The Supreme Court of India has ruled that arbitrators, not courts, should decide on issues of “accord and satisfaction” in disputes where an arbitration agreement exists between parties. This landmark judgment was delivered by a three-judge bench comprising Chief Justice Dr. D.Y. Chandrachud, Justice J.B. Pardiwala, and Justice Manoj Misra in Civil Appeal Nos. 7821-7822 of 2024.
Background:
The case involved SBI General Insurance Co. Ltd. (appellant) and Krish Spinning (respondent). Krish Spinning had obtained a fire insurance policy from SBI General Insurance. Two fire incidents occurred at Krish Spinning’s premises during the policy period. For the first incident, SBI General Insurance paid Rs 84,19,579 as full and final settlement, which Krish Spinning accepted by signing a discharge voucher. Later, Krish Spinning claimed the settlement was made under duress and sought to invoke arbitration for additional claims. SBI General Insurance contested this, arguing that the dispute had been fully settled.
Key Legal Issues:
1. Whether execution of a discharge voucher for full and final settlement bars invoking arbitration
2. Scope of judicial scrutiny in arbitrator appointment applications when “accord and satisfaction” is pleaded
3. Impact of recent Supreme Court decisions on the powers of referral courts under Section 11 of the Arbitration Act
Court’s Decision:
The Supreme Court upheld the appointment of an arbitrator by the Gujarat High Court, ruling that:
1. Signing a discharge voucher does not automatically bar arbitration. The arbitration agreement survives even if the main contract is discharged.
2. Courts should limit their examination to the existence of an arbitration agreement when appointing arbitrators under Section 11. Detailed scrutiny of “accord and satisfaction” pleas should be left to arbitrators.
3. Recent judgments expanding judicial scrutiny at the referral stage are not in line with the principle of minimal judicial interference in arbitration.
Important Observations:
The Court emphasized arbitral autonomy and judicial non-interference, stating:
“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.”
It also noted:
“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.”
Lawyers:
Mr. Ketan Paul appeared for the appellant, while Ms. Savita Singh represented the respondent.
