Veracity Of Allegations Against Settlement Agreement Cannot Be Looked Into By Court In Application U/S 11 Of Arbitration Act: Delhi High Court

The Delhi High Court bench of Justice Manoj Kumar Ohri has reiterated that the scope of inquiry under Section 11 of the Arbitration and Conciliation Act, 1996, is limited to examining the prima facie existence of the arbitration agreement. It was further observed that if either party contests a prior settlement agreement, then such allegations cannot be looked into by the Court under an application for appointment of arbitrator and would have to take recourse under Section 34 of the Arbitration and Conciliation Act. Background Facts In pursuance of an award of work by the Respondent to the Petitioner, an EPC Agreement was executed on 09.12.2020. Later, on disputes having arisen between the parties, the Respondent issued a notice to terminate the Agreement on 25.05.2023. The said Agreement provided for dispute resolution and in particular, Clause 26.3 provided for the resolution of disputes through the arbitration. Contentions The Counsel for the Petitioner contended that the Agreement also envisaged that prior to a reference to arbitration, the parties would attempt conciliation and, in this regard, would approach the Authority's Engineer (Conciliator) to mediate and assist the authorities in resolving the dispute. It was submitted that despite the Petitioner approaching the Respondent, the latter failed to appoint any Conciliator, resulting in the Petitioner making his request for the resolution of disputes through the Chairman of the authority under the second part of the dispute resolution clause. The same resulted in the signing of the Minutes of Meeting on 13.02.2024 forwarded through letter dated 04.03.2024. Though it is stated that the authorities reached at a settlement, however, the same did not quantify any amount and provided that reconciliation of the payment to the Contractor would be done as per the contract provisions. The contractor thereafter appointed an independent engineer, who assessed and submitted a valuation report. The Respondent, however, released a sum of Rs 10,52,71,116/- Crores to which the Petitioner protested vide its letter dated 08.07.2024. The Petitioner issued another conciliation notice dated 23.08.2024 under Clause 26.2 of the Agreement, the same, however, was denied, resulting in Petitioner taking steps for invocation of arbitration under Clause 26.2. The Counsel for the Respondent took a preliminary objection to the maintainability of the present petition by contending that the settlement arrived at between the parties recorded in the Minutes of Meeting (“MoM”) dated 13.02.2024 itself amounted to an award which could only be assailed in appropriate proceedings by the Petitioner. While referring to Section 73 of the A&C Act, it was contended that the settlement agreement had been arrived at in pursuance of conciliation proceedings that took place under Part-III of the A&C Act and, therefore, in light of Section 74, was enforceable as an arbitral award. Observations From a perusal of the material on record, the Court observed that the MOMs and related correspondence refer to the meeting as 'Conciliation Meetings' whereby the Petitioner undertook not to approach any court/tribunal for any claim/damages/compensation after receipt of settlement payment. These MOMs had been signed by various representatives of the Petitioner. The Court noted that in the letter dated 08.07.2024, the Petitioner itself referred to the meetings between the parties as conciliation meetings. Thus, the meetings even as per the understanding of the Petitioner were conciliation meetings. The Court observed that merely because the person conducting the meeting was not the Authority's engineer, did not mean that the proceedings lost their character. Clause 26.2, itself allowed that the conciliation could be conducted by not just the Authority's Engineer, but also any other such other person as the parties may mutually agree upon. The Court observed that the Petitioner had alleged that the settlement proceedings were vitiated because at that time the Petitioner was in financial duress. The veracity of the allegations of the Petitioner qua the settlement agreement could not be looked into by the Court in a petition under Section 11 of the Act. As per Section 74 of the A&C Act, the settlement agreement entered shall have the same status and effect as if it is an arbitral award on agreed terms on the substance of the dispute rendered by an arbitral tribunal under section 30. If the Petitioner wished to challenge the settlement agreement, they would have to take recourse under Section 34 of the A&C Act, subject to the rules of limitation. The Court concluded that as per Clause 26.3, only those disputes could be referred to arbitration which could not be resolved by Conciliation under Clause 26.2. Since a settlement agreement had been entered into under Clause 26.2, the dispute could not be referred...

Veracity Of Allegations Against Settlement Agreement Cannot Be Looked Into By Court In Application U/S 11 Of Arbitration Act: Delhi High Court

Arpita Pande

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