Libertatem Magazine

Delhi High Court Allows Petition To Constitute Arbitral Tribunal To Adjudicate Disputes Arising Between Parties in Relation to Contract Agreements

Contents of this Page


The present petition was filed by a civil engineering company requesting an Arbitral Tribunal constitution to be constituted to adjudicate the disputes between the parties concerning the Contract Agreement regarding a Project. The petition was allowed by the Court after referring to several cases and analysing the whole matter.


In the present case, the Petitioner, SPML Infra Ltd., was a company undertaking civil engineering works and the Respondent was a Public Sector Undertaking, primarily involved in commissioning and operation of thermal power plants. SPML filed the present petition under Section 11 of the Arbitration and Conciliation Act 1996, requesting an Arbitral Tribunal constitution to be constituted to adjudicate the disputes that have arisen between the parties concerning the Contract Agreement in respect of a Project. SPML completed the project on 18.12.2015 and was granted a completion certificate, but NTPC did not release the Bank Guarantees even after the repeated reminders. SPML further raised interim claims amounting to ₹ 72,01,53,898/- through a letter and demanded its payment within a period of fifteen days from the date of receipt of the said letter. SPML did not receive any response from NTPC for the said letter, and accordingly, it issued a notice calling upon NTPC to appoint an Adjudicator within thirty days in terms of the Dispute Resolution Clause. Further, SPML filed a writ petition being aggrieved due to the non-release of the Bank Guarantees. In the said writ petition, this court passed an order staying the encashment of the Bank Guarantees subject to SPML keeping the same alive. Further, SPML issued a notice to commence arbitration as NTPC had failed to meet its claims and nominated Justice (Retd.) Dr Satish Chandra, a former judge of the High Court of Indore, adjudicate the disputes between the parties and requested NTPC to nominate another arbitrator. 

NTPC responded to the said notice and asked SPML to settle the dispute amicably or, in the alternative, to constitute an Expert Settlement Council (ESC). After repeated requests by SPML and counter requests by NTPC, SPML intimated its willingness to resolve the disputes amicably through a meeting. However, it informed NTPC that the Arbitration Clause would be invoked if the disputes would not be resolved amicably and the Bank Guarantees would not be released within thirty days. In the meeting, NTPC said that the Bank Guarantees would be released only if SPML withdraws the arbitration notice accepted by SPML. SPML claimed that while the Writ Petition was pending before this Court, NTPC proposed a Settlement Agreement and said that the Bank Guarantees would not be released until SPML signs the Settlement Agreement. SPML signed the said Settlement Agreement, and resultantly, NTPC released the Bank Guarantees, although the same had expired earlier.

Consequently, the above Writ Petition filed by SPML before this Court was also withdrawn on 21.09.2020. SPML further stated that it was compelled to sign the Settlement Agreement under duress and without free consent and repudiated the said Agreement. It further requested NTPC to accept its claims to which NTPC responded and disputed the SPML’s claim of ₹72,01,53,899/-.

Petitioner’s Arguments 

Mr Raman Kapoor, learned Senior Counsel appearing for the Petitioner, contended that the Arbitration Clause being undisputed would be binding amongst the parties. He submitted that the first pre-arbitral step of ‘mutual consultation’ has been taken recourse to before resorting to arbitration. He also submitted that there was no mention of any recourse to conciliation in the Contract Agreement, and thus, the Expert Settlement Council (ESC) cannot be sought for dispute settlement. Further, he submitted that the Settlement Agreement was not a valid document as it was signed under economic duress and coercion. Moreover, he contended that NTPC had the upper hand on account of its outstanding legitimate dues and thus, took advantage of SPML’s financial hardship to sign a Settlement Agreement, and thereby, NTPC should be released from all liabilities towards SPML. He further submitted that NTPC had withheld the Bank Guarantees for several years even after the project’s due completion on account of purported claims in another project.

He averred that the scope of inquiry of this Court in an application filed under Section 11 of the A&C Act is limited only to prima facie satisfaction of the existence of an arbitration agreement, and it is the Arbitral Tribunal which would decide any preliminary issues, including the validity, the efficacy and the effect of the Settlement Agreement. 

Respondent’s Arguments

Mr Aman Lekhi, learned ASG, appearing for NTPC, contended that the present petition was premature as the Petitioner had failed to take the mandatory pre-arbitral steps. He submitted that the arbitration clause must be construed strictly, and it is essential for the parties to observe all pre-arbitral steps prior to the invocation of the arbitration clause and relied upon the Supreme Court‘s decisions in various cases in support of his submission. He submitted that NTPC had no ill intention to withhold the Bank Guarantees, and the same was being withheld due to an outstanding amount recoverable from SPML, which was arising out of several allied contractual obligations between the parties. He alleged that the current claims of SPML amounting to ₹ 70 crores (approx.) were a mere afterthought as the same was never raised during the execution of the Settlement Agreement, and no valid, maintainable claims lie against NTPC as the full and final payment has already been made between the parties. 

Court’s Observation 

The Court went through the Arbitration Clause in the Contract Agreement and referred to the Settlement Agreement and found it difficult to accept that the Settlement Agreement would stand on a separate footing from a document recording the party’s agreement for discharge of the Contract Agreement by an accord and satisfaction. The Court further referred to several Supreme Court cases and observed that the present case was not where the Settlement Agreement had substituted the Contract Agreement. It is essential to record the agreement between the parties to settle their differences and disputes between the performance and discharge of the Contract Agreement. The Court further held that once it was apparent that the parties had agreed to refer the disputes to arbitration, the dispute whether a settlement has been discharged or not was required to be liberally construed in favour of relegating the parties to the arbitration. Further, the decision of whether to refer the parties to arbitration was concerned with only the forum where the disputes were required to be agitated. The Court also held the contention that the reference to arbitration was premature and unmerited.

Court’s Decision

The Court held that given the above circumstances, the petition could not be rejected by relegating the Petitioner once again to seek reference of the disputes before an Adjudicator. Accordingly, the Court appointed Justice Manmohan Singh, a former Judge, as NTPC’s nominated Arbitrator and directed that both the Arbitrators shall jointly appoint the Presiding Arbitrator in terms of the Arbitration Clause. The petition was disposed of in the above terms.

CLICK HERE TO READ THE JUDGEMENT. is now on Telegram. Follow us for regular legal updates and judgment from courts. Follow us on Google News, InstagramLinkedInFacebook & Twitter. You can subscribe to our Weekly Email Updates. You can also contribute stories like this and help us spread awareness for a better society. Submit Your Post Now.

About the Author