Bare Plea Of Fraud, Coercion Not Enough To Challenge Settlement Agreement U/S 34 Of The A&C Act: Delhi High Court

The Court held that once a party has voluntarily participated in the mediation proceedings without any protest or demur resulting in the settlement agreement, it cannot, subsequently, be allowed to challenge the settlement agreed on grounds of fraud/coercion.

The Court further held that the Court exercising powers under Section 34 of the A&C Act cannot go behind the rationale as to the terms of the settlement agreement.

Facts

The dispute arose in the context of a loan transaction, where the petitioners, Mr. Sanjeev Bansal and Mrs. Usha Bansal, were borrowers. The borrowers had taken a loan from the respondent, and a mortgage was created over a property as security for the loan.

The parties, recognizing the need for resolution, opted for mediation to settle their disputes amicably.During the mediation proceedings, the parties engaged in negotiations facilitated by a mediator appointed for this purpose. Subsequently, the parties reached a consensus, leading to the execution of a Settlement Agreement.

The Settlement Agreement outlined the terms and conditions under which the outstanding loan amount would be repaid by the borrowers in exchange for the release of the mortgaged property. The borrowers offered to repay INR 7.00 crores by specific dates with interest. The outstanding loan amount was to be restructured into a new term loan at a reduced interest rate.

The borrowers agreed to withdraw notices and allegations, remain bound by the Agreement, and acknowledged the settlement without coercion. The Agreement was to be considered as an Arbitral Award under the A&C Act. Aggrieved by the settlement agreement, the borrowers challenged it under Section 34 of the A&C Act.

Contention of the Parties

The petitioner challenged the award cum settlement agreement on the following grounds:

• That they were coerced into signing the Settlement Agreement under duress. It was argued that the circumstances surrounding the execution of the agreement left them with no genuine choice but to agree.
• That fraudulent means were employed by the other party to induce them into the Settlement Agreement.
• That they did not receive a copy of the Settlement Agreement, and therefore, were not fully aware of its contents. It was asserted that one of the parties had no knowledge of the agreement and had not authorized representation in the mediation proceedings.
• The petitioner brought to the court's attention a previous communication from the other party, claiming it was ignored in the context of the Settlement Agreement.

The respondent made the following counter-submissions:

• That the Settlement Agreement was executed voluntarily by both parties.
• That at no point during the mediation proceedings or the execution of the agreement were any coercive tactics employed.
• That the petitioner waited for almost 21 months before challenging the Settlement Agreement. This, according to the respondent, raised questions about the bona fides of the challenge.
• That the petitioner made no payment towards the settlement amount after the execution of the agreement.
• That the Settlement Agreement itself contained clauses explicitly stating that it was entered into voluntarily, without any force, coercion, or duress.
• That the court should give due weight to the clear language of the agreement.

Analysis by the Court

The court highlighted that one of the petitioners, Mr. Sanjeev Bansal, admitted to signing the Settlement Agreement. Thus, the attempt to challenge the agreement based on the non-supply of a copy lacked credibility.

The court found the claim by Mrs. Usha Bansal, the other petitioner, that she had no knowledge of the Settlement Agreement, contradicted by evidence. It pointed to an email from her email address authorizing her husband to represent her in the mediation proceedings.

The court examined the contentions of the petitioners that the Settlement Agreement was vitiated by fraud, coercion, and undue influence.

It emphasized that the Settlement Agreement explicitly stated that it was reached without force, coercion, or duress and after the parties understood its contents.

The court observed that the petitioners did not make any protest before or soon after the execution of the Settlement Agreement. They voluntarily participated in the mediation process. It highlighted that if there was no consensus during mediation, the petitioners could have defended their stand in a commercial suit. However, they chose to execute the Settlement Agreement.

The court asserted that the lack of credible evidence supporting the plea of fraud, coercion, or duress affirmed the binding nature of the Settlement Agreement. It emphasized that an objective reading of the agreement revealed the parties' free consent and mutual intention to establish a final and binding contract.

The court emphasized the importance of encouraging amicable settlements and discouraging litigants from challenging settlements on flimsy grounds.

Accordingly, the Court dismissed the petition.

Case Title: Usha Bansal v. Genesis Finance Co. Ltd

Citation: 2023 LiveLaw (Del) 1299

Date: 08.12.2023

Counsel for the Petitioners: Mr. Rajshekhar Rao, Sr. Adv. alongwith Mr. Naveen Sharma and Ms. Vasudha Trivedi, Advs.

Counsel for the Respondent: Mr. Tishampati Sen, Mr. Shubhanshu Gupta and Ms. Shreni Taran, Advs.

Click Here To Read/Download The Order