Supplementary Agreement Rescinding Arbitration Clause; Whether Agreement Contrary To Law, To Be Decided By Arbitrator: Delhi High Court

The Single Bench of Justice Sanjeev Sachdeva ruled that the disputes raised by the party contending that the supplementary agreement was hit by Section 17 and Section 23 of the Indian Contract Act, 1872, since it was signed by the party under duress and undue influence, are disputes which the Arbitral Tribunal is competent to rule upon.

The petitioner Kiran Infra Engineers Limited and the respondent Northern Railway entered into a contract. The petitioner thereafter invoked the arbitration clause contained in the said principal contract and filed a petition under the Arbitration and Conciliation Act, 1996 before the Delhi High Court seeking appointment of an Arbitral Tribunal for adjudication of the disputes between the parties.

The respondent Northern Railway contended before the High Court that the principal contract entered into between the parties was superseded by a supplementary agreement. The respondent added that the said supplementary agreement specifically stipulated that the principal agreement would stand fully discharged and all the terms and conditions in the principal agreement, including the arbitration clause, would be rescinded.

The petitioner Kiran Infra Engineers Limited submitted that the supplementary agreement did not take away the right of the petitioner to initiate appropriate proceedings in accordance with the law, and that the supplementary agreement was hit by Section 16 and Section 23 of the Indian Contract Act, 1872, being induced by undue influence and having an unlawful consideration/object, respectively.

The petitioner contended that it was forced to sign the supplementary agreement, failing which the payment under the principal contract would not have been released to the petitioner.

The High Court observed that the supplementary agreement signed between the parties prima facie suggested that payment was released to the petitioner subject to the petitioner signing the said supplementary agreement.

The Court noted that the supplementary agreement had provided that in consideration of the payment made to the petitioner under the principal agreement, the principal agreement was discharged and all the terms and conditions in the principal agreement, including the arbitration clause, were rescinded.

The High Court ruled that the issue whether the supplementary agreement operated as a full and final discharge of the obligations of the parties under the principal agreement or not, and whether it rescinded the terms and conditions of the principal agreement or not, fell within the jurisdiction of the arbitrator.

The Court held that the disputes raised by the petitioner contending that the supplementary agreement was hit by Section 17 and Section 23 of the Indian Contract Act, since it was signed by the petitioner under duress and undue influence, were disputes which the Arbitral Tribunal would be competent to rule upon. The Court added that whether the supplementary agreement was contrary to law or not in view of taking away the right of the petitioner to invoke arbitration, was required to be referred to the arbitrator.

The Court thus allowed the petition and appointed a sole arbitrator to adjudicate the disputes between the parties.

Case Title: Kiran Infra Engineers Limited versus Northern Railway

Citation: 2022 LiveLaw (Del) 439

Dated: 06.05.2022 (Delhi High Court)

Counsel for the Petitioner: Mr. Deepak Biswas and Mr. Ambuj Tiwari, Advocates.

Counsel for the Respondent: Mr. Sushi Kumar Pandey, Senior Panel Counsel, Mr. Sahaj Garg and Mr. Rahul Maurya, Advocates.

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