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Right to arbitration will not be rejected unless a concluded settlement is placed before the court: Supreme Court of India

The arbitration clause cannot be invoked in view of the settlement ending in the resolution of the dispute unless there is material brought on record to indicate the nature of settlement entered into between the parties. This auspicious judgment was passed by the Supreme Court of India in the matter of V. SREENIVASA REDDY V. B.L. RATHNAMMA [SLP (CIVIL) NO.11036 OF 2019] by Honourable Chief Justice of India S.A. Bobde, Honourable Justice A. S. Bopanna, and Honourable Justice V.Ramasubramanian.

The petition before the court was taken back since it was contended that the parties had settled the matter outside the court. However, the parties continued to be in dispute regarding the issue and the matter and filed subsequent petitions demanding re-admission of petition or appointment of an arbitrator. Later, the HC recorded that since the matter has been settled outside the court and the Chief Justice of HC opined that since the matter was already settled it is noted in judicial order that this would be sufficient to decline the request of appointment of an arbitrator and hence the application was dismissed.

The appellant is assailing the order passed by the High Court of Hyderabad in an Arbitration Application filed under Section 11(5) and (6) of the Arbitration and Conciliation Act, 1996 for seeking appointment of a sole Arbitrator to resolve the dispute between the parties. When a notice for balance payment sent the appellant raised certain issues relating to the transaction. In that background, the respondent got issued a notice informing that the agreement stood canceled and the advance amount paid is forfeited. Now the dispute was to be resolved by an arbitrator and when it did not happen a petition was filed in HC.

In this regard, the SC observed that “The entire issue would revolve around the factual aspect involved in the instant case to come to a conclusion as to whether there was a concluded settlement between the parties and therefore in that circumstance, whether it should be construed that the dispute which had arisen between the parties should be deemed as not subsisting for resolution through arbitration.

Court also added, “In the said background there is no definite material on record to indicate that there was a concluded settlement between the parties based on which the petition was disposed and, therefore there is no reason to hold that there is no dispute which required resolution through arbitration; nor are we in a position to hold that there is Novation of the earlier agreement. Though the learned Judge of the High Court of Karnataka disposed of the petition under Section 11(6) of the Act, 1996 by recording the submission that the matter has been settled out of court, the so-called settlement has not been recorded nor made a part of the order so as to bind the parties and to indicate that the dispute had been resolved and had accordingly erased the original dispute or amounted to Novation. That apart, no material is placed on record to show that the settlement had been reduced into writing and had been placed before the Court when the petition was disposed of so as to indicate that the right to arbitration under the original agreement cannot be claimed. If that be the position, the rejection of the IA also on the ground that the original order had merely recorded the settlement will not indicate that a concluded settlement was placed before the court.”

Thus, the Apex Court stated, “It cannot be accepted in the present facts that there was an abandonment of part of any claim nor was there a conclusive adjudication of the dispute between the same parties on merits to constitute res-judicata. As already indicated above, the so-called settlement has neither been recorded in the earlier proceedings nor any document brought on record to indicate that factually the settlement had taken place so as to wipe out the original dispute. In such circumstances, a party to the arbitration agreement contending that there was a dispute amongst them cannot be left without a forum for the resolution of the dispute by taking a hyper-technical view of the matter. In any event, whether the dispute which had arisen at the first instance has been settled: if the dispute subsisted, whether the claim is within the period of limitation, the nature of relief if any, and all other contention on merits are to be considered in the arbitral proceedings.

The Supreme Court dismissed the application with a view that the sole Arbitrator is to be appointed to resolve the dispute between the parties.

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