SBI General Insurance Co. Ltd. v. Krish Spinning

Supreme Court of India · 18 July 2024 · 3 judges · 2024 INSC 532

A full and final settlement does not end the arbitration agreement; a plea of accord and satisfaction is for the arbitral tribunal, and the referral court under Section 11 only checks the prima facie existence of the arbitration agreement.

Facts

The respondent, a cotton spinning firm, held a fire insurance policy from the appellant insurer. After a fire on 28.05.2018 it claimed Rs 1,76,19,967. The surveyor assessed the loss at Rs 84,19,579; the respondent gave a consent letter accepting this and signed an advance discharge voucher in full and final settlement, and the amount was paid. After receiving the last instalment for a second fire claim, it wrote on 25.10.2019 that it had signed the voucher because it was badly in need of money, and later sent a legal notice alleging coercion and invoking arbitration under the policy's clause for disputes on quantum. The Gujarat High Court allowed its Section 11(6) petition and appointed a former High Court judge as arbitrator. The insurer appealed.

Questions before the Court

Does a discharge voucher in full and final settlement bar a party from invoking arbitration?
What is the scope of judicial scrutiny under Section 11(6) when the defendant pleads accord and satisfaction?
What is the effect of In Re: Interplay on the powers of the referral court under Section 11?

What the Court held

Under the doctrine of separability in Section 16, the arbitration agreement survives even after the underlying contract is discharged by accord and satisfaction, unless the parties expressly agree otherwise. A dispute about the full and final settlement itself is a dispute under the contract and can be referred to arbitration.
After In Re: Interplay, the referral court under Section 11(6A) examines only the prima facie existence of the arbitration agreement under Section 7. The observations in Vidya Drolia and NTPC v. SPML allowing the court to weed out ex facie non-arbitrable or frivolous claims of accord and satisfaction cannot continue to apply.
Accord and satisfaction is a mixed question of law and fact within the exclusive jurisdiction of the arbitral tribunal. Under negative competence-competence the referral court should not examine it even prima facie; the defendant may raise it before the tribunal as a preliminary issue.
On limitation, the referral court should only check whether the Section 11(6) application was filed within three years, and should leave to the arbitrator whether the claims are time barred. Arif Azim was clarified accordingly.
On the facts, the insurer had admitted liability and the dispute was one of quantum, within the arbitration clause; the claim was not time barred. The appointment of the arbitrator was upheld.

Why it matters

The judgment applies the seven-judge ruling in In Re: Interplay to Section 11 applications generally, not only to stamping. It confines the referral court to a prima facie check that an arbitration agreement exists, and leaves pleas of accord and satisfaction, discharge of the contract and time-barred claims to the arbitral tribunal. It also clarifies its own earlier decision in Arif Azim on the limits of the limitation enquiry at the Section 11 stage.

In the Court's words

Copied from the official judgment; each passage links to its page.

“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”.”

J.B. Pardiwala, J.Page 29 of the judgment

“In view of the observations made by this Court in In Re: Interplay (supra), it is clear that the scope of enquiry at the stage of appointment of arbitrator is limited to the scrutiny of prima facie existence of the arbitration agreement, and nothing else. For this reason, we find it difficult to hold that the observations made in Vidya Drolia (supra) and adopted in NTPC v. SPML (supra) that the jurisdiction of the referral court when dealing with the issue of “accord and satisfaction” under Section 11 extends to weeding out ex-facie non-arbitrable and frivolous disputes would continue to apply despite the subsequent decision in In Re: Interplay (supra).”

J.B. Pardiwala, J.Page 76 of the judgment

“The question of “accord and satisfaction”, being a mixed question of law and fact, comes within the exclusive jurisdiction of the arbitral tribunal, if not otherwise agreed upon between the parties. Thus, the negative effect of competence-competence would require that the matter falling within the exclusive domain of the arbitral tribunal, should not be looked into by the referral court, even for a prima facie determination, before the arbitral tribunal first has had the opportunity of looking into it.”

J.B. Pardiwala, J.Page 77 of the judgment

“it is further clarified that the referral courts, at the stage of deciding an application for appointment of arbitrator, must not conduct an intricate evidentiary enquiry into the question whether the claims raised by the applicant are time barred and should leave that question for determination by the arbitrator.”

J.B. Pardiwala, J.Page 85 of the judgment

Provisions interpreted

Related judgments

Follows In Re: Interplay between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899 (2023)“In view of the observations made by this Court in In Re: Interplay (supra), it is clear that the scope of enquiry at the stage of appointment of arbitrator is limited to the scrutiny of prima facie existence of the arbitration agreement, and nothing else.” (page 76)
Overrules Vidya Drolia v. Durga Trading Corporation (2020)“we find it difficult to hold that the observations made in Vidya Drolia (supra) and adopted in NTPC v. SPML (supra) that the jurisdiction of the referral court when dealing with the issue of “accord and satisfaction” under Section 11 extends to weeding out ex-facie non-arbitrable and frivolous disputes would continue to apply” (page 76)

Case and bench

Parties: SBI General Insurance Co. Ltd. v. Krish Spinning
Case: Civil Appeal No. 7821 of 2024 (arising out of SLP (C) No. 3792 of 2024)
Decided: 18 July 2024
Bench: Dr. Dhananjaya Y. Chandrachud, J.B. Pardiwala, Manoj Misra
Opinions: Unanimous. Judgment written by J.B. Pardiwala, J.