Duty of Referral Court to examine dispute to screen the parties from being forced to arbitration
Judgment dated 10.4.2023 of the Supreme Court of India
Arbitrator – Appointment under section 11(6) of AA – Duty of the Referral Court to examine the dispute in limited scrutiny through eye of the needle is necessary and compelling to protect the parties being forced to arbitration – Claims sought to be referred to arbitration were afterthought – Prime facie test to screen and strike down the ex-facie meritless and dishonest litigation should be applied –
The appellant – NTPC and the respondent – M/s. SPML Infra ltd had entered into a contract for installation services of Simhadri Super Thermal Power Project Stage II. The respondent furnished performance bank guarantee and advanced bank guarantees for Rs.14,96,89,136/-.
Completion certificate was issued by the NTPC on 27.3.2019 and by the letter dated 10.4.2019, the respondent was informed that final payment would be released on receipt of no demand certificate.
On 12.4.2019, the respondent submitted the no-demand certificate and the payment of Rs.1,40,000/- was released. However, the bank guarantees were withheld.
On 14.5.2019, the NTPC informed the respondent that BGs were withheld for pending liabilities and disputes between the parties in respect of other projects at other places. The respondent protested the said information by its letter dated 15.5.2019 and informed that linking of BGs of one project with other projects was unjustified. The letter of repudiation of settlement agreement was issued two months after its execution.
The respondent raised demand of Rs.72,01,53,899/- as liabilities recoverable for actions attributable to NTPC under the present contract.
By the letter dated 12.6.2019, the respondent called upon NTPC to appoint an Adjudicator to resolve dispute and since no action was taken by NTPC, it had moved the High Court of Delhi for release of BGs.
In the meanwhile, the settlement agreement was executed on 27.5.2020 as per the negotiations between the parties to release BGs by NTPC and to withdraw writ petition by the respondent as also not to initiate any other proceedings including arbitration.
On 30.6.2020, the BGs were released and on 21.9.2020 the writ petition was withdrawn.
Thereafter, on 10.10.2020, the respondent repudiated the settlement agreement and filed section 11(6) application for appointment of arbitrator, alleging coercion and economic duress in execution of settlement agreement. The High Court of Delhi allowed the application.
HELD – In para 18 it was observed that the limited scrutiny is necessary and compelling when the matter is demonstrably non-arbitrable. That the inquiry into the allegations of coercion and economic duress in execution of the settlement agreement has direct bearing on arbitrability of the dispute. The settlement agreement was comprehensive. It was recorded that there were no subsisting issues pending between the parties. It was held that the High Court ought to have examined the issue of final settlement of disputes in the context of the principles laid down in Vidya Drolia’s case. There are kinds of cases where the High Court should exercise restricted and limited review to check and protect the parties from being forced to arbitration. The Civil Appeal was allowed.
NTPC Ltd Vs. M/s. SPML Infra Ltd (Civil Appeal No.4778 of 2022)
