Contract Discharged By Settlement – Dispute Under Contract Is A Deadwood; Cannot Be Referred To Arbitration: Bombay High Court

Update: 2022-08-18 06:38 GMT

The Bombay High Court has ruled that once a settlement is arrived at by the parties, the contract between the parties stands discharged by mutual agreement and hence, the dispute arising under the said contract is a deadwood which cannot be referred to arbitration.

Observing that a party who conceals or suppresses facts, including the factum of a settlement, is disentitled to relief under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act), the Single Bench of Justice G.S. Kulkarni held that a party cannot be allowed to resurrect the dead issues and foist an unwarranted arbitration after the contract between them stood discharged by a complete accord and satisfaction in terms of the settlement agreement arrived between them.

The applicant Vishwajit Sud & Co. and the respondent L & T Stec JV entered into Sub-Contract Agreements, under which the applicant was appointed as a sub-contractor. After the respondent allegedly refused to make payments for the work done by the applicant, the applicant issued a notice invoking the arbitration clause. The respondent, in its reply to the said notice, contended that a settlement was arrived at between the parties and therefore, the contract between the parties was discharged. The respondent averred that once a contract was discharged by way of settlement, neither the contract nor any dispute arising under the contract survived.

Consequently, the applicant filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act) before the Bombay High Court for appointment of an Arbitral Tribunal.

The respondent- L & T Stec JV submitted before the High Court that a Settlement Agreement was executed by the parties and all the disputes under the Contract were put to an end, which was deliberately suppressed by the applicant in its application under Section 11 of the A&C act.

The applicant Vishwajit Sud & Co. averred that the issue whether there was an accord and satisfaction arrived at between the parties is required to be adjudicated by the Arbitral Tribunal.

Noting that there was a settlement arrived at between the parties, the terms and conditions of which were completely known to the applicant, the Court accepted the contention of the respondent that the applicant attempted to arbitrate a dispute which was absolutely a deadwood.

The Court observed that eight months after the settlement agreement was signed by the parties, the applicant intended to wriggle out from the terms of the settlement on the ground that it was not an appropriate settlement and issued a notice invoking the arbitration agreement. The Court further noted that thereafter, the applicant issued a letter unconditionally withdrawing the said notice invoking arbitration and confirmed that the dispute stood amicably settled between the parties. However, after the respondent rejected the demand for further payment, as reagitated by the applicant, the applicant withdrew the settlement agreement and issued a fresh notice invoking arbitration.

Rejecting the contention of the applicant that there was any coercion or duress exercised by the respondent for getting the settlement agreement executed, the Court held that the said bald pleas of coercion were made without any supporting material and that the conduct of the applicant was clearly reprehensible.

Holding that no disclosure regarding the settlement between the parties was made in the pleadings filed before the Court, the Court held that the intention of the applicant to suppress materials and misguide the Court was clear.

"There is thus a clear attempt on the part of applicant appears to be to wriggle out of the settlement and drag the respondent into unwarranted arbitration so as to resurrect dead issues. The Court cannot be oblivious to such conduct of the applicants in which considering the reliefs as prayed for as such conduct of the applicants is certainly not a conduct of a bonafide litigant."

The Bench observed that the Delhi High Court in Sugam Construction (P) Ltd. versus Northern Railway Administration (2012) and in Fiberfill Engineers versus Indian Oil Corporation Ltd. (2016) has held that the party who conceals or suppresses facts is disentitled to relief under Section 11 of the A&C Act and that on such ground itself, the proceedings under Section 11 are liable to be dismissed.

The Bench held that it was a clear case of accord and satisfaction, wherein the parties under the settlement agreement had decided to discharge the contract in full and final settlement.

"The legal position which would be brought about by virtue of a settlement agreement as entered between the parties is that such settlement would discharge the contract by mutual agreement which is a process akin to the process the parties having entered into a contract, thereafter decide to discharge the contract by mutual agreement. Such eventuality is well-known in common law as accord and satisfaction by substituted agreement.", the Court said.

Further, the Court noted that the Supreme Court in Union of India versus Kishorilal Gupta & Bros. (1959) had held that when there is an accord and satisfaction, the arbitration clause itself would perish with the original contract. The Apex Court had ruled that it is for the Court to decide in the facts of the case before it as to whether any cause of action at all would survive, not only under the contract but also under the arbitration agreement.

Additionally, in view of the law laid down by the Supreme Court in Union of India & Ors. versus Master Construction Company (2011), the Court observed that where the dispute raised by the claimant with regard to the validity of the discharge voucher or no-claim certificate or the settlement agreement, prima facie, appears to be lacking in credibility, the dispute is not required to be referred to arbitration at all.

"Adverting to the position in law as being consistently held by the Supreme Court in the decisions as noted above, in the facts of the present case, it is crystal clear that the applicants with open eyes had entered into a settlement agreement with the respondent. If there was to be any apprehension of a fraud, coercion, undue influence or duress, the settlement agreement which was conceived on 31 October, 2020 could not have have ever been signed by the applicants on 2 July, 2021", the Court said.

Holding that the allegations of coercion were ex facie false which did not require adjudication, the Court ruled that in view of the complete accord and satisfaction in terms of the settlement agreement arrived at by the parties, the contract itself stood discharged.

The Court ruled that the applicant was attempting to resurrect the dead issues and foist an unwarranted arbitration on the respondent. Thus, the Bench dismissed the applications and imposed a cost of Rs. 50,000/- on the applicant for each of the applications filed by it.

Case Title: Vishwajit Sud & Co. versus L & T Stec JV, Mumbai

Citation : 2022 LiveLaw (Bom) 294

Dated: 26.07.2022 (Bombay High Court)

Counsel for the Applicant: Mr. Aayush Agarwala a/w. Mr. Saurish Shetye, Ms. Jyotsna Kondhalkar, Ms. Dhanashree Deshpande i/b. Ms. Jyotsana Kondhalkar

Counsel for the Respondent: Mr. Shyam Kapadia, Mr. Dhruva Gandhi a/w. Sanaya Dadachanji, Himalaya Chaudhari i/b. M/s. Manilal Kher Ambalal & Co.

Click Here To Read/Download Judgment



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