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Supreme Court Upholds Appointment of Arbitrator in Insurance Dispute

Background

The case involves a dispute between SBI General Insurance Co. Ltd. (the appellant) and M/s Krish Spinning (the respondent) over the settlement of an insurance claim. The respondent had obtained a standard fire and special perils insurance policy from the appellant, and during the policy period, two incidents of fire occurred at the respondent's factory premises, resulting in significant losses.

Arguments

The appellant argued that the execution of a discharge voucher towards the full and final settlement between the parties should operate as a bar to invoking arbitration. The respondent, on the other hand, claimed that it had signed the discharge voucher under duress and financial distress, and therefore, the arbitration agreement contained in the insurance policy should still be valid.

Court's Analysis and Reasoning

The Supreme Court examined the issue of whether the execution of a discharge voucher towards the full and final settlement between the parties would operate as a bar to invoking arbitration. The Court held that the arbitration agreement, by virtue of the presumption of separability, survives even after the underlying contract is discharged by "accord and satisfaction."

The Court further observed that the question of "accord and satisfaction" is a mixed question of law and fact, which falls within the exclusive jurisdiction of the arbitral tribunal. The Court reasoned that the negative effect of the principle of competence-competence requires that such matters should not be looked into by the referral court before the arbitral tribunal has had the opportunity to do so.

Decision

The Supreme Court upheld the appointment of Justice K.A. Puj , a former Judge of the High Court of Gujarat, as an arbitrator to resolve the disputes between the parties. The Court held that the dispute regarding "accord and satisfaction" 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.

The Court's decision reinforces the principle of arbitral autonomy and the negative aspect of competence-competence, which limits the scope of judicial interference at the stage of appointing an arbitrator. This judgment aligns with the legislative intent behind the Arbitration and Conciliation Act, 1996, to minimize judicial intervention and promote the expeditious resolution of disputes through arbitration.