Understanding Arbitrability of Disputes viz. a. viz. Doctrine of Accord and Satisfaction

INTRODUCTION

In many construction, insurance, and commercial contracts, it is a common practice for the employer or insurer to require the other party to execute a “settlement certificate”, such as a no-due certificate, no-claim certificate, discharge claim, or discharge voucher. These certificates are typically relied upon by the employer/insurer as a defense against any subsequent invocation of arbitration, on the ground that execution of the said certificates, amounts to a discharge of all obligations and liabilities under the contract.

However, it is equally common for the other party to challenge the settlement certificate by contending that it was executed under coercion, fraud, or undue influence. This raises a critical question: once a settlement certificate has been signed, is the employer/insurer completely discharged of their obligations, rendering the dispute non-arbitrable? Or can the plea of economic duress operate as a valid basis for referring the dispute to arbitration?

A related issue also arises—whether the referral court must determine such questions of validity and arbitrability at the stage of reference to arbitration, or whether they fall within the jurisdiction of the arbitral tribunal under the doctrine of kompetenz-kompetenz.

Judicial opinion in India on this issue is divided. One line of reasoning holds that an arbitration claim cannot be defeated solely on the grounds that a settlement certificate was signed if the claimant can demonstrate that it was executed under coercion or undue influence. The contrary view, however, emphasizes that once a contract is discharged by accord and satisfaction, no arbitrable dispute survives.

In light of these conflicting approaches, the author, through this article, seeks to:

1. Examine the principle of accord and satisfaction and its application in contract law.

2. Analyze the statutory framework concerning consent, coercion, and undue influence under the Indian Contract Act.

3. Consider the conditions under which a party may be held to be discharged of its liability or obligation under a contract.

4. Review the amendments to the Arbitration and Conciliation Act relevant to this issue.

5. Study judicial precedents in India to understand the rationale adopted by the Hon’ble Courts.

Finally, the author shall conclude by offering his analysis and opinion on the proper approach to be taken in such cases.

UNDERSTANDING THE RELEVANT SECTIONS OF THE CONTRACT ACT AND THE DOCTRINE OF ACCORD AND SATISFACTION

Section 10 of the Indian Contract Act, 1872[1] [“Contract Act”] provides that the enforceability of a contract in a court of law is contingent upon the free consent of the parties. Consent exists when two or more people agree upon the same thing in the same sense. Section 14 of the Contract Act[2] further explains that consent is considered free when it is not vitiated by coercion, undue influence, fraud, misrepresentation, or mistake. Where consent is procured by coercion, undue influence, or fraud, it is deemed to have been improperly obtained. Accordingly, for a contract to be valid and binding, the consent of the parties must be free. If a party can establish that its consent was induced by coercion, fraud, or undue influence, the agreement becomes voidable at the option of that party.[3]

The Doctrine of Accord and Satisfaction provides that a party is discharged from its existing obligations or liabilities by entering into a new agreement with the other party, thereby substituting the old obligations with a fresh set of obligations. In essence, the doctrine facilitates settlement of disputes where one party offers an alternative performance and the other accepts it in full satisfaction of the original obligation.

Although the Indian Contract Act does not expressly define this doctrine, its substance is embodied in Section 63,[4] which states: “Every promisee may dispense with or remit, wholly or in part, the performance of the promisee made to him, or may extend the time for such performance,or may accept instead of it any satisfaction which he thinks fit.” Thus, the principle of accord and satisfaction under Indian law recognizes that a promisee may agree to accept something different in place of the original promise, thereby extinguishing the earlier obligation. For an agreement of accord and satisfaction to be validly established, the following conditions generally need to be satisfied:

1. Existence of a bona fide dispute concerning certain obligations or liabilities between the parties;

2. Mutual agreement of the parties to replace or substitute the original contract with new terms.

3. Consideration supporting the new agreement;

4. Performance of new obligations by the promisor, in accordance with the terms of the substituted agreement;

   
   

The doctrine traces its origin to common law jurisprudence, which has since been adopted and recognized in Indian contract law. Judicial precedents reveal how Indian courts have approached the issue of “accord and satisfaction” or the validity of a full and final settlement. These questions were often examined by referral courts under Sections 8[5] and 11 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act 1996”)[6] or under Sections 8,[7] 9,[8] 10[9] and 20[10] of the Arbitration Act, 1940 (“Arbitration Act 1940”), particularly in commercial and insurance disputes. The decisions laid down the scope and standard of enquiry permissible at that stage of proceedings.

ANALYZING THE JUDGMENTS PASSED BY THE HON’BLE COURTS OVER THE PERIOD

In the case of Payana Reena Layana Saminathan Chetty v. Pana Lana Pana Lana Palaniappa Chetty,[11] the Hon’ble Privy Council dealt with the principle of ‘accord and satisfaction’ wherein it was observed that when a party accepts the ‘receipt’ of a document, acknowledges the same and accordingly is acted upon by both the parties, then it can be said that the parties to the dispute have agreed to a settlement of its previous disputes and have abandoned its earlier obligations in lieu of new agreement. The Hon’ble Privy Council has stated the following:

“the “receipt” given by the Appellants, and accepted by the Respondent, and acted on by both parties proves conclusively that all the parties agreed to a settlement of all their existing disputes by the arrangement formulated in the “receipt”. It is a clear example of what used to be well known in Common Law Pleading as “Accord and Satisfaction by a Substituted Agreement”. No matter what were the respective rights of the parties inter se they are abandoned in consideration of the acceptance by all of a new agreement. The consequence is that when such an accord and satisfaction takes place the prior rights of the parties are extinguished. They have in fact been exchanged for the new rights; and the new agreement becomes a new departure, and the rights of all the parties are fully represented by it.”

Before the Arbitration Act was implemented in 1996, arbitration law and disputes were adjudicated by the Arbitration and Conciliation Act, 1940. The Hon’ble Courts initially were of the view that disputes concerning the arbitrability of disputes and the issue of accord and satisfaction were left to the arbitral tribunal. The Hon’ble Supreme Court in the case of Union of India v. Kishorilal Gupta & Bros.,[12] observed that

“30. It seems to me that the respective nature of accord and satisfaction and arbitration clause makes it impossible for the former to destroy the latter. An accord and satisfaction only releases the parties from the obligations under a contract but does not affect the arbitration clause in it, for as Lord Macmillan said, the arbitration clause does not impose on one of the parties an obligation in favour of the other but embodies an agreement that if any dispute arises with regard to the obligations which the one party has undertaken to the other, such dispute shall be settled by arbitration. A dispute whether the obligations under a contract have been discharged by an accord and satisfaction is no less a dispute regarding the obligations under the contract. Such a dispute has to be settled by arbitration if it is within the scope of arbitration clause and either party wants that to be done. That cannot be unless the arbitration clause survives the accord and satisfaction. If that dispute is not within the arbitration clause, there can of course be no arbitration, but the reason for that would not be that the arbitration clause has ceased to exist but that the dispute is outside its scope. I am not saying that it is for the arbitrator to decide whether the arbitration clause is surviving; that may in many cases have to be decided by the court. That would depend on the form of the arbitration agreement and on that aspect of the matter it is not necessary to say anything now for the question does not arise.”

In other words, the Hon’ble Court stated that the principle of accord and satisfaction does not destroy the arbitration clause in toto. It is a well-settled principle of law that the termination/superannuation of the contract does not terminate the arbitration clause, as it has a separate existence. The Hon’ble Court further held that the issue of whether the obligations as per the contract were discharged to the satisfaction of the aggrieved is well covered within the arbitration clause. Thus, the arbitration clause subsisted, and the parties were at a free will to decide the issue of accord and satisfaction before the arbitral tribunal.

Similarly, in the case of the Damodar Valley Corpn. v. K.K. Kar,[13] the Hon’ble Supreme Court of India followed the reasoning given in the case of Kishorilal Gupta[14] observed that:

“In this case, we are not troubled with the question whether there has been novation, rescission or substitution of the contract, nor have the parties in their pleadings ever contended that the contract is non est as it has been substituted by a new contract. Where, however, as in this case, there was a termination of the contract due to non-performance, the existence of the contract has been assumed for the purposes of such termination. Similarly the question whether there has been a settlement of all the claims arising in connection with the contract also postulates the existence of the contract. The principle laid down by Sarkar, J., in Kishorilal Gupta Bros. case that accord and satisfaction does not put an end to the arbitration clause was not dissented to by the majority. On the other hand proposition (6) seems to lend weight to the views of Sarkar, J. In these circumstances, the question whether the termination was valid or not and whether damages are recoverable for such wrongful termination does not affect the arbitration clause, or the right of the respondent to invoke it for appointment of an arbitrator.”

A similar observation was made by the Hon’ble Supreme Court in the case of BHEL v. Amar Nath Bhan Prakash,[15] wherein it was stated that:

“It appears from the order of the High Court impugned in the appeal that the High Court has not correctly appreciated the position that the question whether there was discharge of the contract by accord and satisfaction or not, is a dispute arising out of the contract and is liable to be referred to arbitration and hence the application of the respondent under Section 20 of the Indian Arbitration Act should have been allowed and the matters in dispute between the parties, including the question whether or not there was discharge of the contract by accord and satisfaction should have been referred to arbitration. We, therefore, set aside the finding of the High Court that there was no accord and satisfaction of the contract and direct that the matters in dispute between the parties, including the question whether or not there was discharge of the contract by accord and satisfaction, lie referred to the arbitration of Mr V.S. Deshpande, retired Chief Justice of the Delhi High Court, under the arbitration clause contained in the contract between the parties.”

However, the Hon’ble Courts' position regarding the issue changed in the case of P.K. Ramaiah & Co. v. NTPC.[16] It was stated by the Hon’ble Supreme Court that:

“It is not shown to us that the Chief Construction Manager was competent to acknowledge the liability or an authority to refer the dispute for arbitration. So neither his letter binds the respondent nor operates as an estoppel. Admittedly the full and final satisfaction was acknowledged by a receipt in writing and the amount was received unconditionally. Thus there is accord and satisfaction by final settlement of the claims. The subsequent allegation of coercion is an afterthought and a devise to get over the settlement of the dispute, acceptance of the payment and receipt voluntarily given. In Russell on Arbitration, 19th Edn., p. 396 it is stated that “an accord and satisfaction may be pleaded in an action on award and will constitute a good defence”. Accordingly, we hold that the appellant having acknowledged the settlement and also accepted measurements and having received the amount in full and final settlement of the claim, there is accord and satisfaction. There is no existing arbitrable dispute for reference to the arbitration.”

Thus, the Hon’ble Supreme Court held that when the aggrieved party has accepted a full and final settlement from the other party, then no arbitral dispute subsists between the parties and thus no claims exist between the parties. Further, the Hon’ble Court also stated that any allegations raised after the acceptance of payments are nothing but mere afterthoughts.

In contrast to the above-mentioned judgement, the Hon’ble Supreme Court in the case of Union of India v. L.K. Ahuja and Co.,[17] ruled that:

“In order to be entitled to ask for a reference under Section 20 of the Act, there must be an entitlement to money and a difference or dispute in respect of the same. It is true that on completion of the work, right to get payment would normally arise and it is also true that on settlement of the final bill, the right to get further payment gets weakened but the claim subsists and whether it does subsist, is a matter which is arbitrable.”

However, the observation passed in the case of P.K. Ramaiah[18] was also followed in the case of State of Maharashtra v. Nav Bharat Builders,[19] wherein the court observed the following:

“5. Shri Salve, learned Senior Counsel for the respondent contended that the appellant had accepted the principle on which the escalation charges are to be paid but in its working the amount was not calculated correctly and he expressly referred the same in his letter of acceptance and that, therefore, it is open to the respondent to contend before the arbitrator that in working the principle on which the amount offered by the Government the arbitrator has to decide as to what amount had been arrived at and if the working in principle is not acceptable any alternative principle would be applicable. If the arbitrator finds that the respondent is entitled to any claim, it is still an arbitrable dispute. We find no substance in the contention. Whatever be the principle or method or manner of working it out, a particular figure was arrived at by the Government. The respondent was then asked to consider its willingness to accept the offer and having accepted the same and received the amount, it is no longer open to the respondent to dispute the claim on any count or ground. The dispute was concluded and the respondent fully and finally accepted the claim and thereafter received the amount. Thus there is accord and satisfaction of the claim relating to labour escalation charges. Thereby there is no further arbitrable dispute in that behalf.”

In addition to the principles laid down in the cases of P.K. Ramaiah[20] and Nav Bharat Builders[21],   the Hon’ble Supreme Court in the case of Nathani Steels Ltd. v. Associated Constructions[22] gave its observations on the right of the parties to initiate arbitration proceedings after the settlement of disputes or differences. It was observed that:

“Even otherwise we feel that once the parties have arrived at a settlement in respect of any dispute or difference arising under a contract and that dispute or the difference is amicably settled by way of a final settlement by and between the parties, unless that settlement is set aside in proper proceedings, it cannot lie in the mouth of one of the parties to the settlement to spurn it on the ground that it was a mistake and proceed to invoke the Arbitration clause. If this is permitted the sanctity of contract, the settlement also being a contract, would be wholly lost and it would be open to one party to take the benefit under the settlement and then to question the same on the ground of mistake without having the settlement set aside. In the circumstances, we think that in the instant case since the dispute or difference was finally settled and payments were made as per the settlement, it was not open to the respondent unilaterally to treat the settlement as non est and proceed to invoke the Arbitration clause. We are, therefore, of the opinion that the High Court was wrong in the view that it took.”

It is pertinent to state that the above–mentioned judgements were passed in the context of the Arbitration Act 1940. However, with the implementation of the new act, i.e., the Arbitration Act 1996, there was a change in the regime or thought process while appointing an arbitrator. The Hon’ble Courts again shifted their line of reasoning with the decisions passed in the cases of Kishorilal Gupta & Bros.[23], Amar Nath Bhan Prakash[24] and Damodar Valley Corpn.[25] The same was observed in the case of Jayesh Engineering Works v New India Assurance Co. Ltd.,[26] wherein the Hon’ble Supreme Court, while deciding an application under the Arbitration Act, 1940, stated the following:

“whether the claim subsists or not, is a matter which is arbitrable. When this direction was cited before the High Court, the same was distinguished by stating that it was a decision on its own facts and has no application to the case. We find that this view does not appear to be correct. Whether any amount is due to be paid and how far the claim made by the appellant is tenable are matters to be considered by the arbitrator. In fact, whether the contract has been fully worked out and whether the payments have been made in full and final settlement are questions to be considered by the arbitrator when there is a dispute regarding the same.”

The five-judge constitution bench of the Hon’ble Supreme Court in the case of Konkan Railway Corpn. Ltd. v. Rani Construction (P) Ltd.,[27] while deciding that the powers of the referral court under Section 11 of the Arbitration Act 1996,[28] ruled that, since the power exercised under Section 11 of the Arbitration Act 1996 is administrative in nature, the Chief Justice or his designate is not required to decide any preliminary issues. Consequently, any questions relating to non-arbitrability, as well as the validity or existence of the arbitration agreement, are to be determined by the arbitrator. The judgment passed in the case of Konkan Railway Corpn. Ltd.[29] was eventually overruled by a seven-judge constitutional bench in the case of SBP & Co. v. Patel Engg. Ltd.[30] wherein the following observations and reasonings were stated to rule that the powers discharged under Section 11 (6) of the Arbitration Act, 1996[31] were judicial and not administrative in nature:

“25. …. It is difficult to say that when one of the parties raises an objection that there is no arbitration agreement, raises an objection that the person who has come forward with a request is not a party to the arbitration agreement, the Chief Justice can come to a conclusion on those objections without following an adjudicatory process. Can he constitute an Arbitral Tribunal, without considering these questions? If he can do so, why should such a function be entrusted to a high judicial authority like the Chief Justice. Similarly, when the party raises an objection that the conditions for exercise of the power under Section 11(6) of the Act are not fulfilled and the Chief Justice comes to the conclusion that they have been fulfilled, it is difficult to say that he was not adjudicating on a dispute between the parties and was merely passing an administrative order. It is also not correct to say that by the mere constitution of an Arbitral Tribunal the rights of the parties are not affected. Dragging a party to an arbitration when there existed no arbitration agreement or when there existed no arbitrable dispute, can certainly affect the right of that party, and, even on monetary terms, impose on him a serious liability for meeting the expenses of the arbitration, even if it be the preliminary expenses and his objection is upheld by the Arbitral Tribunal. Therefore, it is not possible to accept the position that no adjudication is involved in the constitution of an Arbitral Tribunal.

37. ….There have been cases where claims for appointment of an arbitrator based on an arbitration agreement are made ten or twenty years after the period of the contract has come to an end. There have been cases where the appointment of an arbitrator has been sought, after the parties had settled the accounts and the party concerned had certified that he had no further claims against the other contracting party. In other words, there have been occasions when dead claims are sought to be resurrected. There have been cases where assertions are made of the existence of arbitration agreements when, in fact, such existence is strongly disputed by the other side who appears on issuance of notice. Controversies are also raised as to whether the claim that is sought to be put forward comes within the purview of the arbitration clause concerned at all. The Chief Justice has necessarily to apply his mind to these aspects before coming to a conclusion one way or the other and before proceeding to appoint an arbitrator or declining to appoint an arbitrator. Obviously, this is an adjudicatory process. An opportunity of hearing to both parties is a must. Even in administrative functions if rights are affected, rules of natural justice step in. The principles settled by Ridge v. Baldwin [(1963) 2 All ER 66 : 1964 AC 40 : (1963) 2 WLR 935 (HL)] are well known. Therefore, to the extent, Konkan Rly. [(2002) 2 SCC 388] states that no notice need be issued to the opposite party to give him an opportunity of being heard before appointing an arbitrator, with respect, the same has to be held to be not sustainable.”

In other words, the SBP[32] judgment empowered the referral court, i.e., had the right to decide all preliminary issues at the referral stage under Section 11(6) of the Arbitration Act 1996.[33] However, the judgment further clarified that in a case where an Arbitral Tribunal has been constituted by the parties without having recourse to Section 11(6) of the Arbitration Act 1996,[34] the Arbitral Tribunal will have the jurisdiction to decide all matters as contemplated by Section 16 of the Arbitration Act 1996.[35] 

The Hon’ble Supreme Court also dealt with an interesting issue in the case of National Insurance Co. Ltd. v. Boghara Polyfab,[36] wherein the court dealt with both the principle of “accord and satisfaction” and the referral power of courts under Section 11 of the Arbitration Act 1996 in a matter pertaining to a settlement certificate in an insurance arbitration. The Hon’ble Supreme Court, while examining the extent of judicial interference at the stage of referral under Section 11(6) of the Act, 1996,[37] emphasized three categories of issues that could arise before the referral court:

“22.1. The issues (first category) which the Chief Justice/his designate will have to decide are:

(a) Whether the party making the application has approached the appropriate High Court.

(b) Whether there is an arbitration agreement and whether the party who has applied under Section 11 of the Act, is a party to such an agreement.

22.2. The issues (second category) which the Chief Justice/his designate may choose to decide (or leave them to the decision of the Arbitral Tribunal) are:

(a) Whether the claim is a dead (long-barred) claim or a live claim.

(b) Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection.

22.3. The issues (third category) which the Chief Justice/his designate should leave exclusively to the Arbitral Tribunal are:

(i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration)

(ii) Merits or any claim involved in the arbitration.

23. It is clear from the scheme of the Act as explained by this Court in SBP & Co. [(2005) 8 SCC 618], that in regard to issues falling under the second category, if raised in any application under Section 11 of the Act, the Chief Justice/his designate may decide them, if necessary, by taking evidence. Alternatively, he may leave those issues open with a direction to the Arbitral Tribunal to decide the same. If the Chief Justice or his designate chooses to examine the issue and decides it, the Arbitral Tribunal cannot re-examine the same issue. The Chief Justice/his designate will, in choosing whether he will decide such issue or leave it to the Arbitral Tribunal, be guided by the object of the Act (that is expediting the arbitration process with minimum judicial intervention). Where allegations of forgery/fabrication are made in regard to the document recording discharge of contract by full and final settlement, it would be appropriate if the Chief Justice/his designate decides the issue.

51. The Chief Justice/his designate exercising jurisdiction under Section 11 of the Act will consider whether there was really accord and satisfaction or discharge of contract by performance. If the answer is in the affirmative, he will refuse to refer the dispute to arbitration. On the other hand, if the Chief Justice/his designate comes to the conclusion that the full and final settlement receipt or discharge voucher was the result of any fraud/coercion/undue influence, he will have to hold that there was no discharge of the contract and consequently, refer the dispute to arbitration. Alternatively, where the Chief Justice/his designate is satisfied prima facie that the discharge voucher was not issued voluntarily and the claimant was under some compulsion or coercion, and that the matter deserved detailed consideration, he may instead of deciding the issue himself, refer the matter to the Arbitral Tribunal with a specific direction that the said question should be decided in the first instance.”

The decision made in the case of Boghara Polyfab,[38] was subsequently followed in the case of Union of India v. Master Construction Co.,[39] wherein the Hon’ble Supreme Court stated that:

“18. In our opinion, there is no rule of the absolute kind. In a case where the claimant contends that a discharge voucher or no-claim certificate has been obtained by fraud, coercion, duress or undue influence and the other side contests the correctness thereof, the Chief Justice/his designate must look into this aspect to find out at least, prima facie, whether or not the dispute is bona fide and genuine. Where the dispute raised by the claimant with regard to validity of the discharge voucher or no-claim certificate or settlement agreement, prima facie, appears to be lacking in credibility, there may not be a necessity to refer the dispute for arbitration at all.

19. It cannot be overlooked that the cost of arbitration is quite huge—most of the time, it runs into six and seven figures. It may not be proper to burden a party, who contends that the dispute is not arbitrable on account of discharge of contract, with huge cost of arbitration merely because plea of fraud, coercion, duress or undue influence has been taken by the claimant. A bald plea of fraud, coercion, duress or undue influence is not enough and the party who sets up such a plea must prima facie establish the same by placing material before the Chief Justice/his designate. If the Chief Justice/his designate finds some merit in the allegation of fraud, coercion, duress or undue influence, he may decide the same or leave it to be decided by the Arbitral Tribunal. On the other hand, if such plea is found to be an afterthought, make-believe or lacking in credibility, the matter must be set at rest then and there.

23. The present, in our opinion, appears to be a case falling in the category of exception noted in Boghara Polyfab (P) Ltd. [(2009) 1 SCC 267 : (2009) 1 SCC (Civ) 177] (p. 284, para 25). As to financial duress or coercion, nothing of this kind is established prima facie. Mere allegation that no-claim certificates have been obtained under financial duress and coercion, without there being anything more to suggest that, does not lead to an arbitrable dispute. The conduct of the contractor clearly shows that “no-claim certificates” were given by it voluntarily; the contractor accepted the amount voluntarily and the contract was discharged voluntarily.”

The Hon’ble Supreme Court in the case of New India Assurance Co. Ltd. v. Genus Power Infrastructure Ltd.,[40] further expounded on the principles laid down in the cases of Boghara Polyfab[41] and Master Constructions[42] and stated that a mere plea of fraud, coercion or undue influence in itself is not enough, and the party who alleges is under an obligation to prima facie establish the same by placing satisfactory material on record before the Chief Justice or his Designate to exercise power under Section 11(6) of the Arbitration Act 1996.[43]

The 246^th Law Commission Report (“said Report”) was prepared under the chairmanship of Former Chief Justice of Delhi High Court, Justice Mr. Ajit Prakash Shah, and extensively dealt with the scope and nature of pre–arbitral judicial intervention wherein the Law Commission, while taking into account the observations passed in the cases of SBP[44] and Poghara Polyfab[45] and recorded the following view:

“31. The Commission is of the view that, in this context, the same test regarding scope and nature of judicial intervention, as applicable in the context of section 11, should also apply to sections 8 and 45 of the Act – since the scope and nature of judicial intervention should not change upon whether a party (intending to defeat the arbitration agreement) refuses to appoint an arbitrator in terms of the arbitration agreement, or moves a proceeding before a judicial authority in the face of such an arbitration agreement.

32. In relation to the nature of intervention, the exposition of the law is to be found in the decision of the Supreme Court in Shin Etsu Chemicals Co. Ltd. v Aksh Optifibre, (2005) 7 SCC 234, (in the context of section 45 of the Act), where the Supreme Court has ruled in favour of looking at the issues/controversy only prima facie.

33. It is in this context, the Commission has recommended amendments to sections 8 and 11 of the Arbitration and Conciliation Act, 1996. The scope of the judicial intervention is only restricted to situations where the Court/Judicial Authority finds that the arbitration agreement does not exist or is null and void. In so far as the nature of intervention is concerned, it is recommended that in the event the Court/Judicial Authority is prima facie satisfied against the argument challenging the arbitration agreement, it shall appoint the arbitrator and/or refer the parties to arbitration, as the case may be. The amendment envisages that the judicial authority shall not refer the parties to arbitration only if it finds that there does not exist an arbitration agreement or that it is null and void. If the judicial authority is of the opinion that prima facie the arbitration agreement exists, then it shall refer the dispute to arbitration, and leave the existence of the arbitration agreement to be finally determined by the arbitral tribunal. However, if the judicial authority concludes that the agreement does not exist, then the conclusion will be final and not prima facie. The amendment also envisages that there shall be a conclusive determination as to whether the arbitration agreement is null and void. In the event that the judicial authority refers the dispute to arbitration and/or appoints an arbitrator, under sections 8 and 11 respectively, such a decision will be final and non-appealable. An appeal can be maintained under section 37 only in the event of refusal to refer parties to arbitration, or refusal to appoint an arbitrator.”

Therefore, the Law Commission suggested the insertion of Section 11(6A)[46] in the Arbitration Act 1996, and the same was accordingly recommended and introduced by way of the 2015 amendment to the Arbitration Act 1996, which read as follows:

“(6A) The Supreme Court or, as the case may be, the High Court, while considering any application under sub section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement.”

Therefore, the introduction of Section 11(6A) of the Arbitration Act 1996 had restricted the scope of the referral courts under Section 11 of the Arbitration Act 1996 to simply prima facie check whether there was an arbitration agreement exists between the parties. The change/impact by the introduction of Section 11(6A) of the Arbitration Act 1996 was discussed by the Hon’ble Supreme Court in the case of Duro Felguera, S.A. v. Gangavaram Port Ltd,[47] wherein the following was observed:

“48. ….From a reading of Section 11(6-A), the intention of the legislature is crystal clear i.e. the court should and need only look into one aspect—the existence of an arbitration agreement. What are the factors for deciding as to whether there is an arbitration agreement is the next question. The resolution to that is simple—it needs to be seen if the agreement contains a clause which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement.

59. The scope of the power under Section 11(6) of the 1996 Act was considerably wide in view of the decisions in SBP and Co. [SBP and Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] and Boghara Polyfab [National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 : (2009) 1 SCC (Civ) 117]. This position continued till the amendment brought about in 2015. After the amendment, 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 minimise the Court's intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11(6-A) ought to be respected.”

Subsequently, the Hon’ble Supreme Court in the case of Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engg. Ltd.,[48] while referring to the said Report of the Law Commission, the decision in the case of Duro Felgura[49] and the legislative intent behind the introduction of Section 11(6A) of the Arbitration Act 1996[50] observed that:

“A reading of the Law Commission Report, together with the Statement of Objects and Reasons, shows that the Law Commission felt that the judgments in SBP & Co. [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] and Boghara Polyfab [National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 : (2009) 1 SCC (Civ) 117] required a relook, as a result of which, so far as Section 11 is concerned, the Supreme Court or, as the case may be, the High Court, while considering any application under Sections 11(4) to 11(6) is to confine itself to the examination of the existence of an arbitration agreement and leave all other preliminary issues to be decided by the arbitrator.”

Despite the clarification regarding the change in the position of the law after the 2015 amendment, the Hon’ble Supreme Court in the United India Insurance Co. Ltd. v. Antique Art Exports Pvt. Ltd.[51] while dealing with the issue of “full and final settlement” in the context of appointment of an arbitrator, held that mere bald allegation by a party that the discharge voucher was obtained under coercion or undue influence would not entitle it to seek referral of the dispute to arbitration unless it can produce prima facie evidence of the same during proceedings under Section 11(6) of the Act, 1996 while relying on the cases of Master Constructions[52] and New India Assurance[53] i.e., are pre 2015 to substantiate that the referral courts had power to adjudicate preliminary issues. It is further pertinent to highlight that in the said judgement the Hon’ble Court further distinguished from the judgement of Duro Felgura[54] by stating that:

“The submission of the learned counsel for the respondent that after insertion of sub-section (6-A) to Section 11 of the Amendment Act, 2015 the jurisdiction of this Court is denuded and the limited mandate of the Court is to examine the factum of existence of an arbitration and relied on the judgment in Duro Felguera, S.A. v. Gangavaram Port Ltd. [Duro Felguera, S.A. v. Gangavaram Port Ltd., (2017) 9 SCC 729 : (2017) 4 SCC (Civ) 764] The exposition in this decision is a general observation about the effect of the amended provisions which came to be examined under reference to six arbitrable agreements (five agreements for works and one corporate guarantee) and each agreement contains a provision for arbitration and there was serious dispute between the parties in reference to constitution of Arbitral Tribunal whether there has to be Arbitral Tribunal pertaining to each agreement. In the facts and circumstances, this Court took note of sub-section (6-A) introduced by the Amendment Act, 2015 to Section 11 of the Act and in that context observed that the preliminary disputes are to be examined by the arbitrator and are not for the Court to be examined within the limited scope available for appointment of arbitrator under Section 11(6) of the Act. Suffice it to say that appointment of an arbitrator is a judicial power and is not a mere administrative function leaving some degree of judicial intervention; when it comes to the question to examine the existence of a prima facie arbitration agreement, it is always necessary to ensure that the dispute resolution process does not become unnecessarily protracted.”

However, the decision in the case of Antique Arts Exports Pvt. Ltd.,[55] was overruled by the Hon’ble Supreme Court in the case of Mayavati Trading (P) Ltd. v. Pradyuat Deb Burman[56] wherein it was stated that:

“10. This being the position, it is clear that the law prior to the 2015 Amendment that has been laid down by this Court, which would have included going into whether accord and satisfaction has taken place, has now been legislatively overruled. This being the position, it is difficult to agree with the reasoning contained in the aforesaid judgment [United India Insurance Co. Ltd. v. Antique Art Exports (P) Ltd., (2019) 5 SCC 362 : (2019) 2 SCC (Civ) 785] , as Section 11(6-A) is confined to the examination of the existence of an arbitration agreement and is to be understood in the narrow sense as has been laid down in the judgment in Duro Felguera, SA [Duro Felguera, SA v. Gangavaram Port Ltd., (2017) 9 SCC 729 : (2017) 4 SCC (Civ) 764]

11. We, therefore, overrule the judgment in Antique Art Exports (P) Ltd. [United India Insurance Co. Ltd. v. Antique Art Exports (P) Ltd., (2019) 5 SCC 362 : (2019) 2 SCC (Civ) 785] as not having laid down the correct law but dismiss this appeal for the reason given in para 3 above.”

The Hon’ble Supreme Court in the case Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd.,[57] referred to the principle of kompetenz–kompetenz and legislative intent behind the introduction of Section 11(6A) to the Arbitration Act 1996[58] by the 2015 amendment and ruled that that the issue of limitation being a mixed question of law and fact should be best left to the tribunal to decide and the scope of referral court should restrict its examination to whether an arbitration agreement between the parties exists. The Hon’ble Court observed that:

“7.10. In view of the legislative mandate contained in Section 11(6-A), the Court is now required only to examine the existence of the arbitration agreement. All other preliminary or threshold issues are left to be decided by the arbitrator under Section 16, which enshrines the kompetenz-kompetenz principle.

7.13. In view of the provisions of Section 16, and the legislative policy to restrict judicial intervention at the pre-reference stage, the issue of limitation would require to be decided by the arbitrator. Sub-section (1) of Section 16 provides that the Arbitral Tribunal may rule on its own jurisdiction, “including any objections” with respect to the existence or validity of the arbitration agreement. Section 16 is as an inclusive provision, which would comprehend all preliminary issues touching upon the jurisdiction of the Arbitral Tribunal. The issue of limitation is a jurisdictional issue, which would be required to be decided by the arbitrator under Section 16, and not the High Court at the pre-reference stage under Section 11 of the Act. Once the existence of the arbitration agreement is not disputed, all issues, including jurisdictional objections are to be decided by the arbitrator.

7.14. In the present case, the issue of limitation was raised by the respondent Company to oppose the appointment of the arbitrator under Section 11 before the High Court. Limitation is a mixed question of fact and law. In ITW Signode (India) Ltd. v. CCE [ITW Signode (India) Ltd. v. CCE, (2004) 3 SCC 48] a three-Judge Bench of this Court held that the question of limitation involves a question of jurisdiction. The findings on the issue of limitation would be a jurisdictional issue. Such a jurisdictional issue is to be determined having regard to the facts and the law. Reliance is also placed on the judgment of this Court in NTPC Ltd. v. Siemens Atkeingesellschaft [NTPC Ltd. v. Siemens Atkeingesellschaft, (2007) 4 SCC 451] , wherein it was held that the Arbitral Tribunal would deal with limitation under Section 16 of the 1996 Act. If the tribunal finds that the claim is a dead one, or that the claim was barred by limitation, the adjudication of these issues would be on the merits of the claim. Under sub-section (5) of Section 16, the tribunal has the obligation to decide the plea; and if it rejects the plea, the arbitral proceedings would continue, and the tribunal would make the award. Under sub-section (6) a party aggrieved by such an arbitral award may challenge the award under Section 34. In Iffco Ltd. v. Bhadra Products [Iffco Ltd. v. Bhadra Products, (2018) 2 SCC 534 : (2018) 2 SCC (Civ) 208] this Court held that the issue of limitation being a jurisdictional issue, the same has to be decided by the tribunal under Section 16, which is based on Article 16 of the Uncitral Model Law which enshrines the kompetenz principle.”

The Hon’ble Supreme Court in the case of Vidya Drolia & Ors v. Durga Trading Corporation,[59] had the opportunity to extensively deal with the scope and powers of the referral courts under Sections 8[60] and 11[61] of the Arbitration Act 1996 wherein it was held that Sections 8 and 11 of the Act, 1996 are complementary to each other and thus the aspect of ‘existence’ of the arbitration agreement, as specified under Section 11 of the Arbitration Act 1996 should be seen along with its ‘validity’ as specified under Section 8 Arbitration Act. It was also observed that a prima facie review of the existence of an arbitration agreement includes the power to examine the validity of the arbitration agreement, which does not contravene the principles of competence-competence and the presumption of separability. Interestingly, the Hon’ble Supreme Court, while expounding that the procedural and factual disputes between the parties should be left for the arbitrator to decide, has created an exceptional category for interference by the referral court, and the same is given below for reference:

“147.2. The court at the reference stage exercises judicial powers. “Examination”, as an ordinary expression in common parlance, refers to an act of looking or considering something carefully in order to discover something (as per Cambridge Dictionary). It requires the person to inspect closely, to test the condition of, or to inquire into carefully (as per Merriam-Webster Dictionary). It would be rather odd for the court to hold and say that the arbitration agreement exists, though ex facie and manifestly the arbitration agreement is invalid in law and the dispute in question is non-arbitrable. The court is not powerless and would not act beyond jurisdiction, if it rejects an application for reference, when the arbitration clause is admittedly or without doubt is with a minor, lunatic or the only claim seeks a probate of a will.

147.5. Sections 8 and 11 of the Arbitration Act are complementary provisions as was held in Patel Engg. Ltd. [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] The object and purpose behind the two provisions is identical to compel and force parties to abide by their contractual understanding. This being so, the two provisions should be read as laying down similar standard and not as laying down different and separate parameters. Section 11 does not prescribe any standard of judicial review by the court for determining whether an arbitration agreement is in existence. Section 8 states that the judicial review at the stage of reference is prima facie and not final. Prima facie standard equally applies when the power of judicial review is exercised by the court under Section 11 of the Arbitration Act. Therefore, we can read the mandate of valid arbitration agreement in Section 8 into mandate of Section 11, that is, “existence of an arbitration agreement”.

147.7. Exercise of the limited prima facie review does not in any way interfere with the principle of competence-competence and separation as to obstruct arbitration proceedings but ensures that vexatious and frivolous matters get over at the initial stage.

154.4. Rarely as a demurrer the court may interfere at Section 8 or 11 stage when it is manifestly and ex facie certain that the arbitration agreement is non-existent, invalid or the disputes are non-arbitrable, though the nature and facet of non-arbitrability would, to some extent, determine the level and nature of judicial scrutiny. The restricted and limited review is to check and protect parties from being forced to arbitrate when the matter is demonstrably “non-arbitrable” and to cut off the deadwood. The court by default would refer the matter when contentions relating to non-arbitrability are plainly arguable; when consideration in summary proceedings would be insufficient and inconclusive; when facts are contested; when the party opposing arbitration adopts delaying tactics or impairs conduct of arbitration proceedings. This is not the stage for the court to enter into a mini trial or elaborate review so as to usurp the jurisdiction of the Arbitral Tribunal but to affirm and uphold integrity and efficacy of arbitration as an alternative dispute resolution mechanism.”

The observations made in the case of Vidya Drolia,[62] were subsequently followed by the Hon’ble Supreme Court in the case of DLF Home Developers Ltd. v. Rajapura Homes (P) Ltd.[63] wherein it was stated that prima facie review in exceptional cases warrants interference by courts to protect the wastage of public money. In the case of BSNL v. Nortel Networks (India) (P) Ltd.,[64] the Hon’ble Supreme Court expounded further on the observations passed in the case of Vidya Drolia,[65] by stating that:

“45. In a recent judgment delivered by a three-Judge Bench in Vidya Drolia v. Durga Trading Corpn. [Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1 : (2021) 1 SCC (Civ) 549, on the scope of power under Sections 8 and 11, it has been held that the Court must undertake a primary first review to weed out “manifestly ex facie non-existent and invalid arbitration agreements, or non-arbitrable disputes”. The prima facie review at the reference stage is to cut the deadwood, where dismissal is barefaced and pellucid, and when on the facts and law, the litigation must stop at the first stage. Only when the Court is certain that no valid arbitration agreement exists, or that the subject-matter is not arbitrable, that reference may be refused.

45.1 …While exercising jurisdiction under Section 11 as the judicial forum, the court may exercise the prima facie test to screen and knockdown ex facie meritless, frivolous, and dishonest litigation. Limited jurisdiction of the courts would ensure expeditious and efficient disposal at the referral stage. At the referral stage, the Court can interfere “only” when it is “manifest” that the claims are ex facie time-barred and dead, or there is no subsisting dispute…..”

The Hon’ble Supreme Court in the case of Indian Oil Corporation Limited v. NCC Limited,[66] applied the principle of Vidya Drolia[67] while adjudicating the issue on the aspect of “accord and satisfaction” by a referral court stated the following:

“90. Having heard the learned counsel appearing for the respective parties and in the facts and circumstances of the case, the issue/aspect with regard to “accord and satisfaction” of claims is seriously disputed and is debatable. Whether, in view of the acceptance of Rs 4,53,04,021 by the respondent NCCL which was released by IOCL on the offer/letter made by the respondent NCCL dated 2-11-2016 there is an instance of “accord and satisfaction” of the claims is a good and reasonably arguable case. It cannot be said to be an open and shut case. Therefore, even when it is observed and held that such an aspect with regard to “accord and satisfaction” of the claims may/can be considered by the Court at the stage of deciding Section 11 application, it is always advisable and appropriate that in cases of debatable and disputable facts, good reasonably arguable case, the same should be left to the Arbitral Tribunal. Similar view is expressed by this Court in Vidya Drolia.

91. Therefore, in the facts and circumstances of the case, though it is specifically observed and held that aspects with regard to “accord and satisfaction” of the claims can be considered by the Court at the stage of deciding Section 11(6) application, in the facts and circumstances of the case, the High Court has not committed any error in observing that aspects with regard to “accord and satisfaction” of the claims or where there is a serious dispute will have to be left to the Arbitral Tribunal.

92. However, at the same time, we do not agree with the conclusion arrived at by the High Court that after the insertion of sub-section (6-A) in Section 11 of the Arbitration Act, scope of inquiry by the Court in Section 11 petition is confined only to ascertain as to whether or not a binding arbitration agreement exists qua the parties before it, which is relatable to the disputes at hand.

93. We are of the opinion that though the Arbitral Tribunal may have jurisdiction and authority to decide the disputes including the question of jurisdiction and non-arbitrability, the same can also be considered by the Court at the stage of deciding Section 11 application if the facts are very clear and glaring and in view of the specific clauses in the agreement binding between the parties, whether the dispute is non-arbitrable and/or it falls within the excepted clause. Even at the stage of deciding Section 11 application, the Court may prima facie consider even the aspect with regard to “accord and satisfaction” of the claims."

The issue regarding the “principle of accord and satisfaction” in the context of Section 11 of the Arbitration Act 1996[68] was raised again before the Hon’ble Supreme Court in the case of NTPC Ltd. v. SPML Infra Ltd.[69] The Hon’ble Supreme Court, while relying on the case of Vidya Drolia[70] laid down the ‘Eye of the Needle’ test to outline the powers of interference by the referral courts under Section 11 of the Arbitration Act 1996.[71] The Hon’ble Supreme Court stated the following:

“25. The abovereferred precedents crystallise the position of law that the pre-referral jurisdiction of the Courts under Section 11(6) of the Act is very narrow and inheres two inquiries. The primary inquiry is about the existence and the validity of an arbitration agreement, which also includes an inquiry as to the parties to the agreement and the applicant's privity to the said agreement. These are matters which require a thorough examination by the Referral Court. The secondary inquiry that may arise at the reference stage itself is with respect to the non-arbitrability of the dispute.

26. As a general rule and a principle, the Arbitral Tribunal is the preferred first authority to determine and decide all questions of non-arbitrability. As an exception to the rule, and rarely as a demurrer, the Referral Court may reject claims which are manifestly and ex facie non-arbitrable….

27. The standard of scrutiny to examine the non-arbitrability of a claim is only prima facie. Referral Courts must not undertake a full review of the contested facts; they must only be confined to a primary first review [Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1, para 134 : (2021) 1 SCC (Civ) 549] and let facts speak for themselves. This also requires the Courts to examine whether the assertion on arbitrability is bona fide or not. [Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1 : (2021) 1 SCC (Civ) 549] The prima facie scrutiny of the facts must lead to a clear conclusion that there is not even a vestige of doubt that the claim is non-arbitrable. [BSNL v. Nortel Networks (India) (P) Ltd., (2021) 5 SCC 738, para 47 : (2021) 3 SCC (Civ) 352] On the other hand, even if there is the slightest doubt, the rule is to refer the dispute to arbitration [Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1, para 154.4 : (2021) 1 SCC (Civ) 549].

28. The limited scrutiny, through the eye of the needle, is necessary and compelling. It is intertwined with the duty of the Referral Court to protect the parties from being forced to arbitrate when the matter is demonstrably non-arbitrable [Ibid.] . It has been termed as a legitimate interference by Courts to refuse reference in order to prevent wastage of public and private resources [Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1, para 139 : (2021) 1 SCC (Civ) 549] . Further, as noted in Vidya Drolia [Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1 : (2021) 1 SCC (Civ) 549] , if this duty within the limited compass is not exercised, and the Court becomes too reluctant to intervene, it may undermine the effectiveness of both, arbitration and the Court [Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1, para 139 : (2021) 1 SCC (Civ) 549] . Therefore, this Court or a High Court, as the case may be, while exercising jurisdiction under Section 11(6) of the Act, is not expected to act mechanically merely to deliver a purported dispute raised by an applicant at the doors of the chosen arbitrator, as explained in DLF Home Developers Ltd. v. Rajapura Homes (P) Ltd. [DLF Home Developers Ltd. v. Rajapura Homes (P) Ltd., (2021) 16 SCC 743, paras 22, 26 : 2021 SCC OnLine SC 781, paras 18, 20]”.

A seven-judge constitution bench before the Hon’ble Supreme Court in the case of Interplay Between Arbitration Agreements under Arbitration, 1996 & Stamp Act, 1899, In re,[72] had undertaken a comprehensive analysis of Sections 8[73] and 11[74] of the Arbitration Act 1996, wherein it had also passed its observations on the nature of powers of the referral courts under the said provisions. The Hon’ble Supreme Court had observed that:

“90. …However, the effect of the principle of competence-competence is that the Arbitral Tribunal is vested with the power and authority to determine its enforceability. The question of enforceability survives, pending the curing of the defect which renders the instrument inadmissible. By appointing a tribunal or its members, this Court (or the High Courts, as the case may be) is merely giving effect to the principle enshrined in Section 16. The appointment of an Arbitral Tribunal does not necessarily mean that the agreement in which the arbitration clause is contained as well as the arbitration agreement itself are enforceable. The Arbitral Tribunal will answer precisely these questions.

196. The corollary of the doctrine of competence-competence is that courts may only examine whether an arbitration agreement exists on the basis of the prima facie standard of review. The nature of objections to the jurisdiction of an Arbitral Tribunal on the basis that stamp duty has not been paid or is inadequate is such as cannot be decided on a prima facie basis. Objections of this kind will require a detailed consideration of evidence and submissions and a finding as to the law as well as the facts. Obligating the Court to decide issues of stamping at the Section 8 or Section 11 stage will defeat the legislative intent underlying the Arbitration Act.

197. The purpose of vesting courts with certain powers under Sections 8 and 11 of the Arbitration Act is to facilitate and enable arbitration as well as to ensure that parties comply with arbitration agreements. The disputes which have arisen between them remain the domain of the Arbitral Tribunal (subject to the scope of its jurisdiction as defined by the arbitration clause). The exercise of the jurisdiction of the Courts of the country over the substantive dispute between the parties is only possible at two stages:

(a) If an application for interim measures is filed under Section 9 of the Arbitration Act; or

(b) If the award is challenged under Section 34.

Issues which concern the payment of stamp duty fall within the remit of the Arbitral Tribunal. The discussion in the preceding segments also make it evident that courts are not required to deal with the issue of stamping at the stage of granting interim measures under Section 9.”

Subsequently, a three-judge bench in the case of SBI General Insurance Co. Ltd. v. Krish Spinning,[75] the Hon’ble Supreme Court did an extensive study of judgements on the powers of the referral courts under the Arbitration Act 1940 and Arbitration Act 1996, principle of kompetenz – kompetenz, relevant provisions of the Indian Contract Act and Arbitration Act, the Report of the Law Commission, the Statement of Objects and Reasons behind the intention of introducing Section 11(6A) to the Arbitration Act 1996[76] and the impact of observations passed by the seven judge bench in the case of In Re:Arbitration Agreement and Stamping.[77] The Hon’ble Supreme Court raised three questions of law in the said case: a) Whether the execution of a discharge voucher towards the full and final settlement between the parties would operate as a bar to invoke arbitration?; b) What is the scope and standard of judicial scrutiny that an application filed under Section 11(6) of the Act can be subjected to when a plea of “accord and satisfaction” is taken by the defendant?; and c) What is the effect of the apex’s court’s decision in In Re: Interplay Between Arbitration Agreement under the Act and the Indian Stamp Act, 1899 on the scope of powers of the referral courts under Section 11(6) of the Act?

With reference to the first question of law, the Hon’ble Supreme Court relied on the case of National Agricultural Coop. Marketing Federation India Ltd. v. Gains Trading Ltd.,[78] to discuss the ‘principle of separability’ and observed that an arbitration clause is treated as distinct from the main contract, which means that even if the contract itself is declared null and void, the arbitration clause survives and remains effective. Further, while relying on the cases of Heyman v. Darwins Ltd.,[79] Boghara Polyfab[80] and R.L. Kalathia and Company v. State of Gujarat[81] to substantiate that a mere execution of a discharge voucher does not operate as a bar to invoke an arbitration clause. The Hon’ble Supreme Court, while concluding the first question of law, stated the following:

“53. Thus, even if the contracting parties, in pursuance of a settlement, agree to discharge each other of any obligations arising under the contract, this does not ipso facto mean that the arbitration agreement too would come to an end, unless the parties expressly agree to do the same. The intention of the parties in discharging a contract by “accord and satisfaction” is to relieve each other of the existing or any new obligations under the contract. Such a discharge of obligations under the substantive contract cannot be construed to mean that the parties also intended to relieve each other of their obligation to settle any dispute pertaining to the original contract through arbitration.

54. Although ordinarily no arbitrable disputes may subsist after execution of a full and final settlement, yet any dispute pertaining to the full and final settlement itself, by necessary implication being a dispute arising out of or in relation to or under the substantive contract, would not be precluded from reference to arbitration as the arbitration agreement contained in the original contract continues to be in existence even after the parties have discharged the original contract by “accord and satisfaction”.

59. Once the full and final settlement of the original contract itself becomes a matter of dispute and disagreement between the parties, then such a dispute can be categorised as one arising “in relation to” or “in connection with” or “upon” the original contract which can be referred to arbitration in accordance with the arbitration clause contained in the original contract, notwithstanding the plea that there was a full and final settlement between the parties.”

Regarding the second and third questions of law, the Hon’ble Supreme Court analyzed the plethora of cases over the period of time and came up with the following conclusion:

113. Referring to the Statement of Objects and Reasons of the Arbitration and Conciliation (Amendment) Act, 2015, it was observed in In Re : Interplay (supra) that the High Court and the Supreme Court at the stage of appointment of arbitrator shall examine the existence of a prima facie arbitration agreement and not any other issues. The relevant observations are extracted hereinbelow:

“209. The above extract indicates that the Supreme Court or High Court at the stage of the appointment of an arbitrator shall “examine the existence of a prima facie arbitration agreement and not other issues”. These other issues not only pertain to the validity of the arbitration agreement, but also include any other issues which are a consequence of unnecessary judicial interference in the arbitration proceedings. Accordingly, the “other issues” also include examination and impounding of an unstamped instrument by the referral court at the Section 8 or Section 11 stage. The process of examination, impounding, and dealing with an unstamped instrument under the Stamp Act is not a timebound process, and therefore does not align with the stated goal of the Arbitration Act to ensure expeditious and time-bound appointment of arbitrators. […]”

114. In view of the observations made by this Court in In Re : Interplay (supra), it is clear that the scope of enquiry at the stage of appointment of arbitrator is limited to the scrutiny of prima facie existence of the arbitration agreement, and nothing else. For this reason, we find it difficult to hold that the observations made in Vidya Drolia (supra) and adopted in NTPC v. SPML (supra) that the jurisdiction of the referral court when dealing with the issue of “accord and satisfaction” under Section 11 extends to weeding out ex-facie non-arbitrable and frivolous disputes would continue to apply despite the subsequent decision in In Re : Interplay (supra).

115. The dispute pertaining to the “accord and satisfaction” of claims is not one which attacks or questions the existence of the arbitration agreement in any way. As held by us in the preceding parts of this judgment, the arbitration agreement, being separate and independent from the underlying substantive contract in which it is contained, continues to remain in existence even after the original contract stands discharged by “accord and satisfaction”.

116. The question of “accord and satisfaction”, being a mixed question of law and fact, comes within the exclusive jurisdiction of the arbitral tribunal, if not otherwise agreed upon between the parties. Thus, the negative effect of competence-competence would require that the matter falling within the exclusive domain of the arbitral tribunal, should not be looked into by the referral court, even for a prima facie determination, before the arbitral tribunal first has had the opportunity of looking into it.

117. By referring disputes to arbitration and appointing an arbitrator by exercise of the powers under Section 11, the referral court upholds and gives effect to the original understanding of the contracting parties that the specified disputes shall be resolved by arbitration. Mere appointment of the arbitral tribunal doesn't in any way mean that the referral court is diluting the sanctity of “accord and satisfaction” or is allowing the claimant to walk back on its contractual undertaking. On the contrary, it ensures that the principal of arbitral autonomy is upheld and the legislative intent of minimum judicial interference in arbitral proceedings is given full effect. Once the arbitral tribunal is constituted, it is always open for the defendant to raise the issue of “accord and satisfaction” before it, and only after such an objection is rejected by the arbitral tribunal, that the claims raised by the claimant can be adjudicated.

118. Tests like the “eye of the needle” and “ex-facie meritless”, although try to minimise the extent of judicial interference, yet they require the referral court to examine contested facts and appreciate prima facie evidence (however limited the scope of enquiry may be) and thus are not in conformity with the principles of modern arbitration which place arbitral autonomy and judicial non-interference on the highest pedestal.

119. Appointment of an arbitral tribunal at the stage of Section 11 petition also does not mean that the referral courts forego any scope of judicial review of the adjudication done by the arbitral tribunal. The Act, 1996 clearly vests the national courts with the power of subsequent review by which the award passed by an arbitrator may be subjected to challenge by any of the parties to the arbitration.”

The Hon’ble Supreme Court has now followed the judgment passed in the case of Krish Spinning as a benchmark, and this is evident from the perusal of the judgments passed in the cases of Aslam Ismail Khan Deshmukh vs. Asap Fluids Pvt. Ltd.[82] and Arabian Exports Private Limited v. National Insurance Company Ltd.[83]

ANALYSIS AND CONCLUSION

Section 5 of the Arbitration Act 1996 states the following: “Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part.” In simpler words, Section 5 of the Arbitration and Conciliation Act 1996 minimizes the supervisory role of the courts in the arbitral proceedings in situations where the arbitral tribunal has been conferred with exclusive jurisdiction. It can also be understood from the perusal of Section 16 of the Arbitration Act 1996 that the principle of kompetenz–kompetenz empowers the arbitral tribunal to rule on its jurisdiction. Further, the negative aspect of the said doctrine of kompetenz–kompetenz aims at restraining the interference of the referral courts from dealing with or examining issues before the same is entertained by the arbitral tribunal. Especially when the courts are allowed to review the decision of the arbitral tribunal at a later stage.

Therefore, the author firmly believes that, looking at the recommendation in the Report of the Law Commission and the Statement of Objects and Purpose of the Arbitration Act Amendment 2015, the intent behind introducing Section 11(6A)[84] was to restrict the scope and power of the referral courts to simply examine prima facie whether there was an arbitration agreement for resolving the disputes between the parties. The author also firmly believes that even before the amendment in the year 2015, Section 11 of the Arbitration Act[85] was quite clear in its explanation and scope that the only function of the referral court under Section 11 of the Arbitration Act 1996[86] was to simply appoint an arbitrator for resolving the disputes between the parties and the said Section never provided wide powers to referral courts to decide issue regarding arbitrability or non-arbitrability of issues in depth.

The author strongly agrees with the observations made in the case of Krish Spinning,[87] that when no arbitration agreement exists, an aggrieved party may approach the civil court, where the defendant can plead “accord and satisfaction” based on a discharge voucher, while the aggrieved party may allege fraud, coercion, or undue influence. The court would decide these issues and either dismiss the claims at the threshold or proceed on the merits. However, if an arbitration agreement exists, and disputes must go to arbitration. The arbitral tribunal is constituted per the agreed procedure, failing which the referral court steps in under Section 11 Arbitration Act 1996.[88] If the referral court examines “accord and satisfaction” at this stage, it usurps the tribunal’s jurisdiction and undermines arbitral autonomy. It is also imperative to state that the limited scope of the referral court under Section 11 of the Arbitration Act 1996[89] has to be looked at from the perspective of no right to appeal for either appointing or refusing to appoint an arbitrator. Thus, if referral courts decide substantive issues at this stage, a claimant whose Section 11 application is rejected would be left without any forum for adjudication.

An application under Section 11 of the Arbitration Act 1996[90] is expected to be a time-bound process. It has also been a practice on behalf of the courts to direct the litigating parties not to file bulky documents in matters pertaining to Section 11 of the Arbitration Act 1996.[91] Therefore, the author strongly advocates that if the referral courts are allowed to use tests like “eye of the needle” and “ex-facie meritless” to delve into issues like “accord and satisfaction” based on limited evidence, then it would defeat this objective of resolving disputes through the arbitration process and the legislative purpose.

Therefore, the author would like to conclude by stating that any issues regarding non-arbitrability should be left to the arbitral tribunal, which shall have the benefit of investigating the pleadings and evidence in detail, and as per the powers given under Section 16 of the Arbitration Act 1996,[92] the arbitral tribunal is well empowered to conclude issues effectively.

FOOTNOTES

[1] The Indian Contract Act 1872, s.10.

[2] The Indian Contract Act 1872, s.14.

[3] The Indian Contract Act 1872, s.19.

[4] The Indian Contract Act 1872, s.63.

[5] The Arbitration and Conciliation Act 1996, s.8.

[6] The Arbitration and Conciliation Act 1996, s.11.

[7] The Arbitration and Conciliation Act 1940, s.8.

[8] The Arbitration and Conciliation Act 1940, s.9.

[9] The Arbitration and Conciliation Act 1996, s.10.

[10] The Arbitration and Conciliation Act 1996, s.20.

[11] Payana Reena Layana Saminathan Chetty v. Pana Lana Pana Lana Palaniappa Chetty, 1913 SCC OnLine PC 40.

[12] Union of India v. Kishorilal Gupta & Bros., 1959 SCC OnLine SC 6.

[13] Damodar Valley Corporation v. K.K. Kar, (1974) 1 SCC 141.

[14] Supra Note 7.

[15] Bharat Heavy Electricals Ltd. vs. Amar Nath Bhan Prakash, (1982) 1 SCC 625.

[16] P.K. Ramaiah and Company v. Chairman and Managing Director, National Thermal Power Corporation, 1994 Supp (3) SCC 126

[17] Union of India v. L.K. Ahuja and Co., (1988) 3 SCC 76.

[18] Supra 10.

[19] State of Maharashtra v. Nav Bharat Builders, 1991 Supp (1) SCC 68.

[20] Supra Note 10.

[21] Supra Note 13.

[22] Nathani Steels Ltd. v. Associated Constructions reported in 1995 Supp (3) SCC 324.

[23] Supra Note 6.

[24] Supra Note 9.

[25] Supra Note 7.

[26] Jayesh Engineering Works v New India Assurance Co. Ltd.,(2000) 10 SCC 178.

[27] Konkan Railway Corpn. Ltd. v. Rani Construction (P) Ltd.,(2002) 2 SCC 388.

[28] Supra Note 6.

[29] Supra Note 27.

[30] SBP & Co. v. Patel Engg. Ltd.,(2005) 8 SCC 618.

[31] The Arbitration and Conciliation Act 1996, s.11(6).

[32] Supra Note 30.

[33] Supra Note 31.

[34] Ibid.

[35] The Arbitration and Conciliation Act 1996, s.16.

[36] National Insurance Co. Ltd. v. Boghara Polyfab,(2009)1 SCC 267.

[37] Supra Note 31.

[38] Ibid.

[39] Union of India v. Master Construction Co.,(2011) 12 SCC 349.

[40] New India Assurance Co. Ltd. v. Genus Power Infrastructure Ltd., (2015) 2 SCC 424.

[41] Supra Note 25.

[42] Supra Note 27.

[43] Supra Note 31.

[44] Supra Note 30.

[45] Supra Note 36.

[46] The Arbitration and Conciliation Act 1996, s.11(6A).

[47] Duro Felguera, S.A. v. Gangavaram Port Ltd., (2017) 9 SCC 729.

[48] Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engg. Ltd., (2019) 9 SCC 209.

[49] Supra Note 47.

[50] Supra Note 46.

[51] United India Insurance Co. Ltd. v. Antique Art Exports (P) Ltd., (2019) 5 SCC 362.

[52] Supra Note 39.

[53] Supra Note 40.

[54] Supra Note 47.

[55] Supra Note 51.

[56] Mayavati Trading (P) Ltd. v. Pradyuat Deb Burman, (2019) 8 SCC 714.

[57] Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd., (2020) 2 SCC 455.

[58] Supra Note 46.

[59] Vidya Drolia v. Durga Trading Corpn., (2019) 20 SCC 406.

[60] Supra Note 5.

[61] Supra Note 6.

[62] Supra Note 59.

[63] DLF Home Developers Ltd. v. Rajapura Homes (P) Ltd., (2021) 16 SCC 743.

[64] BSNL v. Nortel Networks (India) (P) Ltd., (2021) 5 SCC 738.

[65] Supra Note 59.

[66] Indian Oil Corporation Limited v. NCC Limited, (2023) 2 SCC 539.

[67] Supra Note 59.

[68] Supra Note 6.

[69] NTPC Ltd. v. SPML Infra Ltd., (2023) 9 SCC 385.

[70] Supra Note 59.

[71] Supra Note 6.

[72] In Re: Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act 1966 and the Indian Stamp Act 1899, 2023 INSC 1066.

[73] Supra Note 5.

[74] Supra Note 6.

[75] SBI General Insurance Co. Ltd. v. Krish Spinning, 2024 SCC OnLine SC 1754

[76] Supra Note 46.

[77] Supra Note 72.

[78] National Agricultural Coop. Marketing Federation India Ltd. v. Gains Trading Ltd., (2007) 5 SCC 692.

[79] Heyman v. Darwins Ltd.,1942 AC 356 (HL)

[80] Supra Note 36.

[81] R.L. Kalathia & Co. v. State of Gujarat, (2011) 2 SCC 400

[82] Aslam Ismail Khan Deshmukh v. ASAP Fluids (P) Ltd., (2025) 1 SCC 502.

[83] Arabian Exports (P) Ltd. v. National Insurance Co. Ltd., 2025 SCC OnLine SC 1034.

[84] Supra Note 46.

[85] Supra Note 6.

[86] Ibid.

[87] Supra Note 75.

[88] Supra Note 6.

[89] Ibid.

[90] Ibid.

[91] Ibid.

[92] Supra Note 35.