Bombay High Court Rejects Mumbai Metro's Arbitration Request Application, Rules Settlement Agreement Supersedes Original Contract

The Bombay High Court recently rejected the Mumbai Metro One Private Limited's (MMOPL) request to have its dispute with Hindustan Construction Company (HCC) resolved by way of arbitration. The Court deciding that the arbitration clause in the original contract no longer applies to new issues emerging from the settlement, ruled that once a "full and final" settlement agreement is executed, it supersedes the original contract. Justice Abhay Ahuja, on 18th December, 2025 stating that “the arbitration clause in the prior Contract cannot be read into the terms of the Settlement Agreement unless expressly mentioned”, dismissed an application seeking reference of a commercial summary suit to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996.

The dispute arose out of a contract dated August 16th, 2010, under which Hindustan Construction Company was made responsible to carry out civil works for the Mumbai Metro Line-1 project. On March 28th, 2024, the parties signed a formal Settlement Agreement following litigation resulting from performance concerns and disputes over bank guarantees. In accordance with the agreement, MMOPL promised to pay a settlement of ₹9 crores, issue a final take-over certificate and return HCC's bank guarantees. The bank guarantees were returned but MMOPL failed to pay the ₹9 crores, claiming "financial difficulty”. To recover the money, HCC filed a Commercial Summary Suit.

The Court's main concern was whether the arbitration clause in the original 2010 contract should be relied on to resolve the dispute over the non-payment of the ₹9 Crore settlement fee, or if the Settlement Agreement, containing no reference to arbitration, supersedes the original contract.

Arguing on behalf of Mumbai Metro, Advocate Karl Tamboly contended that the Settlement Agreement was carried out "in furtherance of" the initial contract and work instructions. Relying on doctrine of separability under section 16, he argued that any disagreement resulting from the settlement had to be arbitrated, as the arbitration clause survives even though the settlement agreement has been acted upon. On the other hand, HCC's attorney, Mr. Shanay Shah, said that the Settlement Agreement "superseded the contract" and lacked an arbitration clause. He underlined that the settlement's Article 5(ii) expressly declared that it superseded all prior agreements and that Article 2 gives Mumbai courts exclusive jurisdiction, deliberately omitting the inclusion of an arbitration clause.

The Single Bench comprising of Justice Abhay Ahuja ruled that the Settlement Agreement was clear in its objective to replace the original contract. The Court noted that the agreement was preceded by a mutual reconciliation of all dues.

It noted that “The settlement agreement makes it abundantly clear that it is a full and final settlement irrespective of whatever claims were raised under the contract and work order. Therefore if all the claims are dealt with and settled, no issues under the contract are left to be adjudicated upon in arbitration”.

Rejecting the argument based on doctrine of separability, Justice Ahuja noted that by include a governing law and jurisdiction clause but omitting arbitration, the Settlement Agreement "intentionally departed from the dispute redressal mechanism provided under the Contract." The Court clarified that while Section 16 preserves an arbitration clause when the main contract is alleged to be invalid, it does not apply where parties “consciously enter into a subsequent agreement that finally determines their rights”.

The Court additionally stated that MMOPL had already executed the settlement by issuing the take-over certificate and repaying the bank guarantees. The judge observed, "The applicant (MMOPL) has thus acknowledged that the settlement agreement is binding between the parties but has failed to repay the settlement amounts within the stipulated timeline."

The Court rejected MMOPL's application, concluding that the Settlement Agreement had extinguished the original contract's obligations, including its arbitration clause. Accordingly, the interim application seeking reference to arbitration was dismissed.

Case Title: Mumbai Metro One Private Limited v. Hindustan Construction Company

Case No: Interim Application No. 1969 of 2025 in Commercial Summary Suit No. 3 of 2025

Coram: Justice Abhay Ahuja

Date of Decision: December 18, 2025

Appearances:

For Applicant (MMOPL): Mr. Karl Tamboly, Mr. Tushad Kakatiya, Mr. Paresh Patkar, Mr. Kartik Hede, Mr. Ayaan Zariwalla, and Ms. Bhakti Chandan i/b Mulla and Mulla.

For Respondent (HCC): Mr. Shanay Shah, Ms. Viloma Shah, Mr. Ativ Patel, and Mr. Harshad Vyas i/b AVP Partners.

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