Settlement Arising From Contract Containing Arbitration Clause Must Be Resolved Through Arbitration: Karnataka High Court

Brief Facts:

M/s S P Sai Technologies (Respondent) filed a suit for recovery of money, and M/s Akshaya Private Limited (Appellant) contested the jurisdiction of the court by filing an application under Section 8 of the Arbitration and Conciliation Act to refer the matter to arbitration. In response, the Respondent filed objections and argued that the matter between the parties was settled and that the Appellant agreed to pay a certain sum of money.

The Trial Court held that the dispute was settled and that the Respondent was merely seeking to enforce the settlement agreement. Consequently, the application to refer the matter to arbitration was rejected. The Trial Court found that the arbitration clause also provided for amicable settlement between the parties and held that since the Respondent claimed the dispute was settled and the Appellant offered to pay the Respondent, the matter could not be referred to arbitration.

Feeling aggrieved, the Appellant challenged the decision of the Trial Court.

Observations by the High Court:

The High Court noted that despite the Trial Court's observation that the Appellant didn't sign the arbitration agreement, the Respondent did not dispute its validity. The High Court referred to the decision of the Supreme Court in SBI General Insurance Co. Ltd. Vs Krish Spinning where it was held that if one party raises a defense of accord and satisfaction, and if the parties are bound by an earlier arbitration agreement, the Arbitral Tribunal should resolve the claim of accord and satisfaction.

The High Court noted that the dispute involving an assurance from the Appellant to pay a certain amount to the Respondent arose from the original contract containing an arbitration clause. It noted that the Respondent claim of settlement did not include any evidence showing that the arbitration agreement was canceled or overridden. The bench held that since the settlement purportedly related to obligations from the initial contract, which contained an arbitration clause, the right to enforce any settlement terms must be pursued through arbitration.

As a result, the High Court set aside the impugned order. It allowed the application under Section 8 of the Arbitration Act and directed that the Respondent must seek arbitration according to the law. Consequently, the suit was dismissed.

Case Title: M/S Akshaya Private Limited Vs M/S S P Sai Technologies

Case Number: COMMERCIAL APPEAL NO. 189 OF 2024

Citation No: 2024 LiveLaw (Kar) 347

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