Arbitrator Must Determine Validity Of Coercion Claims In Settlement Agreements, Termination Of Arbitration Improper: Delhi High Court
The Delhi High Court bench of Justice Neena Bansal Krishna has held that claims of coercion or economic duress in a settlement agreement require examination by an arbitrator to determine their validity. The bench held that the Arbitrator's summary dismissal of the claimant's plea and the termination of arbitration proceedings without a trial were improper.
Further, Justice Krishna held that even if certain disputes were resolved through the settlement agreement, there were still unresolved issues that should have been adjudicated by the arbitrator.
Brief Facts:
Gae Projects (P) Ltd (Appellant), a construction company, engaged in civil, mechanical, and electrical works, bid successfully for tenders floated by GE T&D India Ltd (Respondent) for works at the facility of Cairn India Limited (CIL). The contracts were awarded via two purchase orders for civil and electrical works.
The Appellant began the civil works in December 2013 and performed them in line with the contract terms and additional instructions from the Respondent. These included extra work such as fixing handrails, gratings, and PVC pipes. Disputes arose regarding these contracts which led the Appellant to file for arbitration under Section 11 of the Arbitration Act. The Respondent contended that the disputes should have been referred to the Project Manager as per the General Conditions of Contract. The Petition for arbitration was allowed which treated the two purchase orders as separate petitions but appointed a common arbitrator.
The Appellant's statement of claim sought Rs.4,58,60,907.00 for civil works and Rs.79,54,045.00 for electrical works along with a mandatory injunction for the Respondent to issue completion certificates. The Respondent filed a defence and an application under Section 16 of the Arbitration Act and argued that the arbitrator lacked jurisdiction due to a settlement agreement which supposedly resolved all disputes. It claimed that no arbitration clause existed in this settlement.
The Arbitrator after considering both parties' arguments held that the settlement agreement resolved all disputes. It observed that the Appellant acted on the settlement by writing emails and sending invoices. Feeling aggrieved, the Appellant approached the High Court and filed an appeal under Section 37(2)(a) of the Arbitration Act which allowed the application under Section 16(2) of the Arbitration Act and terminated the arbitration proceedings.
Observations by the High Court:
The High Court noted that the Arbitrator accepted the Respondent's plea under Section 16(2) of the Arbitration Act and stated that no arbitrable dispute existed due to the settlement.
The High Court clarified that it has a limited scope of interference under Section 37 of the Arbitration Act. It held that the grounds for challenging an arbitral award are confined to those specified in Section 34, as held in the Supreme Court's decision in MMTC Limited v. Vedanta Ltd. (2019) 4 SCC 163.
The High Court acknowledged that the parties entered into a settlement on 23.01.2015. While the initial clauses of the settlement addressed specific quantities and payments, clauses 4 to 13 outlined a roadmap for future work and formalities. This indicated that the settlement did not resolve all disputes related to the two purchase orders but only certain issues concerning past work. Consequently, the High Court held that the settlement did not preclude arbitration for future disputes.
The High Court noted that the Appellant claimed that the settlement was entered into under economic duress. Although the Arbitrator noted letters dated 06.06.2015 and 17.02.2015 where the Appellant cited business interests as the reason for the settlement without mentioning coercion or repudiation, the High Court held that the true nature of the settlement's execution—whether due to business prudence or economic duress—was a matter of evidence.
The High Court referred to precedents, including Ambica Construction vs. Union of India (2006) 13 SCC and R.L. Kalathia & Co. vs. State of Gujarat (2011) 2 SCC 475, where contractors issued “No Dues Certificates” under coercion yet it was held that such certificates did not eliminate arbitrable claims. Similarly, in Oriental Insurance Co. Ltd. vs. Dicitex Furnishing Ltd. (2020) 4 SCC 621, the Supreme Court held that claims of coercion in signing discharge documents require arbitration to determine their validity. Thus, the High Court held that the Arbitrator's outright rejection of the Appellant's plea without a trial was inappropriate.
Further, the High Court held:
“to say that there remained no arbitrable disputes is an incorrect interpretation of the Settlement Agreement, as it is evident from the averments and the corresponding exchange between the parties that the arbitrable issues under the two Purchase Orders continued which required adjudication. Even if some disputes were agreed vide Settlement dated 23.01.2015, there remained disputes which at least should have been undertaken for adjudication by the learned Arbitrator.”
Therefore, the High Court held that the Arbitrator's finding of no arbitrable disputes due to the settlement was against the agreed terms and the correspondence exchanged. Consequently, the High Court set aside the impugned orders and allowed the appeals.
Case Title: Gae Projects (P) Ltd. Vs Ge T&D India Ltd. (Formerly Alstom T&D India Ltd.)
Case Number: ARB. A.(COMM) NO.38/2019, I.A. 17 854-17855/2019
Advocate for the Appellant: Ms. Swati Bansal, Mr. R. Rangarajan and Mr. Arovind Gopinathan
Advocate for the Respondent: Mr. Sulabh Rewari and Ms. Mansvini Jain
Date of Judgment: 15th July, 2024