SBI General Insurance Co. Ltd. v. Krish Spinning

Judgment / Order of the Supreme Court Judgment J. B. Pardiwala, J.: For the convenience of exposition, this judgment is divided into the following parts: - INDEX*

* Ed. Note: Pagination as per the original Judgment.

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1Copy pinpoint1. Leave granted.

2Copy pinpoint2. Since the issues raised in both the captioned appeals are the same, the subject-matter also being the same and the parties are also the same, they were taken up analogously for hearing and are being disposed of by this common judgment and order.

3Copy pinpoint3. The SLP(C) No. 7220 of 2024 arises from the impugned judgment and order dated 22.09.2023 passed by the High Court of Gujarat at Ahmedabad in Arbitration Petition No. 209 of 2021 wherein the High Court after assigning detailed reasons for allowing the application filed by the respondent for the appointment of an arbitrator, directed that the said application be listed before the appropriate bench in accordance with the roster for the purpose of passing appropriate order for appointment of arbitrator.

4Copy pinpoint4. The SLP(C) No. 3792 of 2024 arises from the impugned judgment and order dated 01.12.2023 passed by the High Court of Gujarat at Ahmedabad in Arbitration Petition No. 209 of 2021 wherein relying upon the judgment and order dated 22.09.2023 referred to above passed by a co-ordinate bench in the self-same arbitration application, the High Court allowed the application of the respondent for the appointment of an arbitrator and thereby appointed Justice K.A. Puj, former Judge of the High Court of Gujarat as an arbitrator to resolve the disputes between the parties. A. FACTUAL MATRIX

5Copy pinpoint5. The appellant, SBI General Insurance Co. Ltd., is a Private Sector General Insurance Company engaged in the business of providing general insurance to its customers, having one of its offices at 1st floor, Shukan Business Centre, Swastik Cross Road, C.G. Road, Navrangpura, Ahmedabad.

6Copy pinpoint6. The respondent, M/s Krish Spinning, is a partnership firm registered under the provisions of the Indian Partnership Act, 1932, and is engaged in the business of manufacturing and spinning of cotton filaments at its factory premises situated at Survey No. 845, Ghodasar, Nenpur, Taluka Memdabad.

7Copy pinpoint7. The respondent obtained a standard fire and special perils (material damage) insurance policy from the appellant on 31.03.2018 for a

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total sum insured of Rs 7,20,00,000/- with the period of insurance being 31.03.2018 to 30.03.2019.

8Copy pinpoint8. During the period of insurance cover, two incidents of fire took place at the factory premises of the respondent, as a result of which the respondent suffered loss of assets such as cotton stocks in the form of raw materials, semi-finished goods, electrical installations, plant and machinery.

9Copy pinpoint9. The first incident of fire took place on 28.05.2018 in which the respondent claims to have suffered a total loss amounting to Rs 1,76,19,967/-. The second incident of fire took place on 17.11.2018 wherein the respondent claims to have suffered a total loss amounting to Rs 6,32,25,967/-. It is pertinent to observe that the present appeals pertain only to the dispute arising from the settlement of claim relating to the first incident of fire which took place on 28.05.2018.

10Copy pinpoint10. After the first incident of fire that took place, M/s Paresh Shah & Associates was appointed as the surveyor by the appellant company on 29.05.2018 under Section 64UM of the Insurance Act, 1938. The surveyor visited the factory premises of the respondent on a number of occasions between 29.05.2018 and 29.08.2018 for the purpose of assessing the extent of loss suffered by the respondent in the fire accident, and accordingly prepared the final survey report dated 30.12.2018. In the said report, it was inter alia observed that the fire could not have been caused by any external factor, and that it could have been caused by spontaneous combustion due to humid temperatures. The quantum of loss suffered by the respondent, after accounting for deductions under multiple heads was assessed by the surveyor at Rs 84,19,579/-.

11Copy pinpoint11. Although the respondent had initially submitted its claim bill dated 27.07.2018 claiming Rs 1,76,19,967/- from the appellant, yet on 24.12.2018, a consent letter was issued by the respondent to the surveyor accepting the assessment of loss made by the surveyor, i.e., at Rs 84,19,579/-. In the consent letter, the respondent stated that in view of the detailed discussion it had with the surveyor as regards the volumetric calculation of the quantity of cotton bales said to have been damaged, it was ready to accept the quantity to be 3,17,085.30 kg as against its initial claim of 4,41,111.58 kg.

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12Copy pinpoint12. After addressing the consent letter as aforesaid to the surveyor, the respondent signed an advance discharge voucher dated 04.01.2019, confirming the receipt of Rs 84,19,579/- from the appellant as the full and final settlement towards their claim. The discharge voucher also stated, inter alia, that the respondent was discharging the appellant of the liability arising under its claim.

13Copy pinpoint13. Subsequent to the signing of the advance discharge voucher, the appellant released the claim settlement amount of Rs 84,08,957/- on 31.01.2019.

14Copy pinpoint14. Thereafter, in relation to the claim arising out of the second fire incident, the appellant released a total amount of Rs 4,86,67,050/- in three instalments. The third and final instalment of Rs 2,23,67,050/- was released on 14.10.2019.

15Copy pinpoint15. On 25.10.2019, that is eleven days after the receipt of the third and final instalment in relation to the claim arising out of the second fire incident, the respondent dropped one letter by hand delivery at the office of the appellant. The respondent, inter alia, stated in the said letter that a copy of the surveyor’s final assessment report was not provided to it despite earlier requests. The respondent alleged that it had to sign the final discharge voucher as it was badly in need of money. The respondent further stated in its letter that it had been unable to take any action due to non-receipt of the surveyor’s report. The appellant refused to accept the letter and returned it back to the respondent. The contents of the letter are reproduced hereinbelow: “Date:- 25/10/2019 To, The Manager, SBI General Insurance Company, Ahmedabad. Subject: - Fire claim no.513768 for loss dated 28/05/2018. Respected Sir, In connection to the above, we have requested you to provide the copy of the complete survey report along with all enclosures thereof to enable us to understand the calculations made by the surveyor to arrive at the gross and net loss / damage. Please note that despite our

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request, we have not received the copy of survey report, which shows your arrogant approach. At this stage, we wish to inform you that you have taken our consent on the amount assessed by the surveyor. We have signed the working sent by you. During the said period, there was another fire in our factory, in which the entire stock, building, plant and machinery have been damaged and we were badly in need of money, hence considering you being a reputed insurance company, you must have examined the assessment made by the surveyor and on that trust bearing in mind, we have signed the working sheet of assessments and voucher is also signed by us in your office as you have informed that we would get the payment immediately. But the same was also delayed beyond reasonable time. Now, since our auditors and bankers would like to know the grounds considering which, the balance amount of our claim is not considered by you / surveyor, you are once again requested to provide the copy of survey report along with all the documents submitted to you by the surveyor, based on which, the claim has been settled and paid by you. Since we have not received the copy of surveyor report, we are unable to take further action. Once again, you are requested to provide the copy of survey report along with all enclosures thereof. Please consider this letter as a notice. Yours Faithfully For KRISH SPINNING”

16Copy pinpoint16. The respondent, on the same day, sent an email to the appellant with a copy of the aforesaid letter calling upon the respondent to take appropriate and necessary action. The contents of the said email are reproduced hereinbelow: “Sir, This is in reference to the above subject, today at around 04:00 pm, or personnel visited your office to hand over a letter requesting you to provide the complete survey report

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of our fire claim no.-513768 for loss dated 28/05/2018. You, in turn returned the letter without accepting it, asking to get the letter signed by our Mr. Ashwinkumar N. Kacha and resubmit the same. We wish to inform that Mr. Ashwinkumar Kacha is busy with medical emergency, and we will submit the letter signed by him, when he is relieved from the medical emergency. Attached herewith, is the copy of the said letter for your kind reference and necessary action. Thanks & Regards”

17Copy pinpoint17. The appellant replied to the aforesaid letter as well as the email vide the letter dated 07.11.2019 refuting the allegations of the respondent by stating that the assessment of loss was personally explained by the surveyor to the representative of the respondent who in turn had taken an informed decision of accepting the settlement amount and signing the consent letter and the advance discharge voucher. A copy of the survey report was also provided to the respondent along with the reply letter. The contents of the said reply letter are reproduced hereinbelow: “SBI GENERAL INSURANCE Dt: 07/11/2019 To M/s Krish Spinning Survey No. 845, Nenpur Haidarvas Road, Ghodsar Gam, Tal: Mehmdabad, Gujarat-387110 (M): 9377071329 Dear Sir, Re: Claim No. 513768 under Policy No. 9006820 Date of Loss: 28/05/2018 Sub: Reply of Your letter dated 25/10/2019 We refer to your letter dated 25/10/2019, wherein you have made reference of previous communications asking for copy of survey report. We have reviewed our records

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and we regret to inform that we are not able to locate any communication in our record through which a request was made seeking copy of Survey Report of Surveyor M/s Paresh Shah & Associates. Unless proved otherwise, we are accordingly considering your letter dated 25/10/2019 as first communication requesting for copy of survey report. We reiterate that loss assessment was personally explained to Mr. Ashwin kacha from your office on 24th December 2018 at our Ahmedabad office and only after understanding the assessment, Mr. Kacha had taken an informed decision of signing the consent letter. This consent letter was also followed with an advance discharge voucher which was submitted by your office in response to our settlement offer. Furthermore, the payment remittance for claim settlement amount was carried out on 8th January 2019 which is within 15 days from the date of submission of consent letter and thus there was no delay beyond reasonable time as alleged in your letter. As requested in your referred letter, we are pleased to attach copy of survey report that forms basis of claim remittance. You may also note that loss assessment arrived by surveyor in attached survey report is in line with loss workings reviewed with Mr. Kacha. Yours Sincerely For SBI General Insurance Company Ltd., (Sd) Authorized Signatory”

18Copy pinpoint18. On 02.03.2020, the respondent issued a legal notice calling upon the appellant to release the balance payment of the claim amount arising out of the first fire incident. The respondent, in the said notice, alleged, inter alia, that he had signed the consent letter and the advance discharge voucher under the apprehension that if he would not have signed the said documents, then the claim in relation to the second fire incident, which was pending on the date of the signing of the discharge voucher, would have been detrimentally affected. Thus, the discharge voucher could be said to have been signed under coercion, undue influence, and without free will and

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volition of the respondent. The respondent further stated that it had sent the protest letter dated 25.10.2019 immediately after receiving the final instalment in relation to the claim arising out of the second fire incident. The respondent further stated that in the event of the appellant’s denial or failure to pay the balance amount within a period of 15 days, the legal notice should be treated as notice invoking arbitration.

19Copy pinpoint19. The appellant replied to the aforesaid legal notice on 16.03.2020 refuting the allegations made by the respondent, alleging them to be mala fide and an after-thought. The appellant stated that the discharge voucher signed by the respondent was unqualified and on his own free will and volition. It was further stated by the appellant that the amount being claimed by the respondent was not due in the first place, thereby making the dispute not one of quantum but one of liability, and therefore the arbitration agreement would not be attracted to the dispute raised.

20Copy pinpoint20. As the parties were unable to arrive at any amicable resolution of the dispute, and as no arbitrator was nominated by the appellant in response to the notice invoking arbitration, the respondent, on 25.10.2021 filed a petition for the appointment of arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter “the Act, 1996”) before the High Court.

21Copy pinpoint21. The case of the respondent before the High Court was that as against the loss of Rs 1,76,19,967/- suffered by it, the appellant company paid only Rs 84,19,579/- and thus it was not completely indemnified. It was also argued that the appellant had not explained why at the time of obtaining the consent letter an amount of Rs 92,00,388/- was deducted from the total amount claimed.

22Copy pinpoint22. The appellant, on the other hand, contested the arbitration petition filed by the respondent on the ground that the claim raised by the respondent herein was stale and having once signed the consent letter dated 24.12.2018, it was not open for it to turn around and raise a dispute. The appellant also contended that it was open for the court to look into the question of arbitrability at the stage of deciding the Section 11 petition.

23Copy pinpoint23. The High Court, having regard to the aforesaid submissions of the parties, held that the dispute in question was falling in the realm of

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adjudication and the same is the function to be discharged by an arbitrator. Placing reliance on the decision of this Court in Oriental Insurance Company Ltd. v. Dicitex Furnishing Ltd. reported in (2020) 4 SCC 621, the High Court held that if the dispute existing between the parties could be referred to arbitration under the arbitration agreement, then appointment of arbitrator has to follow. Some pertinent observations made by the High Court are extracted hereinbelow: “6. Therefore, on one hand, the company has taken a stand that the petitioner is paid the amounts due and payable under the policy and that there is no need to refer the disputes to the arbitration under clause 13 of the policy, on the other hand, the petitioner disputes such case on various grounds. It was stated that amount of Rs. 92,00,388/-is wrongfully deducted while making payment of Rs. 84,19,579/ inasmuch as total claim lodged was Rs. 1,76,19,967/-. 6.1 Therefore, the above aspects indeed travels to the adjudicatory realm, which is the function to be discharged by the arbitrator. When the claim is disputed, it is the arbitrator who may competently decide the claim. Arbitrability of the dispute is also to be decided by the arbitrator. While exercising the powers under section 8 of the Arbitration and Conciliation Act, 1996, such questions cannot be gone into by this Court and when there is an arbitration clause, the aspects are to be decided by the arbitrator for such purpose. 6.2 Following observations of the Supreme Court in Oriental Insurance Company Ltd. vs. Dicitex Furnishing Ltd. [(2020) 4 SCC 621], may be pertinently noticed, “...an application under Section 11(6) is in the form of a pleading which merely seeks an order of the court, for appointment of an arbitrator. It cannot be conclusive of the pleas or contentions that the claimant or the concerned party can take, in the arbitral proceedings. At this stage, therefore, the court which is required to ensure that an arbitrable dispute exists, has to be prima facie convinced

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about the genuineness or credibility of the plea of coercion; it cannot be too particular about the nature of the plea, which necessarily has to be made and established in the substantive (read: arbitration) proceeding. If the court were to take a contrary approach and minutely examine the and plea judge its credibility or reasonableness, there would be a danger of its denying a forum to the applicant altogether, because rejection of the application would render the finding (about the finality of the discharge and its effect as satisfaction) final, thus, precluding the applicant of itsright event to approach a civil court.” 6.3 In the proceedings under section 8 of the Arbitration Act, it is not the function of the Court to examine in detail, the extant and nature of dispute, if dispute exist is referable to the arbitration clause occurring in the agreement between the parties, the appointment of arbitrator has to follow. 6.4 It is observed that this Court has not expressed any opinion on merits of the dispute and arbitrability thereof. 6.5 In view of the above discussion, the prayer made in the present application for appointment of arbitrator shall have to be adverted to.

7. In the result, the Registry is directed to list the same before the appropriate Bench in accordance with roster for the purpose of passing the order regarding appointment of arbitrator.”

24Copy pinpoint24. The aforesaid observations were made by the High Court in its order dated 22.09.2023 which has been impugned by the appellant in SLP(C) No. 7220 of 2024. After making the above quoted observations in favour of the respondent, the High Court directed that the arbitration application be listed before an appropriate bench in accordance with the roster. In pursuance of the said order, the matter came to be listed before the Chief Justice of the High Court, wherein an order for appointment of arbitrator was passed. The said order dated 01.12.2023 has been impugned by the appellant in SLP(C)No. 3792 of 2024.

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B. SUBMISSIONS ON BEHALF OF THE APPELLANT

25Copy pinpoint25. Mr Ketan Paul, the learned counsel appearing on behalf of the appellant, submitted that a full and final settlement was arrived at between the parties thereby indicating that a distinct understanding was arrived at between them. No plea or assertion has been made by the respondent, nor any prima facie evidence has been adduced to establish that the appellant had made the execution of the discharge voucher a pre-condition to the payment of the claim, or offered the amount on a “take it or leave it basis”. Seen thus, the test laid down by this Court in paragraph 52(iv) of the National Insurance Co. Ltd. v. Boghara Polyfab reported in (2009)1 SCC 267 can neither be said to have been alleged nor satisfied.

26Copy pinpoint26. It was further submitted that there has been an inordinate delay on the part of the respondent in levelling allegations of coercion. Such allegations came to be so levelled for the first time in the arbitration notice dated 02.03.2020, that is, almost 14 months after the payment of the subject claim and five months after the payment of the second claim. The counsel submitted that the claim amount as per the assessment of the loss by the surveyor was known to the respondent since 24.12.2018, thereby indicating that the allegations of coercion were an afterthought.

27Copy pinpoint27. In support of his aforesaid submission, the counsel placed reliance on the decision of this Court in NTPC Ltd. v. SPML Infra Ltd. reported in (2023) SCC OnLine SC 389. He submitted that even when examined through the “eye of the needle” test, the claim could be said to be deadwood and the arbitration application ought to have been rejected by the High Court on this count alone. The counsel also placed reliance on the decision of this Court in New India Assurance Co. Ltd. v. Genus Power Infrastructure Ltd. reported in (2015) 2 SCC 424 to submit that arbitration ought to be refused in case of inordinate delay in raising the dispute or levelling allegations of coercion by the party seeking the referral of disputes to arbitration.

28Copy pinpoint28. One another submission made by the counsel was that the pleadings of the respondent lack the basic material particulars about any alleged coercion and the poor financial condition of the respondents. It was further submitted that even in the arbitration notice all that the respondents have stated is that had they not signed the discharge

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voucher in respect of the first claim, their second claim also would have been affected.

29Copy pinpoint29. The counsel submitted that the letter dated 25.10.2019 addressed by the respondent cannot be said to be a protest letter as the letter only asked for a copy of the surveyor’s report to be provided and no allegation of any coercion or any demand for any amount was even raised in the said letter. The counsel finally submitted that a discharge voucher for effecting the full and final settlement in relation to the second claim was also signed by the respondent on 30.09.2019, which was accepted and no dispute has been raised in the last five years, which indicates that the appellant acted in a bona fide manner as per the prescribed norms. C. SUBMISSIONS ON BEHALF OF THE RESPONDENT

30Copy pinpoint30. Ms Savita Singh, the learned counsel appearing on behalf of the respondent, at the outset submitted that her client had to succumb before the surveyor on account of acute economic distress and also on account of pendency of huge amount of claim with the appellant, i.e., around Rs 8 crore cumulatively arising out of the two claims. The respondent was also under pressure from other financial institutions from whom loan had been availed.

31Copy pinpoint31. The counsel further submitted that the circumstances were such that her client had to issue the discharge voucher, otherwise payment towards the admitted amount would not have been released and her client would have been put in immense difficulties. She submitted that mere signing of the discharge voucher by her client would not imply that there was consensus in arriving at the full and final settlement. The counsel submitted that the coercion, though subtle, was very much real and thus in such a situation where the settlement is not voluntary, but under duress, the arbitration clause can be invoked to refer the disputes to arbitration.

32Copy pinpoint32. The counsel also submitted that it cannot be said that there was an inordinate delay in raising the plea of coercion as the letter dated 25.09.2019 was sent by her client to the appellant within 11 days of the receipt of final payment in relation to the second insurance claim. However, the appellant provided a copy of the surveyor’s report only on 07.11.2019 based on which the notice of arbitration was issued on 02.03.2020.

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33Copy pinpoint33. The counsel, in the last, submitted that the issues raised by the appellant are subject matter of arbitration by the tribunal and not of the referral court, which has to limit its scrutiny to the issue of arbitrability in view of the settled position of law. D. ISSUES FOR DETERMINATION

34Copy pinpoint34. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the following three questions fall for our consideration: - i. Whether the execution of a discharge voucher towards the full and final settlement between the parties would operate as a bar to invoke arbitration? ii. What is the scope and standard of judicial scrutiny that an application under Section 11(6) of the Act, 1996 can be subjected to when a plea of “accord and satisfaction” is taken by the defendant? iii. What is the effect of the decision of this Court in In Re: Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899 on the scope of powers of the referral court under Section 11 of the Act, 1996? E. ANALYSIS

35Copy pinpoint35. Clause 13 of the insurance policy issued in favour of the respondent contains the following arbitration clause: “13) If any dispute or difference shall arise as to the quantum to be paid under this Policy (liability being otherwise admitted) such difference shall independently of all other questions be referred to the decision of a sole arbitrator to be appointed in writing by the parties to or if they cannot agree upon a single arbitrator within 30 days of any party invoking arbitration the same shall be referred to a panel of three arbitrators, comprising of arbitrators, one to be appointed by each of the parties to the dispute/ difference and the third arbitrator to be appointed by such two arbitrators and arbitration shall be conducted under and in accordance with the provision of the Arbitration and Conciliation Act, 1996.

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It is clearly agreed and understood that no dispute or difference shall be referrable to arbitration as hereinbefore proved, if the Company has disputed or not accepted liability under or in respect of this policy. It is hereby expressed stipulated and declared that it shall be a condition precedent to any right of action or suit upon this Policy that the award by such arbitrator/ arbitrators of the amount of the loss or damaged shall be first obtained”

36Copy pinpoint36. A preliminary objection was raised on behalf of the appellant that the arbitration clause as contained in the insurance policy referred to above is not attracted in the present case as there is no admission of liability on the part of the appellant, whereas the said arbitration clause envisages reference to arbitration only in cases where liability is admitted and there is a dispute as regards the quantum of liability.

37Copy pinpoint37. However, we find no merit in the aforesaid submission of the appellant. It is evident from the record that the appellant had admitted its liability with respect to the first claim and had even disbursed an amount of Rs 84,19,579/- in pursuance of the signing of the advance discharge voucher by the respondent. Thus, it is clearly a case of admission of liability by the appellant. However, the quantum of liability is in dispute as the amount claimed by the respondent is at variance with the amount admitted by the appellant. Thus, the dispute being one of quantum and not of liability, it falls within the ambit of the conditional arbitration clause as contained in the insurance policy.

38Copy pinpoint38. One another preliminary objection raised by the appellant was that the claim sought to be referred to arbitration is a deadwood claim and thus the application for appointment of arbitrator ought to have been rejected at the outset by the High Court. It is clear from the facts as discussed in the preceding paragraphs that the notice invoking arbitration was sent by the respondent to the appellant on 02.03.2020 and the petition seeking appointment of arbitrator under Section 11(6) of the Act, 1996 was filed before the High Court on 25.10.2021. Thus, the arbitration petition was filed before the High Court much prior to the expiry of the limitation period of three years. Further, the notice invoking arbitration was also sent by the respondent well within time from the date of the accrual of the cause of action. Considered thus, it cannot, by any stretch of imagination, be said that

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the claim is a deadwood claim or the arbitration application before the High Court was time-barred.

39Copy pinpoint39. Having rejected the aforesaid two preliminary objections raised by the appellant, the question that now remains to be examined is whether, in the facts of the present case, the respondent could have invoked arbitration after having signed the consent letter dated 24.12.2018 and the advance discharge voucher dated 04.01.2019. i. Whether the execution of a discharge voucher towards the full and final settlement between the parties would operate as a bar to invoke arbitration?

40Copy pinpoint40. A contract between parties can come to an end by the performance thereof by both the parties, that is, by the fulfilment of all the obligations in terms of the original contract. This is referred to as discharge by performance. Alternatively, the contract may also be discharged by substitution of certain new obligations in place of the obligations contained in the original contract, and subsequent performance of the substituted obligations. The substituted obligations are referred to as ‘accord’ and the discharge of the substituted obligations is referred to as ‘satisfaction’. It is referred to as discharge by “accord and satisfaction” or by “full and final settlement” in common parlance.

41Copy pinpoint41. A written confirmation of discharge by “accord and satisfaction” can also be in the form of a full and final discharge voucher or a No-Dues or a No-Claims Certificate issued by one of the parties acknowledging that there are no outstanding claims and that such a party has received the full and final payment to its satisfaction. In the insurance sector, the general practice is that the insurer obtains undated discharge vouchers from the insured in advance by making the insured to sign on dotted lines before processing the payment in respect of the claims of the insured.

42Copy pinpoint42. The concept of discharge of a contract by “accord and satisfaction” is embodied in Section 63 of the Indian Contract Act, 1872, which provides that the promisee may, inter alia, accept any substituted obligation in place of the original promise made to him, and such acceptance on the part of the promisee would amount to the discharge of the contract. Section 63 along with the illustrations is reproduced hereinbelow:

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“63. Promisee may dispense with or remit performance of promisee.—Every promisee may dispense with or remit, wholly or in part, the performance of the promisee made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit. Illustrations (a) A promises to paint a picture for B. B afterwards forbids him to do so. A is no longer bound to perform the promise. (b) A owes B 5,000 rupees. A pays to B, and B accepts, in satisfaction of the whole debt, 2,000 rupees paid at the time and place at which the 5,000 rupees were payable. The whole debt is discharged. (c) A owes B 5,000 rupees. C pays to B 1,000 rupees, and B accepts them, in satisfaction of his claim on A. This payment is a discharge of the whole claim. (d) A owes B, under. a contract, a sum of money, the amount of which has not been ascertained. A, without ascertaining the amount, gives to B, and B, in satisfaction thereof, accepts, the sum of 2,000 rupees. This is a discharge of the whole debt, whatever may be its amount. (e) A owes B 2,000 rupees, and is also indebted to other creditors. A makes an arrangement with his creditors, including B, to pay them a [composition] of eight annas in the rupee upon their respective demands. Payment to B of 1,000 rupees is a discharge of B’s demand.” (Emphasis supplied)

43Copy pinpoint43. The Privy Council in Payana Reena Saminathan v. Pana Lana Palaniappa reported in (1913-14) 41 IA 142 defined the term “accord and satisfaction” as follows: “… The ‘receipt’ given by the appellants and accepted by the respondent, and acted on by both parties proves conclusively that all the parties agreed to a settlement of all their existing disputes by the arrangement formulated

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in the ‘receipt’. It is a clear example of what used to be well known as common law pleading as ‘accord and satisfaction by a substituted agreement’. No matter what were the respective rights of the parties inter se they are abandoned in consideration of the acceptance by all for a new agreement. The consequence is that when such an accord and satisfaction takes place the prior rights of the parties are extinguished. They have in fact been exchanged for the new rights; and the new agreement becomes a new departure, and the rights of all the parties are fully represented by it.” (Emphasis supplied)

44Copy pinpoint44. As discussed in the preceding paragraphs, the appellant has contested that once a full and final settlement was arrived at between the parties, the insurance contract between the parties could be said to have been discharged. Once the contract stood discharged, it was not open to the respondent to resile from the settlement and invoke the arbitration clause, as no obligations remained to be fulfilled under the contract pursuant to the discharge of the contract. In other words, it is the contention of the appellant that as no arbitrable disputes remained after a full and final settlement was arrived at, there was nothing left to be referred to the arbitrator and hence the appointment of arbitrator being an exercise in futility, should not have been undertaken by the High Court.

45Copy pinpoint45. To answer the aforesaid contention of the appellant, the question that needs to be considered is whether the “full and final settlement” of claims arising under a contract, is by itself sufficient to preclude any future arbitration in respect of such settled claims?

46Copy pinpoint46. It is indeed so that once a contract has been fully performed, it can be said to have been discharged by performance. Once the contract has been discharged by performance, neither any right to seek performance, nor any obligation to perform remains under it.

47Copy pinpoint47. However, whether there has been a discharge of contract or not is a mixed question of law and fact, and if any dispute arises as to whether a contract has been discharged or not, such a dispute is arbitrable as per the mechanism prescribed under the arbitration agreement contained in the underlying contract.

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a. Whether the arbitration agreement contained in a substantive contract survives even after the underlying contract is discharged by “accord and satisfaction”?

48Copy pinpoint48. Arbitration for the purpose of resolving any dispute pertaining to any claim which has been “fully and finally settled” between the parties can only be invoked if the arbitration agreement survives even after the discharge of the substantive contract.

49Copy pinpoint49. The arbitration agreement, by virtue of the presumption of separability, survives the principal contract in which it was contained. Section 16(1) of the Act, 1996 which is based on Article 16 of the UNCITRAL Model Law on International Commercial Arbitration, 1985 (hereinafter, “Model Law”) embodies the presumption of separability. There are two aspects to the doctrine of separability as contained in the Act, 1996: - i. An arbitration clause forming part of a contract is treated as an agreement independent of the other terms of the contract. ii. A decision by the arbitral tribunal declaring the contract as null and void does not, ipso facto, make the arbitration clause invalid.

50Copy pinpoint50. The doctrine of separability was not part of the legislative scheme under the Arbitration Act, 1940. However, with the enactment of the Act, 1996, the doctrine was expressly incorporated. This Court in National Agricultural Coop. Marketing Federation India Ltd. v. Gains Trading Ltd. reported in (2007) 5 SCC 692, while interpreting Section 16 of the Act, 1996, held that even if the underlying contract comes to an end, the arbitration agreement contained in such a contract survives for the purpose of resolution of disputes between the parties.

51Copy pinpoint51. The fundamental premise governing the doctrine of separability is that the arbitration agreement is incorporated by the parties to a contract with the mutual intention to settle any disputes that may arise under or in respect of or with regard to the underlying substantive contract, and thus by its inherent nature is independent of the substantive contract.

52Copy pinpoint52. In Heyman v. Darwins Ltd. reported in [1942] AC 356, it was held by the House of Lords that the repudiation or breach of a contract does not extinguish the arbitration agreement as it survives for the

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purpose of resolution of any outstanding claims arising out of the breach. It was observed thus: “I am, accordingly, of the opinion that what is commonly called repudiation or total breach of a contract, whether acquiesced in by the other party or not, does not abrogate the contract, though it may relieve the injured party of the duty of further fulfilling the obligations which he has by the contract undertaken to the repudiating party. The contract is not put out of existence, though all further performance of the obligations undertaken by each party in favour of the other may cease. It survives for the purpose of measuring the claims arising out of the breach, and the arbitration clause survives for determining the mode of their settlement. The purposes of the contract have failed, but the arbitration clause is not one of the purposes of the contract.” (Emphasis supplied)

53Copy pinpoint53. 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.

54Copy pinpoint54. Although ordinarily no arbitrable disputes may subsist after execution of a full and final settlement, yet any dispute pertaining to the full and final settlement itself, by necessary implication being a dispute arising out of or in relation to or under the substantive contract, would not be precluded from reference to arbitration as the arbitration agreement contained in the original contract continues to be in existence even after the parties have discharged the original contract by “accord and satisfaction”.

55Copy pinpoint55. The aforesaid position of law has also been consistently followed by this Court as evident from many decisions. In Boghara Polyfab

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(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. […]”

56Copy pinpoint56. Again, in R.L. Kalathia and Company v. State of Gujarat reported in (2011) 2 SCC 400, it was re-iterated that the mere issuance of the no-dues certificate would not operate as a bar against the raising of genuine claims even after the date of issuance of such certificate. The relevant observations are extracted hereinbelow: “13. From the above conclusions of this Court, the following principles emerge: (1) Merely because the contractor has issued “no-dues certificate”, if there is an acceptable claim, the court cannot reject the same on the ground of issuance of “no-dues certificate”. (ii) Inasmuch as it is common that unless a discharge certificate is given in advance by the contractor, payment of bills are generally delayed, hence such a clause in the contract would not be an absolute bar to a contractor raising claims which are genuine at a later date even after submission of such “no-claim certificate”. (iii) Even after execution of full and final discharge voucher/ receipt by one of the parties, if the said party is able to establish that he is entitled to further amount for which he is having adequate materials, he is not barred from claiming such amount merely because of acceptance of the final bill by mentioning “without prejudice” or by issuing “no-dues certificate”. (Emphasis supplied)

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57Copy pinpoint57. The position that emerges from the aforesaid discussion is that there is no rule of an absolute kind which precludes arbitration in cases where a full and final settlement has been arrived at. In Boghara Polyfab (supra), discussing in the context of a case similar to the one at hand, wherein the discharge voucher was alleged to have been obtained on ground of coercion, it was observed that the discharge of a contract by full and final settlement by issuance of a discharge voucher or a no-dues certificate extends only to those vouchers or certificates which are validly and voluntarily executed. Thus, if the party said to have executed the discharge voucher or the no dues certificate alleges that the execution was on account of fraud, coercion or undue influence exercised by the other party and is able to establish such an allegation, then the discharge of the contract by virtue of issuance of such a discharge voucher or no dues certificate is rendered void and cannot be acted upon.

58Copy pinpoint58. It was further held in Boghara Polyfab (supra) that the mere execution of a full and final settlement receipt or a discharge voucher would not by itself operate as a bar to arbitration when the validity of such a receipt or voucher is challenged by the claimant on the ground of fraud, coercion or undue influence. In other words, where the parties are not ad idem over accepting the execution of the no-claim certificate or the discharge voucher, such disputed discharge voucher may itself give rise to an arbitrable dispute.

59Copy pinpoint59. Once the full and final settlement of the original contract itself becomes a matter of dispute and disagreement between the parties, then such a dispute can be categorised as one arising “in relation to” or “in connection with” or “upon” the original contract which can be referred to arbitration in accordance with the arbitration clause contained in the original contract, notwithstanding the plea that there was a full and final settlement between the parties. ii. What is the scope and standard of judicial scrutiny that an application under Section 11(6) of the Act, 1996 can be subjected to when a plea of “accord and satisfaction” is taken by the defendant?

60Copy pinpoint60. Whether the issue as regards the validity of the full and final settlement is to be determined by the referral court acting under Section 11 of the Act, 1996 or by the arbitral tribunal has been considered in a number of decisions of this Court. Some of these

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decisions have also delineated the extent and standard of enquiry which can be undertaken at the stage of Section 11 petition. We shall discuss these decisions in detail for the benefit of the exposition of the law on the subject.

61Copy pinpoint61. One of the earliest decisions dealing with the issue of “full and final settlement” in the specific context of an application for appointment of arbitrator under the Arbitration Act, 1940 was rendered by a two- Judge Bench of this Court in Damodar Valley Corporation v. K.K. Kar reported in (1974) 1 SCC 141. It was observed, inter alia, that any dispute arising in relation to the validity of the discharge by “accord and satisfaction” would be covered by the arbitration agreement contained in the original contract, and thus should be referred to the arbitral tribunal for determination. The relevant observations are extracted hereinbelow: “4. On these facts the short question for determination is: where one of the parties refers a dispute or disputes to arbitration and the other party takes a plea that there was a final settlement of all claims, is the Court, on an application under Sections 9(b) and 33 of the Act, entitled to enquire into the truth and validity of the averment as to whether there was or was not a final settlement on the ground that if that was proved, it would bar a reference to the arbitration inasmuch as the arbitration clause itself would perish. xxx xxx xxx

6. It appears to us that the question whether there has been a full and final settlement of a claim under the contract is itself a dispute arising “upon” or “in relation to” or “in connection with” the contract. These words are wide enough to cover the dispute sought to be referred. The respondent’s contention is that the contract has been repudiated by the appellant unilaterally as a result of which he had no option but to accept that repudiation because if the appellant was not ready to receive the goods he could not supply them to him or force him to receive them. In the circumstances, while accepting the repudiation, without conceding that the appellant had a

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right to repudiate the contract, he could claim damages for breach of contract. Such a claim for damages is a dispute or difference which arises between himself and the appellant and is ‘upon’ or ‘in relation to’ or ‘in connection with’ the contract.

7. The contention that has been canvassed before us is that as there has been a full and final settlement under the contract, the rights and obligations under the contract do not subsist and consequently the arbitration clause also perishes along with the settlement. If so, the dispute whether there has or has not been a settlement cannot be the subject of an arbitration. There is, in our view, a basic fallacy underlying this submission. A contract is the creature of an agreement between the parties and where the parties under the terms of the contract agree to incorporate an arbitration clause, that clause stands apart from the rights and obligations under that contract, as it has been incorporated with the object of providing a machinery for the settlement of disputes arising in relation to or in connection with that contract. The questions of unilateral repudiation of the rights and obligations under the contract or of a full and final settlement of the contract relate to the performance or discharge of the contract. Far from putting an end to the arbitration clause, they fall within the purview of it. A repudiation by one party alone does not terminate the contract. It takes two to end it, and hence it follows that as the contract subsists for the determination of the rights and obligations of the parties, the arbitration clause also survives. This is not a case where the plea is that the contract is void, illegal or fraudulent etc. in which case, the entire contract along with the arbitration clause is non est, or voidable. […]” (Emphasis supplied)

62Copy pinpoint62. In Bharat Heavy Electricals Ltd. vs. Amar Nath Bhan Prakash reported in (1982) 1 SCC 625 it was observed by this Court that the question whether there was discharge of the contract by “accord and satisfaction” or not is a dispute liable to be resolved by the

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arbitral tribunal and the court ought to appoint an arbitrator in such matters when a party approaches it seeking relief for the same. It was observed thus: “1. It appears from the order of the High Court impugned in the appeal that the High Court has not correctly appreciated the position that the question whether there was discharge of the contract by accord and satisfaction or not, is a dispute arising out of the contract and is liable to be referred to arbitration and hence the application of the Respondent under Section 20 of the Indian Arbitration Act should have been allowed and the matters in dispute between the parties, including the question whether or not there was discharge of the contract by accord and satisfaction should have been referred to arbitration.” (Emphasis supplied)

63Copy pinpoint63. However, the position on the issue witnessed a change with subsequent decisions of this Court in P.K. Ramaiah and Company v. Chairman and Managing Director, National Thermal Power Corporation reported in 1994 Supp (3) SCC 126 and Nathani Steels Ltd. v. Associated Constructions reported in 1995 Supp (3) SCC 324.

64Copy pinpoint64. In P.K. Ramaiah (supra), the decision in Damodar Valley (supra) was distinguished on facts, and it was held that once “full and final settlement” is arrived at, no arbitral dispute subsists, and hence there can be no referral to arbitration. The relevant observations made therein are as follows: “6. [….] If there is an arbitrable dispute, it shall be referred to the named arbitrator. But there must exist a subsisting dispute. Admittedly the appellant acknowledged in writing accepting the correctness of the measurements as well as the final settlement and received the amount. Thereafter no arbitrable dispute arise for reference. xxx xxx xxx

8. […] Accordingly, we hold that the appellant having acknowledged the settlement and also accepted

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measurements and having received the amount in full and final settlement of the claim, there is accord and satisfaction. There is no existing arbitrable dispute for reference to the arbitration. The High Court is, therefore, right in its finding in this behalf. The appeals are dismissed but in the circumstances without costs.”

65Copy pinpoint65. In Nathani Steels (supra), relying upon the decision in P.K. Ramaiah (supra) it was observed thus: “3. […] It would thus be seen that once there is a full and final settlement in respect of any particular dispute or difference in relation to a matter covered under the Arbitration clause in the contract and that dispute or difference is finally settled by and between the parties, such a dispute or difference does not remain to be an arbitrable dispute and the Arbitration clause cannot be invoked even though for certain other matters, the contract may be in subsistence. […]”

66Copy pinpoint66. It is important to note that the aforesaid four decisions were rendered in the context of appointment of arbitrator under the Arbitration Act,

1940. With the introduction of the Act, 1996, a different regime came into being insofar as the question of appointment of arbitrator is concerned. In Jayesh Engineering Works v New India Assurance Co. Ltd. reported in (2000) 10 SCC 178, dealing with an application for appointment of arbitrator under the Act, 1996, a position similar to the one taken in Amar Nath (supra) was taken by this Court. It was held thus: “1. […] Whether any amount is due to be paid and how far the claim made by the Appellant is tenable are matters to be considered by the Arbitrator. In fact, whether the contract has been fully worked out and whether the payments have been made in full and final settlement are questions to be considered by the Arbitrator when there is a dispute regarding the same. […]”

67Copy pinpoint67. While the aspect of “accord and satisfaction” in the specific context of the appointment of arbitrator has been discussed by this Court on numerous occasions, we also deem it necessary to refer to and

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discuss some important decisions touching upon the contours of the power of the referral court under Section 11 of the Act, 1996 as they directly affect the issue at hand.

68Copy pinpoint68. The role to be played by the Chief Justice or his designate in the appointment of an arbitrator has been at the heart of number of decisions of this Court. In Konkan Railway Corpn. Ltd. v. Rani Construction (P) Ltd. reported in (2002) 2 SCC 388, a five-Judge Bench of this Court observed that the power exercised by the referral court under Section 11 of the Act, 1996 is an administrative power and thus the Chief Justice or his designate do not have to decide any preliminary issue at that stage. Accordingly, it held that any issues pertaining to non-arbitrability, validity and existence of the arbitration agreement are to be decided by the arbitrator.

69Copy pinpoint69. The aforesaid view occupied the field till a seven-Judge Bench of this Court in SBP & Co. v. Patel Engg. Ltd. reported in (2005) 8 SCC 618, characterised the power conferred upon the Chief Justice or his designate under Section 11 of the Act, 1996 as a judicial power and not merely administrative power. This Court held that the Chief Justice or his designate had the right to decide all preliminary issues at the referral stage under Section 11(6) of the Act, 1996. The Court took such view on the premise that Section 16 of the Act, 1996, which empowers the Arbitral Tribunal to rule on its own jurisdiction, applies only when the parties go before the Tribunal without having taken recourse to Sections 8 or 11 respectively of the Act, 1996 first.

70Copy pinpoint70. In Boghara Polyfab (supra), this Court examined the extent of judicial interference at the stage of referral under Section 11(6) of the Act, 1996 as laid down in SBP & Co. (supra) and elucidated three categories of issues which could arise before the referral court as follows: “22.1. The issues (first category) which the Chief Justice/ his designate will have to decide are: (a) Whether the party making the application has approached the appropriate High Court. (b) Whether there is an arbitration agreement and whether the party who has applied under Section 11 of the Act, is a party to such an agreement.

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22.2. The issues (second category) which the Chief Justice/ his designate may choose to decide (or leave them to the decision of the Arbitral Tribunal) are: (a) Whether the claim is a dead (long-barred) claim or a live claim. (b) Whether the parties have concluded the contract/ transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection. 22.3. The issues (third category) which the Chief Justice/ his designate should leave exclusively to the Arbitral Tribunal are: (i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration). (ii) Merits or any claim involved in the arbitration.”

71Copy pinpoint71. 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

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to be lacking in credibility, there may not be a necessity to refer the dispute for arbitration at all. xxx xxx xxx

23. The present case in our opinion appears to be a case falling in the category of exception noted in Boghara Polyfab[(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)

72Copy pinpoint72. In New India Assurance (supra), this Court, relying upon Boghara Polyfab (supra) and Master Construction Co. (supra), upon examining the Section 11 petition held that a mere bald assertion of fraud, undue influence or coercion would not warrant referral of disputes to arbitration, if the matter had already been fully and finally settled between the parties. The relevant observations are reproduced hereinbelow: “10. In our considered view, the plea raised by the Respondent is bereft of any details and particulars, and cannot be anything but a bald assertion. Given the fact that there was no protest or demur raised around the time or soon after the letter of subrogation was signed, that the notice dated 31.03.2011 itself was nearly after three weeks and that the financial condition of the Respondent was not so precarious that it was left with no alternative but to accept the terms as suggested, we are of the firm view that the discharge in the present case and signing of letter of subrogation were not because of exercise of any undue influence. Such discharge and signing of letter of subrogation was voluntary and free from any coercion or undue influence. In the circumstances, we hold that upon execution of the letter of subrogation, there was full

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and final settlement of the claim. Since our answer to the question, whether there was really accord and satisfaction, is in the affirmative, in our view no arbitrable dispute existed so as to exercise power Under Section 11 of the Act. The High Court was not therefore justified in exercising power Under Section 11 of the Act.” (Emphasis supplied)

73Copy pinpoint73. The net effect of the decisions in SBP & Co. (supra) and Boghara Polyfab (supra) was that the scope for interference available to the referral courts when acting under Section 11 of the Act, 1996 was substantially expanded. The referral courts were conferred with the discretion to conduct mini trials and indulge in the appreciation of evidence on the issues concerned with the subject matter of arbitration. The Law Commission of India in its 246th report took note of the issue of significant delays being caused to the arbitral process due to enlarged scope of judicial interference at the stage of appointment of arbitrator and suggested as follows: i. First, that the power of appointment conferred upon the Chief Justice be devolved on to the Supreme Court and the High Court, as the case may be; and ii. Secondly, the power of appointment under Section 11 be clarified to be an administrative power and not a judicial one. iii. Thirdly, the scope of interference under Sections 8 and 11 respectively of the Act, 1996 be restricted only to those cases where the court finds that no arbitration agreement exists or is null and void.

74Copy pinpoint74. The Law Commission suggested the insertion of Section 11(6-A) in the Act, 1996. The aforesaid recommendations of the Commission were taken note of by the Parliament and accordingly the Act, 1996 was amended in 2015 to incorporate Section 11(6-A), which reads thus: “(6A) The Supreme Court or, as the case may be, the High Court, while considering any application under sub- section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement.”

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75Copy pinpoint75. 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.

76Copy pinpoint76. 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. xxx xxx xxx

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)

77Copy pinpoint77. 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

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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 [...] xxx xxx xxx

17. It is true that there cannot be a rule of its kind that mere allegation of discharge voucher or no claim certificate being obtained by fraud/coercion/undue influence practised by other party in itself is sufficient for appointment of the arbitrator unless the claimant who alleges that execution of the discharge agreement or no claim certificate was obtained on account of fraud/coercion/undue influence practised by the other party is able to produce prima facie evidence to substantiate the same, the correctness thereof may be open for the Chief Justice/his Designate to look into this aspect to find out at least prima facie whether the dispute is bona fide and genuine in taking a decision to invoke Section 11(6) of the Act.

18. In the instant case, the facts are not in dispute that for the two incidents of fire on 25-9-2013 and 25-10-2013, the appellant Company based on the Surveyor›s report sent emails on 5-5-2016 and 24-6-2016 for settlement of 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

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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

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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)

78Copy pinpoint78. 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).

79Copy pinpoint79. A three-Judge Bench of this Court in Mayavati Trading Private Limited v. Pradyut Deb Burman reported in (2019) 8 SCC 714 overruled the decision in Antique Art (supra) and clarified that the position of law existing prior to the 2015 amendment to the Act, 1996 under which referral courts had the power to examine the aspect

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of “accord and satisfaction” had come to be legislatively overruled by Section 11(6-A) of the Act, 1996. The Court, while affirming the reasoning given in Duro Felguera (supra), observed thus: “10. This being the position, it is clear that the law prior to the 2015 Amendment that has been laid down by this Court, which would have included going into whether accord and satisfaction has taken place, has now been legislatively overruled. This being the position, it is difficult to agree with the reasoning contained in the aforesaid judgment [United India Insurance Co. Ltd. v. Antique Art Exports (P) Ltd. (2019) 5 SCC 362 : (2019) 2 SCC (Civ) 785], as Section 11(6-A) is confined to the examination of the existence of an arbitration agreement and is to be understood in the narrow sense as has been laid down in the judgment in Duro Felguera, SA [Duro Felguera, SA v. Gangavaram Port Ltd. (2017) 9 SCC 729 : (2017) 4 SCC (Civ) 764] — see paras 48 & 59

11. We, therefore, overrule the judgment in Antique Art Exports (P) Ltd. [United India Insurance Co. Ltd. v. Antique Art Exports (P) Ltd. (2019) 5 SCC 362 : (2019) 2 SCC (Civ) 785] as not having laid down the correct law but dismiss this appeal for the reason given in para 3 above.” (Emphasis supplied)

80Copy pinpoint80. A two-Judge Bench of this Court in Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd. reported in (2020) 2 SCC 455 was called upon to determine the scope of judicial interference at the stage of Section 11(6) petition wherein the plea of claims being time barred was taken by the defendant. Referring to the principal of competence-competence enshrined in Section 16 of the Act, 1996 and the legislative intent behind the introduction of Section 11(6-A) to Act, 1996 by the 2015 amendment, this Court held that the issue of limitation being a mixed question of law and fact should be best left to the tribunal to decide. The referral court should restrict its examination to whether an arbitration agreement between the parties exists. The relevant observations are reproduced hereinbelow: “7.10. In view of the legislative mandate contained in Section 11(6-A), the Court is now required only to examine

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the existence of the arbitration agreement. All other preliminary or threshold issues are left to be decided by the arbitrator under Section 16, which enshrines the kompetenz-kompetenz principle. 7.11. The doctrine of “kompetenz-kompetenz”, also referred to as “compétence-compétence”, or “compétence de la recognized”, implies that the Arbitral Tribunal is empowered and has the competence to rule on its own jurisdiction, including determining all jurisdictional issues, and the existence or validity of the arbitration agreement. This doctrine is intended to minimise judicial intervention, so that the arbitral process is not thwarted at the threshold, when a preliminary objection is raised by one of the parties. The doctrine of kompetenz-kompetenz is, however, subject to the exception i.e. when the arbitration agreement itself is impeached as being procured by fraud or deception. This exception would also apply to cases where the parties in the process of negotiation, may have entered into a draft agreement as an antecedent step prior to executing the final contract. […]7.12. The legislative intent underlying the 1996 Act is party autonomy and minimal judicial intervention in the arbitral process. Under this regime, once the arbitrator is appointed, or the tribunal is constituted, all issues and objections are to be decided by the Arbitral Tribunal. 7.13. In view of the provisions of Section 16, and the legislative policy to restrict judicial intervention at the pre- reference stage, the issue of limitation would require to be decided by the arbitrator. Sub-section (1) of Section 16 provides that the Arbitral Tribunal may rule on its own jurisdiction, “including any objections” with respect to the existence or validity of the arbitration agreement. Section 16 is as an inclusive provision, which would comprehend all preliminary issues touching upon the jurisdiction of the Arbitral Tribunal. The issue of limitation is a jurisdictional issue, which would be required to be decided by the arbitrator under Section 16, and not the High Court at the pre-reference stage under Section 11 of the Act. Once the existence of the arbitration agreement is not disputed, all

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81Copy pinpoint81. In Union of India v. Pradeep Vinod Construction Company reported in 2019 INSC 1241 this Court left the issue of “accord and satisfaction” to be decided by the arbitrator and held thus: “16. […] On behalf of the Respondent, it has been seriously disputed that issuance of “No Claim” certificate as to the supplementary agreement recording accord and satisfaction as on 06.05.2014 (CA No. 6400/2016) and issuance of “No Claim” certificate on 28.08.2014 (CA No. 6420/2016) that they were issued under compulsion and due to undue influence by the railway authorities. We are not inclined to go into the merits of the contention of the parties. It is for the arbitrator to consider the claim of the

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Respondent(s) and the stand of the Appellant-railways. This contention raised by the parties are left open to be raised before the arbitrator.”

82Copy pinpoint82. Thereafter, a three-Judge Bench of this Court in Vidya Drolia & Ors v. Durga Trading Corporation reported in (2021) 2 SCC 1 extensively dealt with the scope of powers of the referral court under Section 8 and 11 respectively of the Act, 1996. It held, inter alia, that Sections 8 and 11 of the Act, 1996 are complementary to each other and thus the aspect of ‘existence’ of the arbitration agreement, as specified under Section 11 should be seen along with its ‘validity’ as specified under Section 8. This Court also held that the exercise of power of prima facie judicial review to examine the existence of arbitration agreement also includes going into the validity of the arbitration agreement and this does not go against the principles of competence-competence and the presumption of separability. It further held that the prima facie review of the aspects related to non-arbitrability may also be undertaken. The relevant observations are extracted hereinbelow: “147.4. Most jurisdictions accept and require prima facie review by the court on non-arbitrability aspects at the referral stage. 147.5. Sections 8 and 11 of the Arbitration Act are complementary provisions as was held in Patel Engg. Ltd. [SBP & Co. v. Patel Engg. Ltd. (2005) 8 SCC 618] The object and purpose behind the two provisions is identical to compel and force parties to abide by their contractual understanding. This being so, the two provisions should be read as laying down similar standard and not as laying down different and separate parameters. Section 11 does not prescribe any standard of judicial review by the court for determining whether an arbitration agreement is in existence. Section 8 states that the judicial review at the stage of reference is prima facie and not final. Prima facie standard equally applies when the power of judicial review is exercised by the court under Section 11 of the Arbitration Act. Therefore, we can read the mandate of valid arbitration agreement in Section 8 into mandate of Section 11, that is, “existence of an arbitration agreement”.

p. 885 Copy page pinpoint

147.6. Exercise of power of prima facie judicial review of existence as including validity is justified as a court is the first forum that examines and decides the request for the referral. Absolute “hands off” approach would be counterproductive and harm arbitration, as an alternative dispute resolution mechanism. Limited, yet effective intervention is acceptable as it does not obstruct but effectuates arbitration. 147.7. Exercise of the limited prima facie review does not in any way interfere with the principle of competence- competence and separation as to obstruct arbitration proceedings but ensures that vexatious and frivolous matters get over at the initial stage. 147.8. Exercise of prima facie power of judicial review as to the validity of the arbitration agreement would save costs and check harassment of objecting parties when there is clearly no justification and a good reason not to accept plea of non-arbitrability. […] xxx xxx xxx 147.11. The interpretation appropriately balances the allocation of the decision-making authority between the court at the referral stage and the arbitrators’ primary jurisdiction to decide disputes on merits. The court as the judicial forum of the first instance can exercise prima facie test jurisdiction to screen and knock down ex facie meritless, frivolous and dishonest litigation. Limited jurisdiction of the courts ensures expeditious, alacritous and efficient disposal when required at the referral stage.” (Emphasis supplied)

83Copy pinpoint83. This Court further held that the referral court, while exercising its powers under Sections 8 and 11 respectively of the Act, 1996 could exercise its powers to screen and knock down ex facie meritless, frivolous and dishonest litigation so as to ensure expeditious and efficient disposal at the referral stage. “148. Section 43(1) of the Arbitration Act states that the Limitation Act, 1963 shall apply to arbitrations as it applies