Cheques Encashed Pursuant To 'Full And Final Settlement' Without Any Protest, Rajasthan High Court Refuses Arbitration

Chief Justice Manindra Mohan Shrivastava's bench further clarified that a petition seeking the appointment of an arbitrator would be deemed frivolous if it fails to disclose the full and final settlement between the parties and the encashment of cheques issued as part of the settlement.

The Court explained that although there is limited scrutiny permissible under Section 11(6) of the Arbitration and Conciliation Act, a petition may still be allowed, and an arbitrator appointed, if the petitioner can demonstrate fraud or economic duress. However, the Court emphasized that if the settlement amount was accepted without protest, the petition seeking the appointment of an arbitrator would not be maintainable.

Facts

The applicant joined the respondent on 16.072012, as an Assistant in the purchase department. The appointment letter stated that all disputes regarding the applicant's service would be referred to arbitration.

The respondent initiated a departmental inquiry against the applicant, leading to his dismissal on August 20, 2020. The applicant represented to the Collector, who referred the dispute to the Joint Labour Commissioner, but the case was closed for lacking jurisdiction. Subsequently, the applicant invoked the arbitration clause in his appointment letter and nominated an arbitrator. Thereafter, the parties entered into a full and final settlement and the respondent issued a cheque amount for 3 months salary in lieu of notice to the applicant. The cheque was encashed and the amount was accepted without any protest or demur.

Thereafter, the applicant filed an application under Section 11(6) of the A&C Act seeking appointment of the arbitrator, however, the fact regarding a settlement between the parties was not disclosed in the application.

Submissions of the Parties

The respondent objected to the maintainability of the petition on the following grounds:

• The petition is not maintainable as the parties have settled the dispute between them. The settlement amount has been accepted by the applicant without any protest or demur.
• The applicant has not disclosed the fact about the settlement in the application. Upon the settlement, the dispute does not survive and becomes non-arbitrable.

The applicant made the following counter-submissions:

• The scope of examination under Section 11(6) of the Act is limited to the examination of the existence of the arbitration agreement and disputed question of facts regarding settlement and discharge should be left to the arbitrator.

Analysis by the Court

The Court began by referring to recent Supreme Court judgments on non-arbitrability of disputes and the scope of judicial review. It noted that the applicant had accepted four cheques towards full and final settlement, acknowledged receipt, and encashed the amounts. The Court found that the applicant had concealed the fact of settlement when filing the application for arbitration.

The Court then discussed the principle of non-arbitrability of disputes settled through mutual agreement. It cited the case of NTPC Limited v. SPML Infra Limited, where the Supreme Court held that disputes settled through mutual agreement are not arbitrable unless there is a ground to invalidate the settlement, such as coercion, fraud, or misrepresentation.

Applying this principle to the present case, the Court found that the applicant had accepted the settlement voluntarily and without any coercion, fraud, or misrepresentation. The Court noted that the settlement agreement covered all disputes between the parties, including the applicant's dismissal and related claims. Therefore, the Court concluded that the dispute was non-arbitrable due to the full and final settlement between the parties.

The Court also criticized the applicant for concealing the settlement agreement and attempting to invoke the arbitration clause after accepting the settlement. It viewed the applicant's actions as an abuse of process and an attempt to prolong the dispute unnecessarily. Therefore, the Court dismissed the application, considering it frivolous and based on concealment of material facts regarding the settlement.

Case Title: Vimlesh Baregama v. Manglam Cement Ltd, S.B. Arbitration Application No. 23 of 2021

Date: 28.03.2024

Counsel for the Petitioner: Mr. Vimlesh Baregama, petitioner in person.

Counsel for the Respondent: Mr. Rishabh Khandelwal Advocate

Amicus Curiae: Mr. Susshil Daga, Advocate.

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