Arbitration Agreement survives discharge of contract: Supreme Court refers insurance claim dispute to arbitration
CJI DY Chandrachud, Justices JB Pardiwala & Manoj Misra [18-07-2024]

Read Order: SBI GENERAL INSURANCE CO. LTD v. KRISH SPINNING[SC- CIVIL APPEAL NO. 7821 OF 2024]

LE Correspondent

New Delhi, July 18, 2024:The Supreme Court has held that an arbitration agreement contained in a contract survives even after the contract is discharged by "accord and satisfaction" or full and final settlement.

A full bench comprising Chief Justice of India justice DY Chandrachud, Justice J B Pardiwala and Justice Manoj Misra was deciding appeals filed by SBI General Insurance Co. Ltd against orders of the Gujarat High Court appointing an arbitrator in a dispute raised by Krish Spinning regarding settlement of insurance claims.

The insured, Krish Spinning, had suffered losses in two fire incidents at its factory premises in 2018. It alleged that for the first fire incident, as against the claimed loss of Rs. 1.76 crores, the insurer only paid Rs. 84.19 lakhs after wrongful deductions. Though Krish Spinning had signed a discharge voucher accepting this amount as full and final settlement, it later alleged this was done under financial duress as the claim for the second fire was pending. When Krish Spinning invoked arbitration for the balance claim amount, SBI General Insurance opposed it contending that the claim stood fully settled and no arbitrable dispute survived.

However, the Supreme Court held that the arbitration agreement being independent of the substantive contract, continues to remain in existence for resolving any dispute pertaining to the settlement, unless the parties expressly agree otherwise. Whether the discharge of the contract was voluntary or under coercion would be an arbitrable dispute.

The Top Court noted that under the amended Section 11 of the Arbitration Act, the scope of Court's examination is limited to determining existence of the arbitration agreement. Issues of accord and satisfaction, limitation etc. are to be left for the arbitral tribunal to decide as per the negative effect of competence-competence principle. Only in rare and exceptional cases where the claim is ex facie meritless and frivolous, the Court may refuse arbitration at the referral stage.

The apex court thus affirmed the appointment of the arbitrator by the High Court to adjudicate the disputes between SBI General Insurance and Krish Spinning.