Contract Dispute Is Dormant; Cannot Be Referred To Arbitration: Bombay High Court

The Bombay High Court on 26th July ruled that if the parties reach an agreement, the contract between the parties is discharged by mutual consent, and therefore the dispute originating under the contract is deadwood that cannot be brought to arbitration, through a single bench of Justice G. S. Kulkarni in the case of Vishwajit Sud & Co. vs L & T Stec JV, Mumbai (Arbitration Application No. 296 of 2021).



According to the facts of the case, sub-Contract Agreements were entered into between the applicant Vishwajit Sud & Co. and the respondent L & T Stec JV, under which the applicant was assigned as a subcontractor. After the respondent purportedly refused to pay for the applicant’s work, the applicant sent a notice invoking the arbitration clause. In its response to the abovementioned notice, the respondent maintained that a settlement was reached between the parties, and so the contract between the parties was discharged. According to the reply, once a contract was discharged by settlement, neither the contract nor any issue originating under the contract survived.

As a result, the applicant filed to the Bombay High Court for the establishment of an Arbitral Tribunal under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act). The respondent- L & T Stec JV- stated before the High Court that a Settlement Agreement was completed by the parties and all problems under the Contract were resolved, which was purposefully hidden by the applicant in its application under Section 11 of the A&C statute.

The applicant, Vishwajit Sud & Co., contended that the Arbitral Tribunal must decide on whether the parties reached an agreement and satisfaction. Stating that the parties reached an agreement, the terms and conditions of which were entirely known to the applicant, the bench accepted the respondent’s argument that the applicant tried to arbitrate a deadwood dispute.


The Court noted that 8 months after the parties signed the settlement agreement, the applicant wanted to crawl out of the conditions of the settlement by claiming that it was not an acceptable settlement and sent a notice invoking the arbitration agreement. The bench further observed that the applicant thereafter submitted a letter unconditionally withdrawing the stated notice seeking arbitration and confirming that the matter had been peacefully resolved between the parties. However, once the respondent refused the applicant’s demand for more payment, the applicant withdrew the settlement agreement and submitted a new notice invoking arbitration.

Dismissing the applicant’s argument that the respondent used coercion or pressure to get the settlement agreement signed, the Court concluded that the blatant accusations of coercion were made without any supporting information and that the applicant’s behaviour was manifestly deplorable. The Court decided that the applicant’s intention to conceal documents and mislead the Court was evident because no disclosure regarding the parties’ settlement was included in the pleadings submitted before the Court.

The Bench stated that the Delhi High Court in Sugam Construction (P) Ltd. vs. Northern Railway Administration (2012) and Fiberfill Engineers vs. Indian Oil Corporation Ltd. (2016) held that a party who conceals or represses facts is ineligible for relief under Section 11 of the A&C Act and that proceedings under Section 11 are liable to be dismissed on that basis alone.

The Bench decided that there was a clear example of consent and satisfaction, in which the parties agreed to discharge the contract in full and final settlement under the settlement agreement. The Court concluded that because the allegations of coercion were ex-facie untrue and did not require adjudication, the contract itself was discharged in light of the parties’ entire agreement and satisfaction with the settlement agreement.

The Court held that the applicant was seeking to resuscitate dead issues and impose undue arbitration on the respondent. As a result, the bench levied a fee of Rs. 50,000/- on the petitioner for each application submitted.

Accordingly, the petition was dismissed.

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