Arbitration Clause in original contract perishes with it subsequent to the settlement agreement foreclosing earlier contracts between the parties
The plaintiff was awarded contract for development of housing society “IREO Victory Valley” for Rs.3.03 crores vide letter of intent dated 11.2.2011. Further work orders were also issued.
The plaintiff issued demand notice dated 11.1.2019 asking the defendant to pay due amount of more than Rs.107 crores.
On 18.1.2020, there was settlement agreement and the earlier contracts were fore-closed.
On 13.6.2021 the plaintiff sent two demand notices for unpaid operational debt of Rs.18.76 crores. However, the defendant repudiated the same vide letter dated 28.6.2022.
On 3.8.2022, the plaintiff filed IBC section 9 petition for CIRP against the defendant and same is pending.
The plaintiff filed the summary suit for compensation in respect of Settlement Agreement dated 18.1.2020.
HELD that the important question was if the settlement is within the contract itself and not outside of it, the contract would not be rescinded and hence, the arbitration clause in the original contract would still be applicable. In other words, the question is whether the original contract itself is discharged or not. Another question is whether if there is substantial dispute as to whether the original contract is superseded or not, the parties ought to be referred to arbitration. The original contract was that the plaintiff was to render services to the defendant. However, the nature of Settlement Agreement itself is different in respect of amounts payable to the plaintiff and other aspects. Moreover, the Settlement mentions that this would be a foreclosure agreement and full & final settlement. If there is unilateral repudiation then the arbitration clause may survive depending on the facts of the case. It is, however, curious that the Defendant insists for arbitration without denying the existence of the Settlement Agreement. Arbitration cannot be used as a straw to delay the adjudication and escape liabilities and obligations under the Settlement Agreement.
Judgment dated 24.4.2024 in CS (COMM) 534 of 2023 of Larsen and Toubro Limited Vs. IREO Victory Valley Pvt Limited with connected matter.
