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SUPREME COURT OF INDIA
DHANANJAYA Y. CHANDRACHUD, CJI., PAMIDIGHANTAM SRI NARASIMHA, J.
NTPC Ltd. – Appellant
Versus
M/s SPML Infra Ltd. – Respondent
Civil Appeal No. 4778 of 2022
Decided On : 10-04-2023
(A) Arbitration and Conciliation Act, 1996 – Section 11(6) – Pre-referral jurisdiction of High Court – Limited scope of judicial scrutiny at pre-referral stage is navigated through test of a ‘prima facie review’ – Arbitral tribunal is preferred first authority to determine and decide all questions of non-arbitrability – Pre-referral jurisdiction of courts under Section 11(6) of Act is very narrow and inheres two inquiries – Primary inquiry is about existence and validity of arbitration agreement which also includes inquiry as to parties to agreement and applicant’s privity to agreement – These are matters which require a thorough examination by Referral court – Secondary inquiry that may arise at reference stage itself is with respect to non-arbitrability of dispute – As a general rule and a principle, Arbitral Tribunal is preferred first authority to determine and decide all questions of non-arbitrability – As an exception to the rule, and rarely as a demurrer, Referral court may reject claims which are manifestly and ex-facie non-arbitrable – Referral courts must not undertake a full review of contested facts; they must only be confined to a primary first review and let facts speak for themselves. (Paras 23, 24, 25, 26, 27 and 28)
(B) Arbitration and Conciliation Act, 1996 – Section 11(6) – Constitution of Arbitral Tribunal – Whole dispute revolves around solitary act of Appellant, NTPC, in not returning Bank Guarantees despite successful completion of work – There were no allegations of coercion or economic duress compelling SPML to withdraw any pending claims under subject contract as a condition for return of Bank Guarantees – Plea of coercion and economic duress must be seen in context of execution of Settlement Agreement not being disputed, and its implementation leading to release of Bank Guarantees – Letter of repudiation was issued only to wriggle out of terms of Settlement Agreement – Claims sought to be submitted to arbitration were raised as afterthought – This is a case where High Court should have exercised prima facie test to screen and strike down ex-facie meritless and dishonest litigation – These are the kinds of cases where High Court should exercise restricted and limited review to check and protect parties from being forced to arbitrate – High Court has committed an error in allowing application under Section 11(6) of Act – Decision of High Court set aside. (Paras 44, 45, 47, 48, 49, 50 and 51)
Facts of the case:
Present appeal arises out of a decision of High Court of Delhi, allowing Respondent’s application under Section 11(6) of Arbitration and Conciliation Act, 1996 for constitution of an Arbitral Tribunal. It is the case of Appellant NTPC that there were no subsisting disputes between the parties in view of Settlement Agreement dated 27.05.2020 and that the application for arbitration is an afterthought and abuse of the process.
Findings of Court:
Decision of High Court of Delhi in Arbitration Petition No. 477 of 2020, dated 08.04.2021, is set aside, and Civil Appeal No. 4778 of 2022 stands allowed.
Result : Appeal allowed.
Certainly. Based on the provided legal document, here are some judgements that align with the principles and legal standards discussed:
Judgements emphasizing the limited scope of judicial review at the pre-referral stage, particularly the necessity of a prima facie review to determine the existence and validity of an arbitration agreement, and the preference for arbitral tribunals to decide questions of non-arbitrability, are relevant. These decisions clarify that courts should only reject claims that are manifestly and ex-facie non-arbitrable, without delving into detailed factual disputes at this stage (!) (!) (!) (!) (!) (!) .
Judgements that reinforce the importance of a limited and screening approach in pre-arbitration proceedings, emphasizing that the court's role is to prevent frivolous or dishonest claims from proceeding to arbitration, rather than conducting full-fledged reviews of contested facts, are pertinent. This ensures the efficiency of arbitration as an alternative dispute resolution mechanism (!) (!) (!) (!) (!) (!) .
Judgements that delineate the criteria for a prima facie review, including assessing whether the assertions are bona fide and whether the dispute appears to be arbitrable on the face of the documents and claims, are crucial. They underline that the court should not engage in detailed fact-finding or mini-trials at this stage (!) (!) (!) (!) .
Judgements that affirm the principle that questions of non-arbitrability, including issues like coercion, economic duress, or disputes arising from settlement agreements, are primarily within the domain of arbitral tribunals, unless the claims are clearly and manifestly non-arbitrable, are also relevant. Courts should exercise restraint and only intervene where claims are demonstrably outside the scope of arbitration (!) (!) .
Judgements highlighting that allegations of coercion or economic duress in the context of settlement agreements or contractual disputes should be carefully scrutinized, and if found to be raised as afterthoughts or without bona fide basis, courts should not permit these to derail arbitration proceedings (!) (!) .
These judgements collectively reinforce the legal approach that courts should adopt a restrained, prima facie screening role at the pre-referral stage of arbitration, reserving the determination of questions of non-arbitrability for the arbitral tribunal, unless the claims are manifestly non-arbitrable.
JUDGMENT :
PAMIDIGHANTAM SRI NARASIMHA, J.
1. The present appeal arises out of a decision of the High Court of Delhi1 [in ARBP No. 477/2020, dated 08.04.2021] allowing the Respondent’s application under Section 11(6) of the Arbitration and Conciliation Act, 19962 [hereinafter ‘the Act’] for the constitution of an Arbitral Tribunal. It is the case of Appellant NTPC that there were no subsisting disputes between the parties in view of the Settlement Agreement dated 27.05.2020 and that the application for arbitration is an afterthought and abuse of the process.
2. By an order dated 15.07.2022, this Court, while granting leave, stayed all further proceedings before the Arbitral Tribunal. Short facts giving rise to the filing of the petition under Section 11 of the Act and leading to the impugned decision of the High Court are as follows.
3. Facts: The Appellant and Respondent, hereinafter referred to as NTPC and SPML respectively, entered into a contract for “Installation Services for Station Piping Package for Simhadri Super Thermal Power Project Stage-II at NTPC at Simhadri, Vishakapatnam.” In terms of the contract agreement, SPML furnished Performance Bank Guarantees and Advanced Bank Guarantees3 [hereinafter referred to as ‘Bank Guarantees’] for Rs. 14,96,89,136/- to secure the Appellant.
4. Pursuant to the successful completion of the project, a Completion Certificate was issued by NTPC on 27.03.2019. By its letter dated 10.04.2019, NTPC informed SPML that the final payment under the contract would be released upon the receipt of a No-Demand Certificate from SPML. The No-Demand Certificate was issued by SPML on 12.04.2019 and NTPC also released the final payment amounting to Rs. 1,40,00,000/- in April 2019. The Bank Guarantees were however withheld.
5. On 14.05.2019, NTPC informed SPML that the Bank Guarantees were withheld on account of pending liabilities and disputes between the parties with respect to other projects at Bongaigon, Barh, and Korba. SPML naturally protested. By its letter dated 15.05.2019, SPML informed NTPC that the retention of Bank Guarantees, despite issuance of the Completion Certificate and the No-Demand Certificate, by linking them to some other projects, was unjustified. Following the protest, SPML raised a demand of Rs. 72,01,53,899/- from NTPC as liabilities recoverable for actions attributable to NTPC under this very contract.
6. By its letter dated 12.06.2019, SPML called upon NTPC to appoint an Adjudicator for resolving pending disputes in terms of the General and Special Conditions of Contract. As no action was taken by NTPC, SPML moved the Delhi High Court by filing Writ Petition No. 7213 of 2019 under Article 226 of the Constitution, for the release of the Bank Guarantees. The prayer in the Writ Petition is to:
“(a) Pass an appropriate Writ, Order or Direction quashing the e-mail dated 14.05.2019 issued by the Respondent insofar as it pertains to the release of the Bank Guarantees being (a) 0040ILG002609, (b) 0040ILG001109, (C) 0040ILG001209, (d) 0040ILG001309 and direct the Respondent to release the aforesaid Bank Guarantees forthwith.
(b) Pass any other order or such other orders as may be necessary in the interests of justice, equity and good conscience.”
7. While issuing notice, the High Court, by its interim order dated 08.07.2019, directed NTPC not to encash the Bank Guarantees, and further directed SPML to keep the Bank Guarantees alive.
8. Pending the Writ Petition, negotiations between the parties culminated in a Settlement Agreement on 27.05.2020. Through the Settlement Agreement, NTPC agreed to release the withheld Bank Guarantees. SPML also agreed to withdraw its pending Writ Petition and undertook not to initiate any other proceedings, including arbitration, under the subject contract.
9. Following the Settlement Agreement, the Bank Guarantees were released by NTPC on 30.06.2020. SPML withdrew the Writ Petition, as recorded in the Order of the Delhi High Court dated 21.09.2020.
10. After th
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