Supreme Court of India
ARABIAN EXPORTS PRIVATE LIMITEDversusNATIONAL INSURANCE COMPANY LTD.
- Citation
- 2025 INSC 630
- Decided
- 6 May 2025
- Disposal
- Appeal(s) allowed
- Bench
- ABHAY S OKA
Holding
The Supreme Court held that the dispute is arbitrable and the High Court was wrong to refuse appointment of an arbitrator, as questions of duress and adequacy of the settlement fall within the arbitral tribunal’s jurisdiction.
Summary
Arabian Exports Private Limited (the appellant) claimed insurance proceeds for flood damage amounting to Rs 5,71,69,554 against National Insurance Company Ltd. (the respondent). After a long delay, the respondent offered a much lower sum of Rs 1,88,14,146, which the appellant accepted by signing an undated voucher and encashing the cheque, citing financial duress. The appellant later invoked the arbitration clause in the policies to recover the balance and filed applications under Section 11 of the Arbitration and Conciliation Act, 1996. The Bombay High Court dismissed the applications, holding that the voucher constituted a full and final settlement (accord and satisfaction) barring arbitration. The Supreme Court examined the doctrine of accord and satisfaction, the effect of economic duress, and the limited role of courts under Section 11, concluding that the existence of an arbitration agreement suffices to refer the dispute to arbitration. Consequently, the Court set aside the High Court order, allowed the appeals, and appointed a sole arbitrator.
Issues considered
- Whether a dispute arising after the execution of a full and final discharge voucher can be referred to arbitration under the arbitration clause.
- Whether a voucher signed under economic duress bars the applicability of the arbitration agreement.
- Whether the doctrine of accord and satisfaction precludes arbitration when the settlement is contested on grounds of duress or inadequacy.
Legislation cited
- Arbitration and Conciliation Act, 1996s. 11, s. 11(6), s. 11(6A)
Headnote
Issue for Consideration Whether a dispute raised by an insured after giving a full and final discharge voucher to the insurer can be referred to arbitration. Headnotes† Arbitration and Conciliation Act, 1996 – s.11 – Appellant claimed loss and damages under the insurance – After a considerable delay, a grossly inadequate amount was offered by the respondent – Due to financial strain, appellant signed the undated and standardized voucher/advance receipt – Pursuant thereto, appellant received the cheque issued by the respondent –
Subjects
Insurance policiesFull and final discharge vouchersAccord and satisfactionRes integraUndated and standardized voucher/advance receiptFinancial duressBilateral negotiated settlementArbitrable disputesPlea of coercionDoctrine of kompetenz-kompetenzMinimum judicial intervention
Judgment
[2025] 5 S.C.R. 798 : 2025 INSC 630
Arabian Exports Private Limited
v.
National Insurance Company Ltd.
(Civil Appeal No(s). 6372-6373 of 2025)
06 May 2025
[Abhay S. Oka and Ujjal Bhuyan,* JJ.]
Issue for Consideration
Whether a dispute raised by an insured after giving a full and final
discharge voucher to the insurer can be referred to arbitration.
Headnotes†
Arbitration and Conciliation Act, 1996 – s.11 – Appellant
claimed loss and damages under the insurance policies taken
from the respondent – After a considerable delay, a grossly
inadequate amount was offered by the respondent – Due to
financial strain, appellant signed the undated and standardized
voucher/advance receipt – Pursuant thereto, appellant received
the cheque issued by the respondent – Later, appellant
invoked arbitration clause to settle the balance amount being
the difference between the claim lodged by the appellant and
the amount paid by the respondent – Respondent denied any
liability and refused to accept arbitration – Appellant filed
applications u/s.11 of the Act for appointment of arbitrator –
High Court held that no arbitrator could be appointed in view
of acceptance of the amount in full and final settlement –
Correctness:
Held: High Court was wrong in rejecting the s.11(6) applications
of the appellant – The question as to whether the appellant was
compelled to sign the standardized voucher/advance receipt
forwarded to it by the respondent out of economic duress and
whether notwithstanding receipt of Rs. 1,88,14,146.00 as against
the claim of Rs. 5,71,69,554.00 the claim to arbitration is sustainable
or not are clearly within the domain of the arbitral tribunal – Thus,
impugned order set aside. [Paras 41, 42]
Arbitration and Conciliation Act, 1996 – Invocation of arbitration
after settlement between the parties – Concept of ‘accord and
satisfaction’ – Discussed. [Paras 33-39]
* Author
[2025] 5 S.C.R. 799
Arabian Exports Private Limited v. National Insurance Company Ltd.
Arbitration and Conciliation Act, 1996 – Doctrine of kompetenz-
kompetenz firmly embedded in arbitration jurisprudence in
India – Discussed. [Para 40]
Case Law Cited
National Insurance Company Limited v. Boghara Polyfab Private
Limited [2008] 13 SCR 638 : (2009) 1 SCC 267; Nathani Steels
Ltd. v. Associated Constructions (1995) Supp. 3 SCC 324; Duro
Felguera, S.A. v. Gangavaram Port Ltd. [2017] 10 SCR 285 :
(2017) 9 SCC 729; Vidya Drolia v. Durga Trading Corporation
[2020] 11 SCR 1001 : (2021) 2 SCC 1; Oriental Insurance
Company Ltd. v. Dicitex Furnishing Ltd. [2019] 14 SCR 389 :
(2020) 4 SCC 621; SBI General Insurance Co. Ltd. v. Krish
Spinning SBI General Insurance Co. Ltd. v. Krish Spinning [2024]
7 SCR 840 : 2024 SCC OnLine SC 1754; Aslam Ismail Khan
Deshmukh v. Asap Fluids Pvt. Ltd. [2024] 12 SCR 108 : (2025)
1 SCC 502 – referred to.
List of Acts
Arbitration and Conciliation Act, 1996.
List of Keywords
Insurance policies; Full and final discharge vouchers; Accord and
satisfaction; Res integra; Undated and standardized voucher/
advance receipt; Financial duress; Bilateral negotiated settlement;
Arbitrable disputes; Plea of coercion; Doctrine of kompetenz-
kompetenz; Minimum judicial intervention.
Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No(s). 6372-6373
of 2025
From the Judgment and Order dated 02.12.2011 of the High Court
of Judicature at Bombay in AA Nos. 186 and 187 of 2011
Appearances for Parties
Advs. for the Appellant:
Kavin Gulati, Sr. Adv., Ms. Surekha Raman, Amarjit Singh Bede,
Shreyash Kumar, Mohit Shivkumar, Dushyant Sharma, Abhinav
Mathur (for M/S. K J John and Co.)
800 [2025] 5 S.C.R.
Supreme Court Reports
Advs. for the Respondents:
Manish Singhvi, Sr. Adv., Vishnu Mehra, Ms. Manjeet Chawla,
Mrs. Usha Pant Kukreti, Kunal Malhotra.
Judgment / Order of the Supreme Court
Judgment
Ujjal Bhuyan, J.
Leave granted.
2. These appeals by special leave are directed against the order dated
02.12.2011 passed by the High Court of Judicature at Bombay in
Arbitration Application Nos. 186-187 of 2011.
3. In this case, delay was condoned and notice was issued on
11.05.2012.
4. The short issue for consideration in these appeals is whether a
dispute raised by an insured after giving a full and final discharge
voucher to the insurer can be referred to arbitration.
5. As we shall deliberate upon, this issue is no longer res integra.
6. However, for a proper perspective, relevant facts may be briefly noted.
7. Appellant is a company incorporated under the provisions of the
Companies Act, 1956. It is engaged in the business of exporting
meat and meat products. For this purpose, appellant used to process
the meat and store the same at its factory premises at Taloja in the
State of Maharashtra.
8. On 08.10.2004, appellant took a comprehensive Standard Fire and
Special Perils Policy bearing No. 260301/11/04/3100585 from the
respondent towards insuring the meat processing and cold storage
unit as also the building, plant and machinery, furniture, fixtures and
fittings in the Taloja plant for an amount of Rs.3,28,55,000.00 which
was for the period from 09.10.2004 to 03.10.2005.
9. Appellant also took a Fire Declaration Policy bearing No.
260301/11/04/3301441 insuring all its stock-in-trade and finished
products stored in the cold storage facility at its factory premises
at Taloja. This policy was for an amount of Rs.5,76,85,000.00 and
covered the period from 15.03.2005 to 15.03.2006.
[2025] 5 S.C.R. 801
Arabian Exports Private Limited v. National Insurance Company Ltd.
10. It is stated that appellant had paid the insurance premium towards
both the insurance policies.
11. On 26.07.2005, there was very heavy and unprecedented rainfall in
several parts of Maharashtra including at Taloja. Because of such
unprecedented and very heavy rainfall, the factory premises at Taloja
was completely flooded and got submerged under water for several
hours. It is stated that all communication lines had broken down and
there were no means of communication to and fro the Taloja plant
leaving the incident unnoticed till 28.07.2005. It is further stated
that appellant had suffered severe loss due to the damage caused
to the factory building, plant and machinery, furniture, fixtures and
accessories as well as the stock lying at the Taloja plant.
12. Appellant had informed the respondent on 29.07.2005 regarding the
damage suffered at the Taloja plant and requested the respondent to
depute a surveyor to assess the damage. Appellant claimed loss and
damage to the plant and machinery etc. under the Standard Fire and
Special Perils Policy for an amount of Rs. 56,07,027.00. Appellant
also claimed loss and damage qua the stock in cold storage under
the Fire Declaration Policy for an amount of Rs. 5,15,62,527.00.
13. It is stated that on 28.07.2005, Dr. A.S. Patil (it is not stated who he
was or who had authorized him) had inspected the factory premises
at Taloja and after inspecting the stock-in-trade certified that the
same was unfit for human consumption. On 29.11.2005, Chempro
Inspection Private Limited, the surveyor appointed by the respondent,
conducted a survey at the Taloja plant. In its report dated 29.11.2005,
the surveyor acknowledged the loss suffered by the appellant.
14. Unfortunately, despite repeated requests and reminders by the
appellant, respondent failed to settle the claims of the appellant.
15. After a considerable delay, appellant was presented with an
undated and standardized voucher/advance receipt for a sum of Rs.
1,88,14,146.00 sometime in December, 2008.
16. Due to financial strain caused by the delay on the part of the
respondent to settle the claims coupled with the pressure exerted
by various bankers and creditors, appellant was left with no other
option but to sign and submit to the respondent the said undated and
standardized voucher/advance receipt on 12.12.2008 for an amount
of Rs. 1,88,14,146.00 being claimed under the Fire Declaration
802 [2025] 5 S.C.R.
Supreme Court Reports
Policy. Pursuant thereto, appellant received the cheque issued by
the respondent for a sum of Rs. 1,88,14,146.00 on 19.12.2008.
17. It may be mentioned that the two insurance policies had identically
worded arbitration clause.
18. On 24.12.2008, appellant while reserving its right to invoke the
aforesaid arbitration clause called upon the respondent to settle and
pay the balance amount of Rs. 3,83,55,408.00 being the difference
between the claim lodged by the appellant and the amount paid by
the respondent. Appellant also sought for a copy of the surveyor’s
report.
19. By letter dated 21.03.2009, respondent provided the appellant with
a copy of the surveyor’s report giving details of the respondent’s
assessment of the appellant’s claim.
20. Though the appellant made repeated attempts to resolve the matter
but the respondent did not cooperate. Consequently, appellant
addressed letter dated 17.04.2009 to the respondent invoking the
arbitration clause contained in the insurance policy and at the same
time nominated Mr. Ramakant W. Gudal, a retired Joint Commissioner
and Controlling Authority, Food and Drugs Administration, Maharashtra
as the sole arbitrator. It is stated that this letter was hand delivered
to the respondent on 20.04.2009.
21. Respondent issued letter dated 18.05.2009 to the appellant through
its lawyer denying its liability and refusing to accept arbitration and
failed to nominate an arbitrator in terms of Clause 30 of the insurance
policy. Respondent vide further letter dated 12.10.2009 stated that
it was not agreeable to refer the matter to arbitration.
22. Thereafter, appellant filed applications under Section 11 of the
Arbitration and Conciliation Act, 1996 (briefly, ‘the 1996 Act’
hereinafter) before the High Court of Judicature at Bombay for
appointment of an arbitrator to arbitrate the claims of the appellant.
Thus two arbitration applications were filed in respect of the two
policies which were registered as arbitration application Nos. 186
of 2011 and 187 of 2011.
23. Learned Single Judge of the High Court of Judicature at Bombay
(briefly, ‘the High Court’ hereinafter) observed that the amount paid
by the respondent was accepted by the appellant in full and final
settlement of the claim. It was accepted without any demur and
[2025] 5 S.C.R. 803
Arabian Exports Private Limited v. National Insurance Company Ltd.
after encashing the cheque, the dispute was raised on 24.12.2008.
Therefore, vide the impugned order dated 02.12.2011, learned
Single Judge held that no arbitrator could be appointed in view
of acceptance of the amount in full and final settlement. Both the
arbitration applications were accordingly dismissed.
24. Mr. Kavin Gulati, learned senior counsel for the appellant has drawn
our attention to the relevant facts and submits that learned Single
Judge had rejected the applications under Section 11 of the 1996 Act
on the ground that the discharge voucher signed by the appellant
in favour of the respondent constituted full accord and satisfaction
having accepted the amount paid by the respondent without demur.
24.1. Learned senior counsel submits that in the present case,
‘accord and satisfaction’ is not voluntary but under compulsion.
Appellant was under financial duress on account of the huge
loss caused by the rainwater and flooding; additionally, there
was long delay on the part of the respondent in processing
the claim. That apart, appellant was pressurized by the banks
and creditors for repayment of credit. In such circumstances,
appellant had no other option but to sign the undated and
standardized voucher/advance receipt for a wholly inadequate
amount of Rs. 1,88,14,146.00 against the bona fide claim of
Rs. 5,71,69,554.00. In this connection, learned senior counsel
has drawn the attention of the Court to the letter dated
24.12.2008 and the pleadings in the applications under Section
11 of the 1996 Act which reads thus:
The fact that the voucher relating to payment of our
claim under the Standard Fire and Special Perils
Policy refers to article/property “stolen” clearly
establishes the complete non application of mind
and disregard by your company to our repeated
representations and the nature of our loss. Looking
to the financial strain cast on us by virtue of the willful
delay on the part of your organization in settlement at
our claims coupled with the pressure exerted by our
bankers and creditors, we were left with no option
but to sign and submit to you the said undated and
standardized voucher on December 12th 2008, for the
grossly inadequate amount of Rs. 1,88,14,146.00.
804 [2025] 5 S.C.R.
Supreme Court Reports
24.2. Learned senior counsel submits that the case of the appellant
is squarely covered by the decision of this Court in National
Insurance Company Limited Vs. Boghara Polyfab Private
Limited1. He has also distinguished the decision of this Court in
Nathani Steels Ltd. Vs. Associated Constructions2 relied upon
by the respondent. He submits that in Nathani Steels (supra),
there were negotiations between the parties culminating in
a voluntary negotiated settlement of all pending disputes.
Contract was thus discharged by ‘accord and satisfaction’.
This is not so in the present case. He further submits that
issue in question is covered by the decision of this Court in
Boghara Polyfab (supra).
24.3. In any event, the discharge voucher was in relation to only
one policy i.e. Fire Declaration Policy. It did not cover the
Standard Fire and Special Perils Policy. Learned senior counsel
has referred to and relied upon the circular dated 24.09.2015
issued by the Insurance Regulatory and Development Authority
of India clarifying that execution of vouchers as full and final
discharge did not foreclose the rights of the policy holders
to seek higher compensation before any judicial fora or any
other fora established by law. This has been endorsed and
reiterated vide subsequent circular dated 07.06.2016 issued
by the Insurance Regulatory and Developmentary Authority of
India. He, therefore, submits that learned Single Judge erred
while rejecting the applications for appointment of arbitrator.
Therefore, the impugned order is liable to be set aside.
25. Per contra, Dr. Manish Singhvi, learned senior counsel for the
respondent submits that a three Judge Bench of this Court in Nathani
Steels (supra) has clearly held that once a dispute or difference
between the parties arising out of a contract is amicably settled by
the parties, unless such settlement is set aside in proper proceedings,
it is not open to one of the parties to the settlement to further seek
arbitration. According to him, this case is squarely covered by Nathani
Steels Ltd. (supra).
1 (2009) 1 SCC 267
2 (1995) Supp (3) SCC 324
[2025] 5 S.C.R. 805
Arabian Exports Private Limited v. National Insurance Company Ltd.
25.1. Learned senior counsel submits that Nathani Steels Ltd.
(supra) is a decision of a three Judge Bench whereas Boghara
Polyfab (supra) is by a two Judge Bench. Therefore, the conflict
between Nathani Steels (supra) and Boghara Polyfab (supra)
needs to be resolved by referring the matter to a larger Bench.
25.2. He submits that in so far the present case is concerned, there
is no question of any fraud. In fact, there was no pleading
and argument as regards fraud. There is also no pleading as
to duress or coercion. Mere citation of the expressions fraud,
duress or coercion will not make it a case of fraud, duress or
coercion. There has to be adequate pleadings. That apart,
appellant has not produced any document to even prima-
facie show that the appellant was being pressurized by the
respondent to enter into a settlement.
25.3. In so far letter of the appellant dated 24.12.2008 is concerned,
learned senior counsel submits that the said letter mentioned
about the policies but did not contain any statement to the
effect that the settlement was only for one policy. Respondent
had processed the claim of the appellant on the basis of the
report of the surveyor. The figure of Rs. 1.88 crores was not
an imaginary or illusory figure but based on the assessment
of the surveyor.
25.4. Dr. Singhvi also argued an alternative prayer. If the Court is of
the opinion that the High Court had not considered the aspect
of duress and coercion, then the matter may be referred back
to the High Court. In that event the High Court would consider
the aspect of duress and coercion. Otherwise, no case for
arbitration is made out. Therefore, he seeks dismissal of the
appeals.
26. Submissions made by learned counsel for the parties have received
the due consideration of the Court.
27. The two insurance policies contain an identically worded arbitration
clause which read as follows:
13. If any dispute or difference shall arise as to the quantum
to be paid under this policy liability being otherwise
admitted such difference shall independently of all other
806 [2025] 5 S.C.R.
Supreme Court Reports
questions be referred to the decision of sole arbitrator to
be appointed in writing by the parties to or if they cannot
agree upon a single arbitrator within 30 days of any party
invoking arbitration, the same shall be referred to a panel
of three arbitrators, comprising of two arbitrators, one
to be appointed by each of the parties to the dispute/
difference and the third arbitrator to be appointed by such
two arbitrators and arbitration shall be conducted under
and in accordance with the provisions of the Arbitration
and Conciliation Act, 1996.
It is clearly agreed and understood that no difference or
dispute shall be referable to arbitration as hereinbefore
provided, if the Company has disputed or not accepted
liability under or in respect of this policy.
It is hereby expressly stipulated and declared that it shall
be a condition precedent to any right of action or suit upon
this policy that the award by such arbitrator/arbitrators of
the amount of the loss or damages shall be first obtained.
28. In its letter dated 24.12.2008 addressed to the respondent, appellant
stated that after an inordinate delay of 42 months, a grossly inadequate
amount of Rs.1,88,14,146.00 was offered by the respondent in
response to the bona fide and genuine claim of the appellant for
the aggregate sum of Rs.5,71,69,554.00. Appellant further stated
that because of the financial strain caused due to the delay on
the part of the respondent in settling its claims coupled with the
pressure exerted by its bankers and creditors, appellant was left
with no other option but to sign and submit to the respondent the
undated and standardized voucher forwarded by it on 12.12.2008
for Rs.1,88,14,146.00. Appellant further stated that it received a
cheque for the aforesaid amount on 19.12.2008. Referring to the
arbitral clause in the insurance policies, appellant stated that there
is an arbitrable dispute in the context of the quantum of claim, the
liability being admitted by the respondent. Appellant called upon the
respondent to pay the balance amount of Rs.3,83,55,408.00 with
interest at the rate of 18 percent. Respondent was put to notice
that if the said amount was not paid, appellant would invoke the
arbitration clause not only claiming the balance amount but also
damages and compensation.
[2025] 5 S.C.R. 807
Arabian Exports Private Limited v. National Insurance Company Ltd.
29. Finally, appellant through its advocate issued notice to the respondent
on 17.04.2009 invoking the arbitration clause and nominated
Mr. Ramakant W. Gudal, retired Joint Commissioner and Controlling
Authority, Food & Drugs Administration, Maharashtra as the Sole
Arbitrator. Respondent was called upon to concur with the said
nomination or alternatively to nominate its own arbitrator in which event
the two nominated arbitrators would appoint a presiding arbitrator.
30. However, respondent informed the appellant vide letter dated
12.10.2009 that it was not agreeable to refer the matter to arbitration
as the appellant had accepted the amount offered in full and final
settlement which amounted to ‘accord and settlement’.
31. It was thereafter that appellant approached the High Court by filing
applications under Section 11 of the 1996 Act. The relevant pleadings
have already been extracted and noted.
32. Learned Single Judge vide the impugned order observed that the
amount offered by the respondent was accepted by the appellant in
full and final settlement of the claim. The acceptance was not without
prejudice to the rights and contentions of the appellant or reserving
the right to challenge the amount that was being paid. The payment
was made on 19.12.2008. It was accepted without any demur and
after encashing the cheque the dispute was raised on 24.12.2008.
Learned Single Judge referred to one of his previous orders where
he had taken a view that if such a receipt is issued which accepts
the payment in full and final settlement, then a dispute cannot be
raised. He therefore held that no arbitrator can be appointed in view
of acceptance of the amount in full and final settlement.
33. In Nathani Steels (supra), a three-Judge Bench of this Court opined
that once the parties reach a settlement in respect of any dispute
or difference arising under a contract and that dispute or difference
is amicably settled by way of a final settlement by and between the
parties, unless that settlement is set aside in proper proceedings
it cannot lie in the mouth of one of the parties to the settlement to
spurn it on the ground that it was a mistake and thereafter proceed
to invoke the arbitration clause.
33.1. Of course the Bench held that unless the settlement is set
aside in proper proceedings, it would not be open to one of the
parties to the settlement to invoke arbitration. But at the same
808 [2025] 5 S.C.R.
Supreme Court Reports
time, it needs to be pointed out that this view was taken in the
context of an amicable settlement arrived at between the parties
in the presence of a third party and reduced to writing. If there
is an amicable settlement of the dispute between the parties
unless such settlement is set aside in proper proceedings, it
would not be open to one of the parties to invoke arbitration.
Therefore, the crucial expression here is ‘amicable settlement’.
34. This decision was explained by this Court in Boghara Polyfab (supra).
A two-Judge Bench of this Court noted that in Nathani Steels (supra)
this Court on examination of the facts of that case was satisfied that
there were negotiations leading to voluntary settlement between the
parties in all pending disputes. Thus the contract was discharged by
‘accord and satisfaction’. The Bench categorized such claims under
two categories. In the first category there would be cases where there
is bilateral negotiated settlement of pending disputes, such settlement
having been reduced to writing either in the presence of witnesses or
otherwise. Nathani Steels (supra) falls in this category. In the second
category of cases, there would be ‘no dues/claims certificate’ or ‘full
and final settlement discharge vouchers’ insisted upon and taken,
either in a printed format or otherwise, as a condition precedent
for release of the admitted dues. In the latter group of cases, the
disputes are arbitrable. Mere execution of a full and final settlement
receipt or a discharge voucher cannot be a bar to arbitration even
when validity thereof is challenged by the claimant on the ground of
fraud, coercion or undue influence. The Bench further distinguished
Nathani Steels (supra) by clarifying that the observations made that
unless the settlement is set aside in proper proceedings, it would not
be open to a party to the settlement to invoke arbitration was with
reference to a plea of ‘mistake’ taken by the claimant and not with
reference to allegations of fraud, undue influence or coercion. Further,
the said decision was rendered in the context of the provisions of
the Arbitration Act, 1940. The perspective of the 1996 Act is different
from the Arbitration Act, 1940.
35. In Duro Felguera, S.A. Vs. Gangavaram Port Ltd.3, a two-Judge
Bench of this Court examined Section 11(6) of the 1996 Act as well as
Section 11(6A) inserted in the 1996 Act by way of the Arbitration and
3 (2017) 9 SCC 729
[2025] 5 S.C.R. 809
Arabian Exports Private Limited v. National Insurance Company Ltd.
Conciliation (Amendment) Act 2015 and concluded that courts should
look into only one aspect: existence of an arbitration agreement.
Already the width of jurisdiction under Section 11(6) of the 1996 Act
was considerably wide following judicial dicta but post the aforesaid
amendment, all that the courts need to see is whether an arbitration
agreement exists – nothing more, nothing less. The legislative policy
and purpose is essentially to minimize the court’s intervention at the
stage of appointing the arbitrator.
36. A three-Judge Bench of this Court in Vidya Drolia Vs. Durga Trading
Corporation4 held that subject matter qua arbitrability cannot be
decided at the stage of Sections 8 or 11 of the 1996 Act unless it
is a clear case of dead wood. The court under Sections 8 and 11
has to refer a matter to arbitration or to appoint an arbitrator, as the
case may be, unless a party has established a prima facie case of
non-existence of a valid arbitration agreement. The court should
refer a matter if the validity of the arbitration agreement cannot be
determined on a prima facie basis. The rule should be: when in
doubt, do refer.
37. In Oriental Insurance Company Ltd. Vs. Dicitex Furnishing Ltd.5, a
two-Judge Bench of this Court considered the objection of the insurer
about maintainability of the application under Section 11(6) of the
1996 Act in which the High Court had appointed an arbitrator. The
objection was that the claimant had signed the discharge voucher
and had accepted the amount offered, thus signifying ‘accord and
satisfaction’ which in turn meant that there was no arbitrable dispute.
This Court rejected the objection of the insurer and held thus:
26. An overall reading of Dicitex’s application [under
Section 11(6)] clearly shows that its grievance with respect
to the involuntary nature of the discharge voucher was
articulated. It cannot be disputed that several letters —
spanning over two years—stating that it was facing financial
crisis on account of the delay in settling the claim, were
addressed to the appellant. This Court is conscious of the
fact that an application under Section 11(6) is in the form
of a pleading which merely seeks an order of the court,
4 (2021) 2 SCC 1
5 (2020) 4 SCC 621
810 [2025] 5 S.C.R.
Supreme Court Reports
for appointment of an arbitrator. It cannot be conclusive
of the pleas or contentions that the claimant or the party
concerned can take in the arbitral proceedings. At this
stage, therefore, the court which is required to ensure
that an arbitrable dispute exists, has to be prima facie
convinced about the genuineness or credibility of the
plea of coercion; it cannot be too particular about the
nature of the plea, which necessarily has to be made
and established in the substantive (read : arbitration)
proceeding. If the court were to take a contrary approach
and minutely examine the plea and judge its credibility or
reasonableness, there would be a danger of its denying
a forum to the applicant altogether, because rejection of
the application would render the finding (about the finality
of the discharge and its effect as satisfaction) final, thus,
precluding the applicant of its right even to approach a
civil court. There are decisions of this Court (Associated
Construction v. Pawanhans Helicopters Ltd. and Boghara
Polyfab) which upheld the concept of economic duress.
Having regard to the facts and circumstances, this Court is
of the opinion that the reasoning in the impugned judgment
cannot be faulted.
37.1. Thus, this Court held that at the stage of Section 11(6) of the
1996 Act, court is required to ensure that an arbitrable dispute
exist; it has to be prima facie convinced about the genuineness
or credibility of the plea of coercion; it cannot be too particular
about the nature of the plea which naturally has to be made and
established in the arbitral proceeding. If the courts were to take
a contrary approach, there would be the danger of denying a
forum to the claimant altogether. This Court upheld the concept
of economic duress and held that notwithstanding signing of
discharge voucher and accepting the amount offered, the
dispute is still arbitrable. Pleading in a Section 11(6) application
cannot be conclusive whether there is fraud, coercion or undue
influence or otherwise.
38. A three-Judge Bench of this Court in SBI General Insurance Co.
Ltd. Vs. Krish Spinning6 held that even if the contracting parties in
6 2024 SCC OnLine SC 1754
[2025] 5 S.C.R. 811
Arabian Exports Private Limited v. National Insurance Company Ltd.
pursuance to a settlement agree to discharge each other of any
obligations arising under the contract it is does not ipso facto mean
that the arbitration agreement too would come to an end, unless the
parties expressly agree to do the same. The Bench also explained
the concept of ‘accord and satisfaction’ under Section 63 of the
Indian Contract Act, 1872. Any dispute pertaining to the full and final
settlement itself by necessary implication being a dispute arising out
of or in relation to or under the substantive contract would not be
precluded from reference to arbitration as the arbitration agreement
contained in the original contract continues to be in existence even
after the parties have discharged the original contract by ‘accord
and satisfaction’. This Court held thus:
53. Thus, even if the 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 the arbitration agreement too would come to an end,
unless the parties expressly agree to do the same. The
intention of the parties in discharging a contract by “accord
and satisfaction” is to relieve each other of the existing or
any new obligations under the contract. Such a discharge
of obligations under the substantive contract cannot be
construed to mean that the parties also intended to relieve
each other of their obligation to settle any dispute pertaining
to the original contract through arbitration.
54. Although ordinarily no arbitrable disputes may subsist
after execution of a full and final settlement, yet any
dispute pertaining to the full and final settlement itself, by
necessary implication being a dispute arising out of or in
relation to or under the substantive contract, would not be
precluded from reference to arbitration as the arbitration
agreement contained in the original contract continues to
be in existence even after the parties have discharged the
original contract by “accord and satisfaction”.
39. Again, in the case of Aslam Ismail Khan Deshmukh Vs. Asap Fluids
Pvt. Ltd.7, a three-Judge Bench of this Court reiterated the above
proposition and held as under:
7 (2025) 1 SCC 502
812 [2025] 5 S.C.R.
Supreme Court Reports
51. It is now well-settled law that, at the stage of Section
11 application, the referral courts need only to examine
whether the arbitration agreement exists - nothing more,
nothing less. This approach upholds the intention of the
parties, at the time of entering into the agreement, to refer
all disputes arising between themselves to arbitration.
However, some parties might take undue advantage of
such a limited scope of judicial interference of the referral
courts and force other parties to the agreement into
participating in a time-consuming and costly arbitration
process. This is especially possible in instances, including
but not limited to, where the claimant canvasses either
ex facie time-barred claims or claims which have been
discharged through “accord and satisfaction”, or cases
where the impleadment of a non-signatory to the arbitration
agreement is sought, etc.
52. In order to balance such a limited scope of judicial
interference with the interests of the parties who might be
constrained to participate in the arbitration proceedings, the
arbitral tribunal may direct that the costs of the arbitration
shall be borne by the party which the tribunal ultimately
finds to have abused the process of law and caused
unnecessary harassment to the other party to the arbitration
40. Thus, the doctrine of Kompetenz-Kompetenz is now firmly embedded
in the arbitration jurisprudence in India. This doctrine is based on
the principle that an arbitral tribunal is competent to rule on its
own jurisdiction including on the issue of existence or validity of an
arbitration agreement. The object is to minimize judicial intervention
which is an acknowledgment of the concept of party autonomy.
41. In view of the clear legal proposition, we have no hesitation in
holding that the High Court was wrong in rejecting the Section
11(6) applications of the appellant. The question as to whether the
appellant was compelled to sign the standardized voucher/advance
receipt forwarded to it by the respondent out of economic duress and
whether notwithstanding receipt of Rs.1,88,14,146.00 as against the
claim of Rs. 5,71,69,554.00 the claim to arbitration is sustainable or
not are clearly within the domain of the arbitral tribunal.
42. That being the position, the impugned order of the High Court dated
02.12.2011 is set aside.
[2025] 5 S.C.R. 813
Arabian Exports Private Limited v. National Insurance Company Ltd.
43. Having regard to the long lapse of time we are of the view that it
would be appropriate for this Court to appoint a retired Judge of the
Bombay High Court as the sole arbitrator. Accordingly, we appoint
Justice (Retd.) Suresh Chandrakant Gupte (Mobile No.- 9821010104)
as the sole arbitrator. Parties to report to the sole arbitrator by
15.05.2025.
44. Appeals are accordingly allowed. However, there shall be no order
as to costs.
Result of the case: Appeals allowed.
†
Headnotes prepared by: Ankit Gyan
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