SUPREME COURT OF INDIA
Dr. Dhananjaya Y. Chandrachud, CJI., J.B. Pardiwala, Manoj Misra, JJ.
SBI General Insurance Co. Ltd. – Appellant
Versus
Krish Spinning – Respondent
Civil Appeal No. 7821 and 7822 of 2024 (Arising out of SLP (C) No. 3792 and 7220 of 2024)
Decided on : 18-07-2024

IMPORTANT POINTS
(1) Invocation of arbitration – Execution of discharge voucher – There is no rule of absolute kind which precludes arbitration in cases where a full and final settlement has been arrived at.
(2) Invocation of arbitration – Execution of discharge voucher – Dispute being one of quantum and not of liability, it falls within ambit of conditional arbitration clause as contained in insurance policy.
(3) Invocation of arbitration – Although Arbitral Tribunal is preferred first authority to determine questions pertaining to non-arbitrability, yet Referral court may exercise its limited jurisdiction to refuse reference to arbitration in cases which are ex-facie frivolous and where it is certain that disputes are non-arbitrable.
(4) Limitation Act, 1963 is applicable to applications filed under Section 11(6) of Arbitration and Conciliation Act 1996.
(5) Where parties are not ad idem over accepting execution of no-claim certificate or discharge voucher, such disputed discharge voucher may itself give rise to arbitrable dispute.

Headnote:

(A) Arbitration and Conciliation Act, 1996 – Section 11(6) – Invocation of arbitration – Execution of discharge voucher – Liability by appellant is admitted – However, quantum of liability is in dispute – Dispute being one of quantum and not of liability, it falls within ambit of conditional arbitration clause as contained in insurance policy – It cannot be said that the claim is a deadwood claim or the arbitration application before the High Court was time-barred – A contract between parties can come to an end by performance thereof by both parties, by fulfilment of all obligations in terms of original contract – This is referred to as discharge by performance – Alternatively, contract may also be discharged by substitution of certain new obligations in place of obligations contained in original contract, and subsequent performance of substituted obligations – Substituted obligations are referred to as accord and discharge of substituted obligations is referred to as satisfaction – It is referred to as discharge by "accord and satisfaction" or by "full and final settlement" in common parlance – Dispute raised by claimant being one of quantum and not of liability, prima facie, falls within scope of arbitration agreement – Appointment of former Judge of High Court of Gujarat as Arbitrator upheld. (Paras 37, 38, 40, 135 and 136)

(B) Contract Act, 1872 – Section 63 – Arbitration and Conciliation Act, 1996 – Section 11(6) – Invocation of arbitration – Execution of discharge voucher – There is no rule of absolute kind which precludes arbitration in cases where a full and final settlement has been arrived at – Whether there has been a discharge of contract or not is a mixed question of law and fact – If any dispute arises as to whether a contract has been discharged or not, such a dispute is arbitrable as per mechanism prescribed under arbitration agreement contained in underlying contract – Arbitration for the purpose of resolving any dispute pertaining to any claim which has been "fully and finally settled" between parties can only be invoked if arbitration agreement survives even after discharge of substantive contract – Even if contracting parties, in pursuance of a settlement, agree to discharge each other of any obligations arising under the contract, this does not ipso facto mean that arbitration agreement too would come to an end unless parties expressly agree to do the same – Where parties are not ad idem over accepting execution of no-claim certificate or discharge voucher, such disputed discharge voucher may itself give rise to arbitrable dispute. (Paras 47, 48, 53, 57 and 58)

(C) Arbitration and Conciliation Act, 1996 – Section 11(6) – Invocation of arbitration – Validity of full and final settlement – Determination of – Although Arbitral Tribunal is preferred first authority to determine questions pertaining to non-arbitrability, yet Referral court may exercise its limited jurisdiction to refuse reference to arbitration in cases which are ex-facie frivolous and where it is certain that disputes are non-arbitrable – In debatable cases and disputable facts, more particularly in reasonably arguable cases, determination of whether accord and satisfaction was actually present or not should be left to Arbitral Tribunal. (Paras 85 and 88)

(D) Arbitration and Conciliation Act, 1996 – Sections 8, 11 and 11 – Arbitral autonomy – Negative Competence-Competence – Doctrine of competence-competence empowers Arbitral Tribunal to rule on its own jurisdiction – Negative aspect of competence-competence is aimed at restricting interference of courts at referral stage by preventing courts from examining issues pertaining to jurisdiction of Arbitral Tribunal before Arbitral Tribunal itself has had opportunity to entertain them – Courts are allowed to review decision of arbitral tribunal at a later stage – Appointment of an arbitral tribunal at stage of Section 11 petition also does not mean that referral courts forego any scope of judicial review of adjudication done by Arbitral Tribunal – Power available to referral courts has to be construed in light of fact that no right to appeal is available against any order passed by referral court under Section 11 for either appointing or refusing to appoint an arbitrator. (Paras 101, 102, 111 and 123)

(E) Limitation Act, 1963 – Article 137 – Arbitration and Conciliation Act, 1996 – Sections 8, 11 and 11 – Arbitration – Time-barred claims – Limitation Act, 1963 is applicable to applications filed under Section 11(6) of Act, 1996 – Limitation period for filing petition under Section 11(6) of Act, 1996 can only commence once a valid notice invoking arbitration has been sent by applicant to other party and there has been failure or refusal on part of that other party in complying with requirements mentioned in such notice – Referral courts, while exercising their powers under Section 11 of Act, 1996, are under duty to prima-facie examine and reject non-arbitrable or dead claims, so as to protect other party from being drawn into a time consuming and costly arbitration process – Referral courts, at stage of deciding application for appointment of Arbitrator, must not conduct an intricate evidentiary enquiry into the question whether claims raised by applicant are time barred and should leave that question for determination by Arbitrator. (Paras 128, 130 and 133)

Facts of the case:

Issues for determination are:

i. Whether the execution of a discharge voucher towards the full and final settlement between parties would operate as a bar to invoke arbitration?

a. Whether arbitration agreement contained in a substantive contract survives even after underlying contract is discharged by "accord and satisfaction"?

ii. What is scope and standard of judicial scrutiny that an application under Section 11(6) of Act, 1996 can be subjected to when a plea of "accord and satisfaction" is taken by defendant?

iii. What is effect of decision of this Court in In Re: Interplay Between Arbitration Agreements under Arbitration and Conciliation Act 1996 and Indian Stamp Act 1899 on scope of powers of the referral court under Section 11 of the Act, 1996?

Findings of Court:

Existence of arbitration agreement as contained in Clause 13 of insurance policy is not disputed by appellant. Dispute raised by claimant being one of quantum and not of liability, prima facie, falls within the scope of the arbitration agreement. Dispute regarding "accord and satisfaction" as raised by the appellant does not pertain to the existence of the arbitration agreement, and can be adjudicated upon by the arbitral tribunal as a preliminary issue.

Result : Issues answered.