter, Mr. Sen, learned senior counsel submits that the communications
between the parties would indicate that the document was signed under duress
and the petitioner had no other alternative but, to sign the document for early
payment. It is further submitted by Mr. Sen that, at the first instance when the
arbitration clause was invoked by the petitioner, the authority did not raise the
point of accord and satisfaction. Rather, the authority wanted to refer the matter to
arbitration by an arbitral tribunal curated by the railway authorities, comprising of
members of their choice. The petitioner was also required to choose its nominee
from the said panel.
Reference has been made to the decision of SBI General Insurance Co. Ltd.
vs. Krish Spinning reported in 2024 SCC Online SCC 1754, in support of the
contention that settlement of the claim would not ipso facto mean that, the
agreement would come to an end. Unless the parties expressly agreed to record
accord and satisfaction, thereby, relieving each other not only from the existing
obligations under the contract but, from every other obligation arising therefrom,
including full and final payment. Mere signing of the 'No Claim Certificate' could
not be construed to mean that the petitioner had intended to relieve the railways
from the obligation to pay the additional costs, compensation, damages, etc. Any
dispute pertaining to full and final settlement, itself, by necessary implication
would be a dispute to be decided by the learned Arbitrator on evidence. Further,
accord and satisfaction should be, prima facie, ascertained by this court from the
documents which have been annexed to the affidavit in reply, which shows that the
petitioner was asked by the Railways to sign the 'No Claim Certificate' in the
prescribed format before the payment could be processed. The petitioner was given
to believe that signing of the documents was a formality to be complied with, before
release of the payments.
It is submitted that the jurisdiction of the referral court was very narrow. All
that the referral court was required to see, was existence of an arbitration clause
and whether arbitration had been invoked by a proper notice. In the instant case,
these two aspects were not in dispute. The question of accord and satisfaction
being a mixed question of law and fact, was within the exclusive jurisdiction of the
Arbitral Tribunal. Thus, the negative effect of competence competence, would
require that the matters falling within the exclusive domain of the arbitral Tribunal
should not be looked into by the referral court, even for, prima facie, determination
of the question of accord and satisfaction. Reference by this court would be a step
towards upholding the fact that the parties would get their disputes resolved by
arbitration. The reference would not mean that the arbitration agreement was being
made enforceable by the referral Court.
Mr. Tiwari, learned Advocate appearing for the respondents submit that the
application should not be entertained as the same suffers from suppression of
material facts. The 'No Claim Certificate', the communications between the parties
etc. were not mentioned in the application. The issue had already been closed and
there was no live claim against the respondents. It is next submitted that the GCC
provided for a statutory arbitration and the same could not be guided by the
principle of competence competence. On accord and satisfaction, Mr. Tiwari
submits that this Court should, prima facie, examine whether there is a live
dispute and hold that once the petitioner had acknowledged full and final
settlement and signed the 'No Claim' document, no further disputes were alive
between the parties. Mr. Tiwari relied on the following decisions:-
(a) Union of India and ors. vs. Master Construction reported in (2011) 12
SCC 349 and
(b) Cauvery Coffee Traders, Mangalore vs Hornor Resources (International)
Company Limited. reported in (2011) 10 SCC 420.
Heard the parties. Coming to the point of suppression of material facts, as
raised by the respondents, this Court finds that it was not necessary for the
petitioner to refer to the communications, letters and 'No Claim Certificate', in the
application, in view of the fact that the respondents had not denied the request for
arbitration but, had asked the petitioner to agree to their curated panel. Under
such circumstances, it cannot be said that there was intentional suppression of the
relevant letters and documents relied upon by the respondents, which would
persuade this court to reject the application.
Now comes the issue of accord and satisfaction and full and final settlement,
as alleged by the respondents. The letter dated February 22, 2023 records that the
petitioner was asked by the Railway authorities to sign the 'No Claim Certificate', so
that their payment would be released. The truth and veracity of this statement is a
matter of evidence.
This Court cannot hold that the claim of the petitioner is ex facie barred or a
deadwood claim. Moreover, on and from July 2023, parties were writing to each
other on the claims and denial of such claims. In those letters, the respondents did
not indicate that by virtue of the 'No Claim Certificate', the claim of the petitioner
could not be accepted. Rather, the reasons were supplied to the petitioner, as to
why those claims were not tenable. Finally, the conduct of the respondents do not
reflect that they were confident about accord and satisfaction, which relieved the
respondents from their obligations. The letters to the petitioner, asking the
petitioner to waive the applicability of the provisions of Sections 12(5) and Section
31(A)(5) of the said Act, and asking the petitioner to choose their nominee from the
curated panel, would not have been issued. This action of the respondents, prima
facie, indicate that there was a live dispute between the parties.This is adequate
reason for the referral Court to refer the dispute to arbitration, by keeping the point
of accord and satisfaction open, and to be decided by the learned Arbitral Tribunal,
on evidence. The contention of Mr. Tiwari with regard to the unsustainability of the
claims, the delay on the part of the petitioner etc. are all arbitrable and is required
to be to be decided by the learned Tribunal. The Court refers to the following
paragraphs of SBI General Insurance Co. (Supra) to hold that accord and
satisfaction in this case is a matter of evidence and it is not the duty of the referral
court to probe into the facts and to weigh the evidence to arrive at a conclusion the
objection raised by the respondents.
"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.
55. The aforesaid position of law has also been consistently followed by this
Court as evident from many decisions. In Boghara Polyfab (supra), while
rejecting the contention that the mere act of signing a "full and final
discharge voucher" would act as a bar to arbitration, this Court held as
follows:
"44. ... None of the three cases relied on by the appellant lay down a
proposition that mere execution of a full and final settlement receipt
or a discharge voucher is a bar to arbitration, even when the validity
thereof is challenged by the claimant on the ground of fraud, coercion
or undue influence. Nor do they lay down a proposition that even if
the discharge of contract is not genuine or legal, the claims cannot be
referred to arbitration. [...]"
71. The decision in Boghara Polyfab (supra) was followed in a number of
subsequent decisions of this Court. In Union of India v. Master Construction
Co. reported in (2011) 12 SCC 349, this Court held that while deciding an
application under Section 11(6) of the Act, 1996, the referral court must
satisfy itself that the allegations raised against the full and final discharge
voucher were at least prima facie bona fide and genuine. Applying the said
reasoning to the facts before it, this Court held that the dispute was not a
bona fide one and declined to refer the matter to arbitration. The relevant
extracts are reproduced hereinbelow:
"18. In our opinion, there is no rule of the absolute 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.
xxxxxxxxx
23. The present case in our opinion appears to be a case falling in the
category of exception noted in Boghara Polyfab[(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 discharged
voluntarily."
(Emphasis supplied)
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 subsection (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 of the omission being notified, Section 11(6-A) of the Act, 1996
continues to remain on the statute book and thus has to be given effect as
such.
76. The impact of the addition of Section 11(6-A) was elaborately discussed
by this Court in Duro Felguera, S.A. v. Gangavaram Port Ltd. reported
in (2017) 9 SCC 729 as follows:
"48. [...] From a reading of Section 11(6-A), the intention of the
legislature is crystal clear i.e. the court should and need only look
into one aspect--the existence of an arbitration agreement. What are
the factors for deciding as to whether there is an arbitration
agreement is the next question. The resolution to that is simple--it
needs to be seen if the agreement contains a clause which provides for
arbitration pertaining to the disputes which have arisen between the
parties to the agreement.
xxxxxxxxx
59. The scope of the power under Section 11(6) of the 1996 Act was
considerably wide in view of the decisions in SBP and Co. [(2005) 8
SCC 618] and Boghara Polyfab [(2009) 1 SCC 267]. This position
continued till the amendment brought about in 2015. After the
amendment, all that the courts need to see is whether an arbitration
agreement exists--nothing more, nothing less. The legislative policy
and purpose is essentially to minimise the Court's intervention at the
stage of appointing the arbitrator and this intention as incorporated
in Section 11(6-A) ought to be respected."
(Emphasis supplied)
77. Despite the decision in Duro Felguera (supra), this Court in United India
Insurance Co. Ltd. v. Antique Art Exports Pvt. Ltd. reported in (2019) 5 SCC
362, while dealing with the issue of "full and final settlement" in the context
of appointment of an arbitrator, held that mere bald allegation by a party
that the discharge voucher was obtained under coercion or undue influence
would not entitle it to seek referral of the dispute to arbitration unless it is
able to produce prima facie evidence of the same during the course of
proceedings under Section 11(6) of the Act, 1996. Important paragraphs
from the said decision are extracted hereinbelow:
"15. From the proposition which has been laid down by this Court,
what reveals is that a mere plea of fraud, coercion or undue influence
in itself is not enough and the party who alleged is under obligation to
prima facie establish the same 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 [...]
xxxxxxxxx
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 the claims for both the fires dated 25-9-
2013 and 25-10-2013 which was responded by the respondent
through email on the same date itself providing all the necessary
information to the regional office of the Company and also issued the
discharge voucher in full and final settlement with accord and
satisfaction. Thereafter, on 12-7-2016, the respondent desired certain
information with details, that too was furnished and for the first time
on 27-7-2016, it took a U-turn and raised a voice of undue
influence/coercion being used by the appellant stating that it being in
financial distress was left with no option than to proceed to sign on
the dotted lines. As observed, the phrase in itself is not sufficient
unless there is a prima facie evidence to establish the allegation of
coercion/undue influence, which is completely missing in the instant
case.
19. In the given facts and circumstances, we are satisfied that the
discharge and signing the letter of subrogation was not because of
any undue influence or coercion as being claimed by the respondent
and we find no difficulty to hold that upon execution of the letter of
subrogation, the claim was settled with due accord and satisfaction
leaving no arbitral dispute to be examined by an arbitrator to be
appointed under Section 11(6) of the Act.
20. The submission of the learned counsel for the respondent that
after insertion of sub-section (6-A) to Section 11 of the Amendment
Act, 2015 the jurisdiction of this Court is denuded and the limited
mandate of the Court is to examine the factum of existence of an
arbitration and relied on the judgment in Duro Felguera,
S.A. v. Gangavaram Port Ltd. [Duro Felguera, S.A. v. Gangavaram
Port Ltd., (2017) 9 SCC 729 : (2017) 4 SCC (Civ) 764] The exposition
in this decision is a general observation about the effect of the
amended provisions which came to be examined under reference to
six arbitrable agreements (five agreements for works and one
corporate guarantee) and each agreement contains a provision for
arbitration and there was serious dispute between the parties in
reference to constitution of Arbitral Tribunal whether there has to be
Arbitral Tribunal pertaining to each agreement. In the facts and
circumstances, this Court took note of sub-section (6-A) introduced
by the Amendment Act, 2015 to Section 11 of the Act and in that
context observed that the preliminary 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 referred to the arbitrator for adjudication.
22. In our considered view, the High Court has committed a manifest
error in passing the impugned order and adopting a mechanical
process in appointing the arbitrator without any supportive evidence
on record to prima facie substantiate that an arbitral dispute
subsisted under the agreement which needed to be referred to the
arbitrator for adjudication."
(Emphasis supplied)
78. It is pertinent to observe that in Antique Art (supra) the Court placed
reliance on the decisions in Master Construction (supra) and New India
Assurance (supra). Both these decisions were delivered before the insertion
of Section 11(6-A) by the 2015 amendment to the Act, 1996. Thus, this
Court in Antique Art (supra) failed to take into account the legislative intent
behind the introduction of Section 11(6-A), which was also succinctly
explained in Duro Felguera (supra).
89. We find it difficult to agree with the dictum of law as laid in Indian
Oil (supra). While the dictum in Vidya Drolia (supra) allows for interference
by the referral court, it only allows so as an exception in cases where ex
facie meritless claims are sought to be referred to arbitration. However, the
view taken in Indian Oil (supra) takes a position which was taken by this
Court in Boghara Polyfab (supra), wherein it was held that the issue of
accord and satisfaction could either be decided by the referring authority or
be left for the arbitrator to decide. This pre-2015 position, as was also
pointed in Mayavati Trading (supra), was legislatively overruled by the 2015
amendment to 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) 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 includes an examination of the
parties to the agreement and the privity of the applicant to the contract. The
second prong of the test requires the court to, as a general rule, leave all
questions of non-arbitrability to the arbitral tribunal and only as a demurrer
reject the claims which are ex-facie and manifestly non-arbitrable. However,
it was clarified that the standard of the aforesaid scrutiny is only prima
facie, that is, unlike the pre-2015 position, the scrutiny does not entail
elaborate appreciation of evidence and conduct of mini trials by the referral
courts. The relevant observations made therein are reproduced hereinbelow:
"24. Following the general rule and the principle laid down in Vidya
Drolia [Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1 : (2021)
1 SCC (Civ) 549], this Court has consistently been holding that the
Arbitral Tribunal is the preferred first authority to determine and
decide all questions of non-arbitrability. In Pravin Electricals (P)
Ltd. v. Galaxy Infra & Engg. (P) Ltd. [Pravin Electricals (P)
Ltd. v. Galaxy Infra & Engg. (P) Ltd., (2021) 5 SCC 671, paras 29, 30 :
(2021) 3 SCC (Civ) 307], Sanjiv Prakash v. Seema Kukreja [Sanjiv
Prakash v. Seema Kukreja, (2021) 9 SCC 732 : (2021) 4 SCC (Civ)
597], and Indian Oil Corpn. Ltd. v. NCC Ltd. [Indian Oil Corpn.
Ltd. v. NCC Ltd., (2023) 2 SCC 539 : (2023) 1 SCC (Civ) 88], the
parties were referred to arbitration, as the prima facie review in each
of these cases on the objection of non-arbitrability was found to be
inconclusive. Following the exception to the general principle that the
Court may not refer parties to arbitration when it is clear that the
case is manifestly and ex facie nonarbitrable, in BSNL v. Nortel
Networks (India) (P) Ltd. [BSNL v. Nortel Networks (India) (P)
Ltd., (2021) 5 SCC 738 : (2021) 3 SCC (Civ) 352] (hereinafter "Nortel
Networks") and Secunderabad Cantonment Board v. B.
Ramachandraiah & Sons [Secunderabad Cantonment Board v. B.
Ramachandraiah & Sons, (2021) 5 SCC 705 : (2021) 3 SCC (Civ) 335],
arbitration was refused as the claims of the parties were
demonstrably time-barred.
Eye of the needle
25. The abovereferred precedents crystallise the position of law that
the pre-referral jurisdiction of the Courts under Section 11(6) of the
Act is very narrow and inheres two inquiries. The primary inquiry is
about the existence and the validity of an arbitration agreement,
which also includes an inquiry as to the parties to the agreement and
the applicant's privity to the said agreement. These are matters which
require a thorough examination by the Referral Court. The secondary
inquiry that may arise at the reference stage itself is with respect to
the non-arbitrability of the dispute.
26. As a general rule and a principle, the Arbitral Tribunal is the
preferred first authority to determine and decide all questions of non-
arbitrability. As an exception to the rule, and rarely as a demurrer,
the Referral Court may reject claims which are manifestly and ex facie
nonarbitrable [Vidya Drolia v. Durga Trading Corpn., (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 Corpn., (2021) 2 SCC 1,
para 134 : (2021) 1 SCC (Civ) 549] and let facts speak for themselves.
This also requires the Courts to examine whether the assertion on
arbitrability is bona fide or not. [Vidya Drolia v. Durga Trading
Corpn., (2021) 2 SCC 1 : (2021) 1 SCC (Civ) 549] The prima facie
scrutiny of the facts must lead to a clear conclusion that there is not
even a vestige of doubt that the claim is non-
arbitrable. [BSNL v. Nortel Networks (India) (P) Ltd., (2021) 5 SCC
738, para 47 : (2021) 3 SCC (Civ) 352] On the other hand, even if
there is the slightest doubt, the rule is to refer the dispute to
arbitration [Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1,
para 154.4 : (2021) 1 SCC (Civ) 549]."
(Emphasis supplied)
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" cases and held that the issue whether
the contract had been fully worked out and whether payments had been
made in full and final settlement of the claims are issues which should be
left for the arbitrator to adjudicate upon.
iii. The decision in SBP & Co. (supra) was applied in Boghara Polyfab (supra)
and it was held by this Court that the Chief Justice or his designate, in
exercise of the powers available to them under Section 11 of the Act, 1996,
can either look into the question of "accord and satisfaction" or leave it for
the decision of the arbitrator. However, it also specified that in cases where
the Chief Justice was satisfied that there was indeed "accord and
satisfaction", he could reject the application for appointment of arbitrator.
The prima facie standard of scrutiny was also expounded, stating that the
party seeking arbitration would have to prima facie establish that there was
fraud or coercion involved in the signing of the discharge certificate. The
position elaborated in Boghara Polyfab (supra) was adopted in a number of
subsequent decisions, wherein it was held that a mere bald plea of fraud or
coercion was not sufficient for a party to seek reference to arbitration
and prima facie evidence for the same was required to be provided, even at
the stage of the Section 11 petition.
iv. The view taken by SBP & Co. (supra) and Boghara Polyfab (supra) was
seen by the legislature as causing delays in the disposal of Section 11
petitions, and with a view to overcome the same, Section 11(6-A) was
introduced in the Act, 1996 to limit the scope of enquiry under Section 11
only to the extent of determining the "existence" of an arbitration agreement.
This intention was acknowledged and given effect to by this Court in the
decision in Duro Felguera (supra) wherein it was held that the enquiry under
Section 11 only entailed an examination whether an arbitration agreement
existed between the parties or not and "nothing more or nothing less".
v. Despite the introduction of Section 11(6-A) and the decision in Duro
Felguera (supra), there have been diverging views of this Court on whether
the scope of referral court under Section 11 of the Act, 1996 includes the
power to go into the question of "accord and satisfaction". In Antique
Art (supra) it was held that unless some prima facie proof of duress or
coercion is adduced by the claimant, there could not be a referral 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 exfacie 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.
94. 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 reported in 2023 INSC 1066, 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. Some of the relevant observations made by this
Court in In Re : Interplay (supra) are extracted hereinbelow:
"179. [...] However, the effect of the principle of competence-
competence is that the arbitral tribunal is vested with the power and
authority to determine its enforceability. The question of enforceability
survives, pending the curing of the defect which renders the
instrument inadmissible. By appointing a tribunal or its members,
this Court (or the High Courts, as the case may be) is merely giving
effect to the principle enshrined in Section 16. The appointment of an
arbitral tribunal does not necessarily mean that the agreement in
which the arbitration clause is contained as well as the arbitration
agreement itself are enforceable. The arbitral tribunal will answer
precisely these questions.
114. In view of the observations made by this Court in In Re :
Interplay (supra), it is clear that the scope of enquiry at the stage of
appointment of arbitrator is limited to the scrutiny of prima facie existence of
the arbitration agreement, and nothing else. For this reason, we find it
difficult to hold that the observations made in Vidya Drolia (supra) and
adopted in NTPC v. SPML (supra) that the jurisdiction of the referral court
when dealing with the issue of "accord and satisfaction" under Section 11
extends to weeding out ex-facie non-arbitrable and frivolous disputes would
continue to apply despite the subsequent decision in In Re :
Interplay (supra).
115. The dispute pertaining to the "accord and satisfaction" of claims is not
one which attacks or questions the existence of the arbitration agreement in
any way. As held by us in the preceding parts of this judgment, the
arbitration agreement, being separate and independent from the underlying
substantive contract in which it is contained, continues to remain in
existence even after the original contract stands discharged by "accord and
satisfaction".
116. The question of "accord and satisfaction", being a mixed question of
law and fact, comes within the exclusive jurisdiction of the arbitral tribunal,
if not otherwise agreed upon between the parties. Thus, the negative effect of
competence-competence would require that the matter falling within the
exclusive domain of the arbitral tribunal, should not be looked into by the
referral court, even for a prima facie determination, before the arbitral
tribunal first has had the opportunity of looking into it.
117. By referring disputes to arbitration and appointing an arbitrator by
exercise of the powers under Section 11, the referral court upholds and gives
effect to the original understanding of the contracting parties that the
specified disputes shall be resolved by arbitration. Mere appointment of the
arbitral tribunal doesn't in any way mean that the referral court 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.
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, and can be adjudicated upon by the arbitral
tribunal as a preliminary issue."
The decision in Master Construction Co. Ltd. (supra) was rendered in 2011
i.e. before the 2015 amendment. The said decision has been dealt with by the
Hon'ble Apex Court at paragraph 78 of SBI General Insurance Co. Limited (Supra).
The Hon'ble Three Judges Bench were of the view that the said decision did not
take into consideration the legislative intent behind the introduction of Section
11(6)(A). Modern commercial relationships between the contracting parties had
expanded the scope of the principle of competence competence and narrowed down
the extent of judicial scrutiny at the level of reference. Thus, the said decision does
not help the respondents. The ratio of the decision in Cauvery Café Traders
Mangalore (supra) was that, when parties reached an agreement with their eyes
and ears open and accepted the money in full and final settlement, there could not
be any live dispute. Mere reference to fraud or misrepresentation or coercion would
not be a ground for reopening the dispute by arbitration. In the case in hand,
allegations are that the petitioner was asked by the respondents to sign the 'No
Claim Certificate', before the payments could be processed and released. As the
petitioner was in need of money, the document was signed under coercion and
economic duress. It was not a free and voluntary action on the part of the
petitioner, but a compulsion arising from financial crisis and pressure from the
respondents. Moreover, the Railway authority also deemed it fit to refer the matter
to arbitration, for adjudication of disputes, by members of their curated panel.
Under such circumstances, the application is allowed. The petitioner had
already proposed the name of its nominee. Justice Aloke Chakraborty shall act as
petitioner's nominee. Justice Tapan Chandra Dutt shall act the respondent's
nominee and the learned Arbitrators shall nominate the presiding Arbitrator.
The appointment shall be subject to the disclosure to be made in terms of
Section 12 of the said Act.
The learned Arbitrators shall fix their remuneration in terms of the schedule
of the Act.
(SHAMPA SARKAR, J.)
sb/pa/pkd/GH
