Facts of the Case

The Petitioner, BPT Infra Projects Pvt. Ltd., filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 seeking appointment of an arbitrator for adjudication of disputes with the Respondent, Indraprastha Ice and Cold Storage Pvt. Ltd.

A Letter of Intent dated 19.01.2022 was issued by the Respondent in favour of the Petitioner for construction of a factory and setting up of a CA (Control Atmosphere Storage) Plant at Village Bayal, Tehsil Nirmand, District Kullu, Himachal Pradesh. The Petitioner was a private company engaged in construction business. An Agreement dated 01.02.2022 was executed between the parties, and the construction was to be completed and handed over by the end of April 2022. The tentative value of the work was approximately ₹10 crore.

After commencement of work, the Petitioner claimed that the layout plan supplied by the Respondent did not conform to actual site conditions. According to the Petitioner, the Respondent was informed and, on its instructions, a feasibility survey was conducted. A revised layout plan was issued on 27.01.2022, further revised on 05.02.2022, when the construction area increased from approximately 5,500 square metres to 7,500 square metres, and revised again on 24.02.2022.

The Petitioner sought requisite drawings and requested provision of electricity through communication dated 26.02.2022. According to the Petitioner, the Respondent retaliated by issuing a letter dated 26.02.2022 under the guise of a show-cause notice, alleging poor quality construction, requiring submission of an up-to-date bill and directing clearance of the site within seven days.

The Petitioner replied on 28.02.2022, refuting the allegations. However, the Respondent terminated the contract by letter dated 03.03.2022. The Petitioner alleged that the Respondent unilaterally prepared a Memorandum of Understanding and Settlement and sought the Petitioner’s signature. Representatives and engineers of both parties jointly prepared a list of material lying at the site on 04.03.2022. By communication dated 05.03.2022, the Petitioner objected to both the termination and the proposed Memorandum of Understanding and Settlement.

The Petitioner asserted claims including:

  • approximately ₹46,30,744 for work executed;
  • approximately ₹55,08,653 for material lying at the site; and
  • approximately ₹10,25,000 toward expenses incurred.

These claims were communicated to the Respondent on 08.03.2022. The Petitioner alleged that, through communication dated 11.03.2022, the Respondent unilaterally approved only certain amounts and made arbitrary and illegal deductions.

The Petitioner further claimed that it was called to the Respondent’s office on 16.03.2022 and made to sign certain papers under the impression that they related to acknowledgement of release of the Performance Guarantee. According to the Petitioner, upon receiving communication dated 17.03.2022, it discovered an attachment suggesting that it had accepted an abstract of final payment.

The Petitioner asserted that it was compelled to submit a bill by e-mail dated 17.03.2022, following which approximately ₹46 lakh was transferred to its account. It maintained that the bills submitted were under duress and compulsion and subsequently raised objections.

Disputes continued. By communication dated 18.04.2022, the Petitioner requested settlement of disputes, but the Respondent declined. The Petitioner thereafter invoked arbitration under Clause 11 of the Agreement by notice dated 14.06.2022. The Respondent rejected the request by letter dated 20.06.2022, leading to the Section 11(6) petition.

Issues Involved

The principal issues before the Delhi High Court were:

  1. Whether an independent arbitrator should be appointed under Section 11(6) of the Arbitration and Conciliation Act, 1996.
  2. Whether the disputes between the parties had already been fully and finally settled, leaving no subsisting arbitrable dispute.
  3. Whether acceptance of approximately ₹46.81 lakh and release of the Performance Bank Guarantee amounted to complete satisfaction of all contractual claims.
  4. Whether the Petitioner’s alleged execution or acceptance of a final bill prevented invocation of arbitration.
  5. Whether the alleged full and final settlement was obtained under economic pressure, duress or compulsion.
  6. Whether the approximately ₹46.81 lakh payment represented settlement only of material supplied by vendors or settlement of the Petitioner’s entire contractual claims.
  7. Whether the Petitioner’s claims of approximately ₹1.83 crore, including claims for other work, expenses and damages arising from alleged illegal termination, remained unresolved.
  8. Whether questions concerning the nature and effect of the alleged settlement required evidence and should therefore be determined by the Arbitral Tribunal rather than conclusively decided in Section 11 proceedings.
  9. Whether prima facie arbitrable disputes existed despite the Respondent’s plea of accord and satisfaction.

Petitioner’s Arguments

The Petitioner contended that genuine and unresolved disputes continued to exist and required adjudication through arbitration.

The principal submissions were:

  1. The Respondent repeatedly revised the layout plan after commencement of the project, including increasing the construction area from approximately 5,500 square metres to 7,500 square metres.
  2. The Petitioner requested requisite drawings and electricity supply for execution of work, but the Respondent issued a show-cause notice alleging poor quality and thereafter terminated the contract.
  3. The termination was disputed and protested by the Petitioner.
  4. The Petitioner objected to the Memorandum of Understanding and Settlement allegedly prepared unilaterally by the Respondent.
  5. The Petitioner had claims for work executed, material lying at site, expenses incurred and damages arising from alleged illegal termination.
  6. The Petitioner alleged that the Respondent made unilateral and illegal deductions from its claims.
  7. The Petitioner claimed that papers were signed under the impression that they related to release of the Performance Guarantee and that it later discovered an attachment suggesting acceptance of the final-payment abstract.
  8. The bills were allegedly submitted under duress and compulsion.
  9. The amount of approximately ₹46.81 lakh represented payment relating to materials supplied by vendors and did not constitute settlement of the Petitioner’s entire claims.
  10. The Petitioner’s overall claims were approximately ₹1.83 crore, of which only approximately ₹46.81 lakh had been paid.
  11. The Petitioner asserted that it was a contractor and not merely a supplier, and it had been compelled to submit a bill concerning supply of material.
  12. The payment received was accepted without prejudice to the right to claim remaining amounts.
  13. Immediately after receipt of the amount and release of the Performance Bank Guarantee, the Petitioner asserted its remaining claims.
  14. The question whether the alleged final bill constituted full and final settlement required evidence and could not be conclusively determined in a Section 11 petition.

Respondent’s Arguments

The Respondent raised a preliminary objection that all disputes had already been resolved, and therefore no arbitrable dispute survived.

Its principal contentions were:

  1. Arbitration could be initiated only if unresolved disputes remained.
  2. According to the Respondent, the Petitioner’s own admissions demonstrated that no disputes remained.
  3. The Petitioner had allegedly acknowledged settlement through its e-mail dated 16.03.2022.
  4. The Performance Bank Guarantee dated 24.01.2022 had been released on 16.03.2022 after payment of all dues.
  5. The Petitioner had allegedly accepted the final payment.
  6. The final bill followed a joint inspection/survey conducted by representatives of both parties.
  7. Once full and final payment had been accepted, nothing remained for arbitration.
  8. Referring to Supreme Court precedents, the Respondent argued that a Section 11 Court could screen out ex facie meritless, frivolous or non-existing disputes.
  9. The Respondent contended that the Court’s Section 11 jurisdiction was not confined merely to mechanically identifying the existence of an arbitration agreement.
  10. Since no subsisting arbitrable dispute remained, the petition should be dismissed.

Court Order / Findings

The Delhi High Court allowed the petition and appointed an independent arbitrator. Its material findings were as follows:

1. Correspondence Demonstrated Continuing Disputes

The Court examined the correspondence exchanged between the parties. It noted that the Petitioner had protested the termination and had expressly stated that the proposed Memorandum of Settlement was unacceptable.

The Petitioner had also asserted financial loss from alleged illegal termination and reserved its right to claim damages.

2. Joint Survey and Final Bill Did Not Conclusively End the Controversy

The Court noted that a joint survey was conducted by representatives of both parties and that details of work and material were prepared.

It further recorded that the Petitioner submitted an invoice of approximately ₹47.66 lakh for material along with applicable GST, with diesel reimbursement stated separately, while excavation and foundation-related work was estimated at approximately ₹23,23,159. A final payment abstract of approximately ₹46.81 lakh carried an endorsement of acceptance by the vendor.

However, the Petitioner explained that this final bill related to work/material concerning vendors, while its independent claims remained unresolved.

3. Petitioner Claimed Approximately ₹1.83 Crore

The Court recorded the Petitioner’s explanation that its total claim was approximately ₹1.83 crore, whereas only approximately ₹46.81 lakh had been paid.

The Petitioner maintained that the amount paid represented vendor-related material payments and not full settlement of all claims.

4. Immediate Protest Supported Existence of Dispute

The Court referred to the Petitioner’s letter dated 19.03.2022, in which it explained that it was a contractor rather than a supplier and claimed that it had been compelled to submit the bill for supply of material.

The Petitioner also challenged unilateral deductions and asserted that the approximately ₹46 lakh payment had been received without prejudice to its entitlement to claim other amounts.

5. Claims Extended Beyond Material Supplied

The Court found that, from the beginning, the Petitioner had claimed not only amounts for material supplied by vendors but also:

  • amounts for other work done;
  • expenses incurred; and
  • damages for alleged illegal termination of the contract.

The Petitioner’s case was that ₹46.81 lakh represented only payment toward vendor-supplied material.

6. Full and Final Settlement Question Required Evidence

This was a central finding of the judgment.

The Court held that whether the alleged final bill constituted full and final settlement of all claims, or whether the Petitioner remained entitled to other claimed amounts, could not be determined without recording evidence.

Consequently, that issue was beyond the scope of the Section 11 petition for appointment of an arbitrator.

7. Respondent Could Prove Settlement Defence Before Arbitrator

The Court clarified that the Respondent remained at liberty to prove before the Arbitrator its defence that all contractual claims had already been satisfied.

Thus, appointment of the Arbitrator did not reject the Respondent’s settlement defence on merits; it left that defence open for adjudication before the Arbitral Tribunal.

8. Prima Facie Disputes Existed

The High Court held that prima facie disputes had arisen between the parties.

The correspondence showed that the Petitioner had claimed damages for alleged illegal termination and other incidental expenses. The Court viewed the payment concerning supplied material as settlement of only a partial claim on the Petitioner’s case, while other claims were asserted to remain outstanding.

9. Economic Pressure and Duress Were Arbitrable Questions

The Court noted the Petitioner’s case that it had accepted the amount and release of the Performance Bank Guarantee due to economic pressure and duress, and that this did not constitute full and final settlement.

The Court held that the Petitioner still had the right to have its approximately ₹1.83 crore claims arbitrated and decided by the learned Arbitrator.

10. Independent Arbitrator Appointed

The High Court appointed Mr. K.S. Khurana, Additional District Judge (Retd.), as the independent Arbitrator to adjudicate disputes between the parties.

11. Parties Free to Raise Objections Before Arbitrator

The Court expressly granted liberty to both parties to raise their respective objections before the Arbitrator.

12. Arbitrator’s Fee

The Arbitrator’s fee was directed to be fixed in accordance with the Fourth Schedule to the Arbitration and Conciliation Act, 1996.

13. Disclosure and Eligibility Requirements

The appointment was made subject to:

  • necessary disclosure under Section 12(1) of the Arbitration and Conciliation Act, 1996; and
  • the Arbitrator not being ineligible under Section 12(5) of the Act.

The parties’ counsel were directed to contact the Arbitrator within one week of communication of the order. The petition was accordingly allowed.

Important Clarification

This judgment does not finally hold that the Petitioner’s allegations of duress, coercion, illegal deductions or outstanding claims are proved.

The High Court’s essential conclusion was that:

  • prima facie disputes existed;
  • the correspondence indicated continuing claims;
  • the alleged full and final settlement was seriously disputed;
  • determining whether all claims had actually been settled required evidence;
  • such disputed factual questions were beyond the limited scope of the Section 11 proceeding; and
  • the Respondent could establish its full-and-final-settlement defence before the Arbitrator.

Therefore, the case is significant for the proposition that a disputed discharge, final bill or alleged accord and satisfaction does not automatically bar arbitration where the claimant raises a genuine and factually debatable case of economic duress, compulsion, partial settlement or unresolved claims.

Sections Involved

·         Section 11(6), Arbitration and Conciliation Act, 1996 – Invoked for appointment of an arbitrator where the agreed appointment mechanism had not resulted in constitution of the Arbitral Tribunal.

·         Section 11(6A), Arbitration and Conciliation Act, 1996 – Discussed in the context of the scope of judicial inquiry at the referral stage through the cited precedent in Indian Oil Corporation Limited v. NCC Limited.

·         Section 12(1), Arbitration and Conciliation Act, 1996 – Requires necessary disclosure by the proposed arbitrator concerning circumstances relevant to independence and impartiality.

·         Section 12(5), Arbitration and Conciliation Act, 1996 – Concerns ineligibility of an arbitrator falling within specified categories.

·         Fourth Schedule, Arbitration and Conciliation Act, 1996 – Applied for fixation of the learned Arbitrator’s fees.

·         Clause 11 of the Agreement – Arbitration clause invoked by the Petitioner through notice dated 14.06.2022.

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