After a full and final discharge, if claim to arbitration is sustainable or not is clearly within the domain of the arbitral tribunal.
In a recent judgment, Hon’ble Supreme Court has held that notwithstanding receipt against the claim by the insured after giving a full and final discharge voucher to the insurer, whether the claim to arbitration is sustainable or not are clearly within the domain of the arbitral tribunal.
ABCAUS Case Law Citation:
4548 (2025) (05) abcaus.in SC
Important Case Laws relied upon by Parties:
National Insurance Company Limited vs. Boghara Polyfab Private Limited
Nathani Steels Ltd. vs. Associated Constructions
In the instant case, the issue for consideration was whether a dispute raised by an insured after giving a full and final discharge voucher to the insurer can be referred to arbitration?
The appellant company had taken a comprehensive Standard Fire and Special Perils Policy along with a Fire Declaration Policy insuring all its stock-in-trade and finished products from the respondent insurance company.
The appellant suffered severe loss to the factory building, plant and machinery, furniture, fixtures and accessories as well as the stock due to flood caused by the unprecedented rain.
Despite repeated requests and reminders by the appellant, respondent failed to settle the claims of the appellant. However, after a considerable delay of about three years, appellant was presented with an undated and standardized voucher/receipt towards the approx. 20 per cent amount of the insurance claim. 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, the appellant signed the said undated and standardized voucher/advance. Later, the appellant was given the cheque for the amount stated in the said voucher.
Afterwards, appellant while reserving its right to invoke arbitration clause called upon the respondent to settle and pay the balance 80 per cent amount being the difference between the claim lodged by the appellant and the amount paid by the respondent.
Receiving no positive response from the insurer, the appellant invoked the arbitration clause contained in the insurance policy and at the same time nominated sole arbitrator. However, the respondent denied its liability and refused to accept arbitration.
As a result, the respondent filed two applications (one for each policy) under Section 11 of the Arbitration and Conciliation Act, 1996 (the 1996 Act) before the High Court for appointment of an arbitrator.
The Single Judge of the High Court 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 after encashing the cheque. Therefore, it was 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.
Before the Hon’ble Supreme Court, the appellant submitted that in the present case, ‘accord and satisfaction’ was not voluntary but under compulsion as the 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.
On the other hand the respondent argued that three Judge Bench of the Hon’ble Supreme Court 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.
The Hon’ble Supreme Court observed that the three Judges bench had 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 time, 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 is ‘amicable settlement’.
The Hon’ble Supreme Court observed that a two-Judge Bench had explained the above decision and categorised the cases where there is ‘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. It was held that in such categories, 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 Hon’ble Supreme Court observed that it was held by a bench of three Judges that post the amendment by way of the Arbitration and Conciliation (Amendment) Act 2015, 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.
It was further observed that a two Judges bench 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.
Accordingly, the Hon’ble Supreme Court held 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 against the claim the claim to arbitration is sustainable or not are clearly within the domain of the arbitral tribunal.
As a result, the impugned order of the High Court was set aside. Also, a retired Judge of the High Court was appointed as the sole arbitrator.
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