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Delhi HC declines settlement agreement stating lack of intent to avoid Arbitration; Sends dispute to Arbitration.

CASE TITLE – M/S DHAWAN BOX SHEET CONTAINERS PVT. LTD v. M/S SHREYANSH HEALTHCARE PVT. LTD.

CASE NUMBER – ARB.P. 1196/2023

DATED ON – 20.05.2024

QUORUM – Justice Dinesh Kumar Sharma

FACTS OF THE CASE

The petitioner is engaged in the business of manufacturing corrugated boxes and cartons. The respondent placed various orders upon the petitioner for the supply of corrugated boxes. The petitioner having been supplied the same issued various invoices from time to time. The petitioner’s plea is that there was outstanding due of Rs. 36,40,006/- for which the petitioner issued a legal demand notice dated 01.06.2023. The petitioner has filed the present petition stating therein that there is an outstanding of Rs. 36,40,006/-. The petitioner also stated that the respondent issued an email dated 22.05.2023 and requested the petitioner to settle the matter at the lesser rate on the coercive ground that the management and control of the company would soon be taken over by the Insolvency Resolution Professional as appointed by the Hon’ble National Company Law Tribunal. The petitioner also claimed to have sent legal demand notice dated 01.06.2023. The petitioner stated that the respondent had informed that the insolvency proceedings had been initiated against him by M/s Synergy Group and further shared a screenshot of the filing details. Therefore, to bring a quietus to the matter, the petitioner accepted the offer of the respondent vide consent letter dated 12.06.2023. However, later on it was revealed that no insolvency petition had been filed. The respondent submitted that the petitioner had been supplying bad quality of the goods and the respondent was forced to return the good to the tune of Rs. 10,23,117/-. It has been submitted that thereafter the parties entered into a settlement agreement dated 12.06.2023 thereby deciding the terms of the payments to be to the petitioner after mutual discussion between the parties.

 

ISSUES

Whether the letter dated 12.06.2023 can be taken as a novation of agreement or settlement of dispute between the parties?

Whether the arbitration clause in the invoices is still enforceable given the settlement agreement?

 

LEGAL PROVISIONS

Section 8 of the Arbitration and Conciliation Act, 1996, prescribes the power of a judicial authority to refer parties to arbitration.

Section 11 of the Arbitration and Conciliation Act, 1996, prescribes the appointment of arbitrators in an arbitration proceeding.

CONTENTIONS BY THE PETITIONER

The Learned counsel for the petitioner submitted that the respondent coerced the petitioner into settling the matter by accepting part consideration and agreeing to receive the balance consideration proportionately on recovery of dues against whom the respondent has stated to have initiated recovery proceedings. Learned counsel for the petitioner also stated that the respondent falsely informed the petitioner that proceedings under IBC had been initiated against him which was found to be false. The petitioner in these circumstances accepted the offer of the respondent vide consent letter dated 12.06.2023. The Learned counsel for the petitioner submitted that there is an arbitration clause in the invoices within the jurisdiction of the Delhi Courts. He also submitted that it is a settled proposition that an arbitration clause on the invoices can be taken into account for appointing an Arbitrator. It had further been stated that the plea taken by the respondent that the arbitration clause as contained in the invoices of the petitioner stood novated under the settlement as recorded in the document dated 12.06.2023 is liable to be rejected. It had been submitted that the document dated 12.06.2023 cannot obviate the arbitration clause in the invoice. The Learned counsel further submitted that it is a settled proposition that if an original contract remains in existence, for disputes in connection with issues of repudiation, frustration, breach, etc., the Arbitration Clause therein continues to operate for these purposes.

CONTENTIONS BY THE RESPONDENT

The Learned counsel for the respondent submitted that the petitioner had been supplying bad quality of the goods and the respondent was forced to return the goods to the tune of Rs. 10,23,117/-. It had been submitted that thereafter the parties entered into a settlement agreement dated 12.06.2023 thereby deciding the terms of the payments to be to the petitioner after mutual discussion between the parties. He also submitted that the petitioner upon realizing the defects and quality issues in the goods sold by the Petitioner to the Respondent of its own volition agreed to settle the accounts amicably after discussions and deliberations with the Respondent. The Learned counsel for the respondent submitted that after the settlement as recorded in the letter dated 12.06.2023, there was no live lis between the parties and therefore in the absence of any dispute, the matter cannot be referred to the arbitration. He further submitted that once the parties to any arbitration agreement enter into a settlement thereby discharging the original agreement, the jurisdiction under Section 11 of the Arbitration and Conciliation Act cannot be invoked. After placing reliance on multiple precedents, The Learned Counsel came up with the arguments that a) an arbitration clause contained in an agreement which is void ab initio cannot be enforced as the contract itself never legally came into existence. b) A validly executed contract can also be extinguished by a subsequent agreement between the parties. c) If the original contract remains in existence, for the purposes of disputes in connection with issues of repudiation, frustration, breach, etc., the arbitration clause contained therein continues to operate for those purposes. d)Where the new contract constitutes a wholesale novation of the original contract, the arbitration clause would also stand extinguished by virtue of the new agreement. The Learned counsel argued that though the scope of judicial intervention at the stage of exercising jurisdiction under Sections 8 and 11 of the Arbitration and Conciliation Act is limited, yet, the matter can be referred only if there is a dispute between the parties. He further submitted that the petitioner having settled the dispute with the respondent, the matter cannot be referred to the learned Arbitrator.

COURT ANALYSIS AND JUDGEMENT

The Hon’ble High Court of Delhi was of the firm view that by no stretch of imagination the letter dated 12.06.2023 can be taken as the novation of an agreement or the settlement of the dispute between the parties as the document does not reveal at all that vide this document the dispute between the parties have been settled and there is no Live Lis between the parties. They further stated that while deciding such issues, the court has only to look at the prima facie view and the intention of the parties. In order to deny the arbitration, if the same is the preferred mode of resolution of dispute, there has to be clear intent of the parties, and stated that they do not consider that there is clear intent of the parties as reflected in the document dated 12.06.2023. The Hon’ble High Court disposed of the petition, with a few directions, stating that the disputes between the parties under the said agreement were now referred to the arbitral tribunal, and had also appointed an Arbitrator. It was also made clear that all the rights and contentions of the parties, including as to the arbitrability of any of the claim, any other preliminary objection, as well as claims on merits of the dispute of either of the parties, are left open for adjudication by the learned arbitrator.

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Judgement Reviewed by – Gnaneswarran Beemarao

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