Delhi High Court
Union Of India vs S K Sharma on 15 July, 2025
Author: Jasmeet Singh
Bench: Jasmeet Singh
$~J
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment reserved on : 05.05.2025
Judgment pronounced on :15 .07.2025
+ O.M.P. (COMM) 142/2020
UNION OF INDIA .....Petitioner
Through: Ms. Arunima Dwivedi, Ms. Aarti Gupta,
Mr. Saiyam Bhardwaj, Advs.
versus
S K SHARMA .....Respondent
Through: Mr. Raghavendra Mohan Bajaj, Ms.
Garima Bajaj, Mr. Kanav Agarwal, Mr.
Agnish Aditya, Mr. Sajal Awasthi, Advs.
CORAM:
HON'BLE MR. JUSTICE JASMEET SINGH
JUDGMENT
: JASMEET SINGH, J
1. This is a petition filed under Section 34 of the Arbitration and
Conciliation Act, 1996 (“1996 Act”) seeking to challenge the Arbitral
Award dated 11.05.2013 (“Impugned Award”) passed in Arbitration
proceedings bearing No. ARB/RS/S.K.A/S.S/2010 titled M/s S.K.
Sharma vs Union of India.
FACTUAL MATRIX AS PER THE PETITIONER
2. The respondent firm was awarded a works contract vide letter dated
13.09.2002 with the scheduled date of completion being 12.12.2003,
however, the same could not be achieved within the stipulated
timeline. Consequently, the time for completion of the work was
extended from time to time without levy of any penalty, and the work
was completed by the respondent on 31.03.2006.
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3. The defect liability period expired on 30.09.2006 without any
complaints raised by the petitioner. Following the expiry of the defect
liability period, the respondent asked the petitioner to release the
security deposit along with the full and final payment. In response,
the petitioner prepared the final bill and called upon the respondent to
sign it. However, the respondent signed the bill under protest, alleging
that the final bill did not account for all the payments to which the
respondent was entitled. Since there were disputes between the
parties, the respondent invoked arbitration vide letter dated
27.06.2007, raising claims against the petitioner.
4. The petitioner, vide letter(s) dated 12.12.2007 and 24.12.2007,
declined the respondents‟ request for appointment of an arbitrator, on
the ground that the respondent had already signed a supplementary
agreement dated 07.04.2007 on 31.03.2007 which provided that, in
consideration of the payments made by the petitioner, the principal
agreement stood finally discharged and rescinded, including the
arbitration clause.
5. Subsequently there were numerous communications between the
parties regarding the appointment of an arbitrator.
6. The respondent by way of arbitration application, bearing Arb. Appl.
No. 211/2008 approached the Hon‟ble Delhi High Court seeking
appointment of an Arbitral Tribunal for adjudication of disputes
between the parties. Vide judgment dated 11.02.2009; the parties were
referred to arbitration. This Court was, prima facie, of the view that
the supplementary agreement executed between the parties may have
been signed under coercion, and therefore, the claims arising under
the original contract would remain arbitrable. However, it was
observed that, at that stage, it would be inappropriate to record a
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conclusive finding on whether undue influence or coercion was
exercised upon the respondent. The issue was accordingly left open
for examination and determination by the Arbitral Tribunal. The
relevant findings are as under:
“I am prima facie of the view that the present case does not
fall in the class of cases as P.K. Ramaiah, Nav Bharat
Builders, Harivansh Chawla and Nathani Steels Ltd. and
rather, falls in the class of cases as in Reshmi Constructions.
The settlement agreement appears to have been signed
under coercion, meaning that the claims shall remain
arbitrable under the original agreement.
…..
19. I, however, at this stage do not deem it appropriate to
return a positive finding on this aspect. In my view a
positive binding finding on the averments of coercion, undue
influence, etc. in the face of a written document ought not to
be returned without examination of witnesses. Though it is
permissible to examine witnesses while adjudicating an
application under Section 11(6) of the Act but in my view if
the said exercise is undertaken here, the same will lead to
further delays. The parties having agreed to arbitration, it is
apposite that the said claims/disputes are also adjudicated
by the arbitrator only. Another single judge of this court
recently in M/s Hero Exports Vs. M/s Tiffins Barytes, A.A
No.121/2008 decided on 2nd September, 2008 left the
questions of coercion and extortion to be decided by
arbitrator.
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7. Pursuant thereto, the petitioner challenged the judgment dated
11.02.2009 before the Hon‟ble Supreme Court of India. Vide order
dated 05.01.2010, the Hon‟ble Supreme Court dismissed the SLP filed
by the petitioner. The relevant extract is as under:
“The High Court has recorded only a prima facie finding
about the suspicious circumstances and has left the matter
open for decision by the Arbitral Tribunal as to whether the
supplementary agreement is voluntary or under coercion.
The arbitration proceedings cannot be proceeded with, if the
Arbitral Tribunal comes to the conclusion that
supplementary agreement was not obtained by coercion or
under influence. Hence, the petitioner is not prejudiced.”
8. In compliance with the orders passed by the Hon‟ble Supreme Court
and this Court, the matter was referred to the Arbitral Tribunal vide
letter No. 74-W/6/149/WA/TKJ/ARB dated 21.04.2010 issued by the
Headquarters Office, Kashmere Gate, Delhi. Thereafter, the Impugned
Award came to be passed on 11.05.2013, whereby the Arbitral
Tribunal inter alia observed as under:
“On going through the records and evidence produced by
the claimant & respondent, the Arbitrators are of the view
that although there is no proof of obtaining the signatures of
the claimant on the supplementary agreement under
coercion or under undue influence, but since the claimant
has signed the final bill „under protest‟ there seems to be
dispute of claims which have not been settled and hence the
same can be arbitrable.
The claimant may approach to respondent for fresh
legitimate genuine claims as per due procedure.”
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9. With this order/Award, the Arbitral Tribunal without adjudicating the
merits of the claims of the respondent or counter claims, if any of the
petitioner, closed the arbitral proceedings.
10. Aggrieved, the petitioner has filed the present petition seeking setting
aside of the Impugned Award.
11. When the matter came up for hearing on 29.01.2014, this court
expressed an inclination to set aside the Impugned Award as the
Impugned Award did not give any cogent reasons in support of its
findings, however this court gave an opportunity to the Arbitral
Tribunal to take such other measures as the Arbitral Tribunal may
deem necessary to eliminate the grounds for setting aside the
Impugned Award. The operative portion of the order dated 29.01.2014
reads as under:
“………
The impugned order/Award is patently laconic in as much,
as, it does not contain reasons for the findings returned by
the Tribunal with regard to exercise of undue influence or
coercion by the petitioner by the respondent in the execution
of the supplementary agreement. It also does not examine
the interplay of the fact-that the respondent had signed the
final bill under protest, and thereafter signed the
supplementary agreement. The impugned Award would,
therefore, be liable to be set aside. However, I am not
inclined to set aside the award at this stage, as I propose to
give an opportunity to the tribunal to resume the
proceedings, to take such other action as, in the opinion of
the Arbitral Tribunal will eliminate the grounds for setting
aside the impugned award. I, therefore, adjourn theDigitally Signed O.M.P. (COMM) 142/2020 Page 5 of 29
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proceedings for a period of four months and during this
period, the Arbitral Tribunal is granted an opportunity to
resume the proceedings or to take such other action as in
the opinion of the Arbitral Tribunal will eliminate the
grounds for setting aside of the Arbitral Award.”
12. In compliance with the order dated 29.01.2014, passed by this court,
the Arbitral Tribunal clarified its findings in the Impugned Award vide
order dated 13.11.2014. The order dated 13.11.2014 is reproduced
below:
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RIVAL SUBMISSION(S) ON BEHALF OF THE PARTIESOn behalf of the Petitioner
13. The case of the petitioner is that, based on the material available on
record, the Arbitral Tribunal arrived at the conclusion that the
supplementary agreement was executed by the respondent voluntarily
and of his own free will, without any coercion or undue influence.
Accordingly, there is no ground for this Court to interfere with the
said conclusion. It is a settled principle, reiterated in a series of
judgments by this Court as well as the Hon‟ble Supreme Court, that
where two possible interpretations exist, and the Arbitral Tribunal
adopts one of them, the courts should not substitute their own view
unless it is demonstrated that the Tribunal‟s conclusion is perverse
and unreasonable. The judicial approach under Section 34 of the 1996
Act does not permit re-examination or re-appreciation of the
evidence. However, after recording such a finding, there was no
occasion for the Arbitral Tribunal to further hold that, since the final
bill had been signed under protest, the claims were arbitrable. The
petitioner is aggrieved only to the extent that the Impugned Award
records that “since the claimant has signed the final bill „under
protest‟, there seems to be dispute of claims which have not been
settled and hence the same can be arbitrable”.
On behalf of the Respondent
14. Per Contra, the gist of the respondents‟ argument is that the Impugned
Award is a preliminary decision rendered pertaining to the Arbitral
Tribunal‟s jurisdiction and on the arbitrability of the claims. The
Arbitral Tribunal has not passed a final award, any substantive
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challenge at this stage may be premature. The letter dated 13.11.2014
issued by the Arbitral Tribunal in response to the order dated
29.01.2014, passed in the present petition, cannot be treated as an
„order‟ of the Arbitral Tribunal, as it does not contain the essential
attributes of an „order‟. At best, it can be construed as a
communication setting out the reasons for the finding given in the
Impugned Award. Further, it is stated that the Impugned Award is a
decision of the Tribunal in favour of its own jurisdiction and hence
cannot be set aside under section 34. The said decision can only be
assailed once the final award has been passed. Reliance is placed on
section 16(5) and (6) of the 1996 Act. In addition, the matter was
listed for clarification on 02.07.2025, whereby the respondent argued
that the respondent must be granted benefit of the limitation under
Section 43(4) of the 1996 Act as the respondent did not have an
opportunity to challenge the Impugned Award due to the finding that
since the final bill was signed under protest there seems to be dispute
of claims which have not been settled and hence the same can be
arbitrable.
ANALYSIS AND CONCLUSION
15. At the outset, it is pertinent to outline the scope of interference with
the arbitral awards under section 34 of the 1996 Act. The scope of
interference by a court under Section 34 of the 1996 Act, is statutorily
limited and judicially well-settled. It has time and again been held that
section 34 of the 1996 Act does not envisage a review of the arbitral
award on merits, nor does it permit re-appreciation of evidence. The
Court’s intervention is confined to limited grounds such as lack of
jurisdiction, breach of principles of natural justice, patent illegality, or
if the award is contrary to the fundamental policy of Indian law or
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public policy. Reliance is placed on the following judgment(s) – (1)
Associate Builders v. Delhi Development Authority, (2015) 3 SCC
49; (2) Delhi Airport Metro Express (P) Ltd. v. Delhi Metro Rail
Corporation Limited, (2022) 1 SCC 131; (3) Oil and Natural Gas
Corporation Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705.
16. Further, it is a trite law that where the Arbitral Tribunal has adopted a
view that is plausible, based on the evidence before it, interference by
the court is unwarranted, even if an alternative view is available. In
this regard, reliance is placed on the judgment passed by the Hon‟ble
Supreme Court in NTPCLtd. v. Deconar Services (P) Ltd., (2021) 19
SCC 694. The operative portion reads as under:
“12. Further, it is also a settled proposition that where the
arbitrator has taken a possible view, although a different
view may be possible on the same evidence, the court would
not interfere with the award. This Court in Arosan
Enterprises Ltd. v. Union of India [Arosan Enterprises Ltd.
v. Union of India, (1999) 9 SCC 449], held as follows: (SCC
p. 475, paras 36-37)
“36. Be it noted that by reason of a long catena of cases,
it is now a well-settled principle of law that reappraisal
of evidence by the court is not permissible and as a
matter-of-fact exercise of power by the court to
reappraise the evidence is unknown to proceedings under
Section 30 of the Arbitration Act. In the event of there
being no reasons in the award, question of interference of
the court would not arise at all. In the event, however,
there are reasons, the interference would still be not
available within the jurisdiction of the court unless ofDigitally Signed O.M.P. (COMM) 142/2020 Page 12 of 29
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course, there exist a total perversity in the award or the
judgment is based on a wrong proposition of law. In the
event however two views are possible on a question of
law as well, the court would not be justified in interfering
with the award.
37. The common phraseology “error apparent on the face
of the record” does not itself, however, mean and imply
closer scrutiny of the merits of documents and materials
on record. The court as a matter of fact, cannot substitute
its evaluation and come to the conclusion that the
arbitrator had acted contrary to the bargain between the
parties. If the view of the arbitrator is a possible view the
award or the reasoning contained therein cannot be
examined.”
17. The first issue for determination before the Arbitral Tribunal, was
whether the supplementary agreement had been executed under
coercion or undue influence and in the event the Arbitral Tribunal
found the supplementary agreement to be valid and not vitiated by
coercion or undue influence, the arbitral proceedings were not to be
continued (Ref. Order dated 05.01.2010 passed by the Hon‟ble
Supreme Court).
18. In the Impugned Award, even though the Arbitral Tribunal concluded
that the supplementary agreement was not executed under coercion or
under undue influence, however the arbitral tribunal also recorded
that since the final bill was signed by the respondent under „protest‟,
the claims were arbitrable. The said finding has further been clarified
in the order dated 13.11.2014.
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19. The position of law with regard to whether the disputes or claims
arising under an agreement, in respect of which a receipt for full and
final settlement has been given or a settlement agreement has been
executed, are arbitrable or not, has undergone a substantial change
over the period. The Courts have consistently held that a claim for
arbitration cannot be rejected merely on the ground that a settlement
agreement or discharge voucher has been executed by either of the
parties, particularly where the validity of such settlement is disputed.
If there is an allegation that the discharge or settlement was obtained
through coercion, undue influence, fraud, or economic duress, the
existence of such agreement cannot, by itself, be treated as conclusive
bar to arbitration. In such cases, the question of whether the
settlement is valid and binding is itself an arbitrable issue that must be
determined by the arbitral tribunal. In this regard, the Hon‟ble
Supreme Court in SBI General Insurance Co. Ltd vs Krish
Spinning2024 SCC OnLine SC 1754 while relying on the judgment
of National Insurance Company Limited vs Boghara Polyfab
Private Limited (2009) 1 SCC 267 inter alia held as under:
“……..
48. Arbitration for the purpose of resolving any dispute
pertaining to any claim which has been “fully and finally
settled” between the parties can only be invoked if the
arbitration agreement survives even after the discharge of
the substantive contract.
……
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 meanDigitally Signed O.M.P. (COMM) 142/2020 Page 14 of 29
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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”.
……
55. The aforesaid position of law has also been consistently
followed by this Court as evident from many decisions. In
Boghara Polyfab (supra), while rejecting the contention that
the mere act of signing a “full and final discharge voucher”
would act as a bar to arbitration, this Court held as follows:
“44. … None of the three cases relied on by the appellant
lay down a proposition that mere execution of a full and
final settlement receipt or a discharge voucher is a bar to
arbitration, even when the validity thereof is challengedDigitally Signed O.M.P. (COMM) 142/2020 Page 15 of 29
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by the claimant on the ground of fraud, coercion or undue
influence. Nor do they lay down a proposition that even if
the discharge of contract is not genuine or legal, the
claims cannot be referred to arbitration. […]”
57. The position that emerges from the aforesaid discussion
is that there is no rule of an absolute kind which precludes
arbitration in cases where a full and final settlement has
been arrived at. In Boghara Polyfab (supra), discussing in
the context of a case similar to the one at hand, wherein
the discharge voucher was alleged to have been obtained
on ground of coercion, it was observed that the discharge
of a contract by full and final settlement by issuance of a
discharge voucher or a no-dues certificate extends only to
those vouchers or certificates which are validly and
voluntarily executed. Thus, if the party said to have
executed the discharge voucher or the no dues certificate
alleges that the execution was on account of fraud,
coercion or undue influence exercised by the other party
and is able to establish such an allegation, then the
discharge of the contract by virtue of issuance of such a
discharge voucher or no dues certificate is rendered void
and cannot be acted upon.
58. It was further held in Boghara Polyfab (supra) that the
mere execution of a full and final settlement receipt or a
discharge voucher would not by itself operate as a bar to
arbitration when the validity of such a receipt or voucher
is challenged by the claimant on the ground of fraud,
coercion or undue influence. In other words, where the
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parties are not ad idem over accepting the execution of the
no-claim certificate or the discharge voucher, such
disputed discharge voucher may itself give rise to an
arbitrable dispute.
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.
(emphasis supplied)
20. More recently, the Hon‟ble Supreme Court in Arabian Exports
Private Limited vs National Insurance Company Ltd2025 SCC
OnLine SC 1034 inter alia held as under:
“34. This decision was explained by this Court in Boghara
Polyfab (supra). A two-Judge Bench of this Court noted that
in Nathani Steels (supra) this Court on examination of the
facts of that case was satisfied that there were negotiations
leading to voluntary settlement between the parties in all
pending disputes. Thus the contract was discharged by
„accord and satisfaction‟. The Bench categorized such
claims under two categories. In the first category there
would be cases where there is bilateral negotiated
settlement of pending disputes, such settlement having been
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otherwise. Nathani Steels (supra) falls in this category. In
the second category of cases, there would be „no
dues/claims certificate‟ or „full and final settlement
discharge vouchers‟ insisted upon and taken, either in a
printed format or otherwise, as a condition precedent for
release of the admitted dues. In the latter group of cases,
the disputes are arbitrable. Mere execution of a full and
final settlement receipt or a discharge voucher cannot be a
bar to arbitration even when validity thereof is challenged
by the claimant on the ground of fraud, coercion or undue
influence. The Bench further distinguished Nathani Steels
(supra) by clarifying that the observations made that unless
the settlement is set aside in proper proceedings, it would
not be open to a party to the settlement to invoke arbitration
was with reference to a plea of „mistake‟ taken by the
claimant and not with reference to allegations of fraud,
undue influence or coercion. Further, the said decision was
rendered in the context of the provisions of the Arbitration
Act, 1940. The perspective of the 1996 Act is different from
the Arbitration Act, 1940.”
(emphasis supplied)
21. From the aforesaid judgment(s), the position of law that emerges is
that the execution of a no-dues certificate/settlement agreement does
not, by itself, preclude arbitration of disputes, particularly when either
of the parties alleges that such execution was not voluntary and was
induced by duress, coercion, or undue influence. In such
circumstances, the arbitration clause embedded in the underlying
contract continues to operate, and the question of whether the
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settlement or discharge was validly and voluntarily executed becomes
a matter to be determined during the arbitral proceedings. The
existence of the settlement agreement, when disputed, cannot be
treated as conclusive proof of accord and satisfaction at the threshold
stage.
22. However, it is significant to note that the aforesaid judgment(s) have
been delivered in the context of Section 11 of the 1996 Act and not
Section 34. At the stage of Section 11, the Court is only required to
examine the existence of an arbitration agreement and subsistence of
an arbitrable dispute. The question whether a settlement agreement
was executed voluntarily or under duress involves appreciation of
facts and evidence and cannot be conclusively adjudicated at the stage
of Section 11. The same squarely falls within the domain of the
arbitral tribunal. The controversy at hand is a challenge to the
Impugned Award under section 34 of the 1996 Act, i.e. the Impugned
Award has been passed after the pleadings, the documents and hearing
the parties. The contours of Section 34 do not permit the Court to re-
assess or re-appreciate the factual findings of the Arbitral Tribunal.
Interference is warranted only if the findings are perverse, irrational,
or in disregard of material evidence. In this regard, a coordinate bench
of this court in Union of India through Sr. Divisional Engineer-I
Northern Railway vs B.S Sangwan 2024 SCC OnLine Del 6734 inter
alia held as under:
“…….
81. While examining the impact of the decisions cited
earlier, on the issue in controversy, one distinction has to be
borne in mind. Most of the decisions, except Ambica
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ought, or ought not, to have been referred to arbitration.
The appeal to the Supreme Court arose out of a decision of
the High Court either referring the disputes to arbitration or
refusing to refer the dispute under Section 11 of the 1996
Act. Ambica Constructions is the only case in which the
controversy arose out of an arbitral award in a Section 34
challenge – as in the present case. It is important to note this
distinction for the simple reason that the scope of enquiry by
the Court under Section 11 and under Section 34 is
radically different. Even at the time of rendition of the above
decisions, the Section 11 Court was only required to satisfy
itself as to whether there existed an arbitration agreement
and whether there existed an arbitrable dispute. With the
recent decision in SBI General Insurance, the Section 11(6)
Court is not entitled to enquire into the latter aspect and has
to satisfy itself by examining whether there exists an
arbitration agreement between the parties. Even at the time
of the rendition of the decisions cited supra, which was in
the pre-SBI General Insurance era, the Court was only
concerned with whether an arbitrable dispute existed. The
decisions hold that if there was any scope for enquiring into
whether the NCC or discharge voucher had been furnished
under duress or coercion, then irrespective of the merits of
the challenge, the dispute had to be referred to arbitration.
Where however, the challenge was found to be a complete
afterthought with no supportive material whatsoever to
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which vitiated the NCC or discharge voucher, the Court
could refuse to refer the disputes to arbitration.
82. Which brings us to the second aspect. We are, however,
in the present case, not at the Section 11 stage. The
disputes stand referred and an arbitral award stands
rendered. The challenge before this Court is a challenge
under Section 34 to the arbitral award. The limits of
Section 34 jurisdiction are well known. The issue of
whether the facts before the Arbitral Tribunal made out a
case of economic duress, coercion or compulsion, under
which the NCC was furnished by the respondent, was
clearly a question of fact. The finding of the Arbitral
Tribunal in that regard is also a finding of fact. The scope
of interference by the Court under Section 34 of the 1996
Act, with findings of fact rendered by the Arbitral
Tribunal, is all but completely foreclosed. It is only where
the “finding of fact is arrived at by ignoring or excluding
relevant material or by taking into consideration irrelevant
material or if the finding so outrageously defies logic as to
suffer from the vice of irrationality incurring the blame of
being perverse”, then, the finding, merits intervention
under Section 34 as being “perverse”.”
(emphasis supplied)
23. Coming to facts at hand, it is an admitted position that the final bill
was signed under „protest‟ which has been noted in the judgment
dated 11.02.2009 and also the Impugned Award dated 11.05.2013.
Going further, the Arbitral Tribunal, after considering the entire
material on record has also returned a finding that there is no proof of
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obtaining the signature of the respondent on the supplementary
agreement under coercion or under undue influence.
24. Vide order dated 13.11.2014, the Arbitral Tribunal gave detailed
reasons (pursuant to the direction on 29.01.2014) regarding its
findings that the supplementary agreement was without coercion or
undue influence. The Arbitral Tribunal found no substance in the
respondent‟s claim of coercion. It noted that the respondent did not
mention the Supplementary Agreement at all in his letter dated
20.02.2008 (by which the respondent had stated that the final bill was
signed under „protest‟ since the dispute had not been settled),
something that would be expected if he had signed it under pressure.
It also observed that the signature and the date on the supplementary
agreement by the respondent are same i.e. 31.03.2007, which
contradicted the claim that the contractor was made to sign a blank
document. Further, the Arbitral Tribunal found no merit in the
respondents‟ allegation of coercion based on the encashment of the
Bank Guarantees. It observed that the Bank Guarantee of Rs.
12,00,000 had already expired prior to the execution of the final bill
and Supplementary Agreement on 31.03.2007, and was thus not
available for encashment.
25. These findings, in my view are pure findings of fact. These
conclusions are at the very least, plausible and reasonable
interpretation of the material presented before the Arbitral Tribunal.
26. However, there is also a second aspect in the Impugned Award where
the Arbitral Tribunal has recorded “but since the claimant has signed
the final bill „under protest‟ there seems to be dispute of claims which
have not been settled and hence the same can be arbitrable”. Once
the Arbitral Tribunal concluded that the supplementary agreement was
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not executed under duress, coercion, or undue influence, in my view,
it was not open to the Tribunal to then hold that since the final bill
was signed “under protest,” certain claims appeared to remain
unsettled and were, therefore, arbitrable. Having upheld the validity
of the supplementary agreement, there were no arbitrable disputes
pending between the parties. The arbitration clause contained in the
agreement has perished. The supplementary agreement categorically
records as under:
“Now it is hereby agreed by and between the parties in the
consideration of sums already paid by the part hereto of the
first part to the party hereto of the second part against all-
outstanding dues and claims for all works done under the
aforesaid principal agreement including excluding the
security deposit the party hereto of the second part have no
further dues of claims against the party herein the first part
under the said Principal Agreement. It is further agreed by
and between the parties that the party hereto of the second
part has accepted the said sums mentioned above in full and
final satisfaction of all its dues and under the said Principal
Agreement.
It is further agreed and understood by and between the
parties that in consider whom of the payment already made
under the agreement, the said Principal Agreement shall
stand finally discharged and rescinded all the terms and
conditions including the arbitration clause.
It is further agreed and understand by and between the
parties that in consideration of the payment already made
under the agreement, the said Principal Agreement shallDigitally Signed O.M.P. (COMM) 142/2020 Page 23 of 29
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stand finally discharged and rescinded all the terms and
conditions including the arbitration clause.
It is further agreed and understood by and between the
parties that the arbitration clause contained in the said
principal agreement shall cease to have any effect and/or
shall be deemed to be non-existent for all purposes.”
27. The law in this regard is well settled.
28. A Coordinate Bench of this Court, in B.L. Kashyap and Sons Ltd. v.
Mist Avenue Private Ltd., 2023 SCC OnLine Del 3518, while
considering a petition under Section 34, examined the issue of
whether the original agreement would continue to subsist in light of a
subsequent agreement (supplementary agreement in the present case)
entered into between the parties. The Court enunciated certain
principles governing the circumstances in which the original
agreement containing the arbitration clause will cease to subsist. The
operative portion of the judgment reads as under:
“24. For the purposes of the present case, the following
principles emerge from these authorities:
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 arbitrationDigitally Signed O.M.P. (COMM) 142/2020 Page 24 of 29
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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.
25. An application of these principles requires an
interpretation of the subsequent agreement between the
parties-in this case, the MoU-to determine whether the
arbitration clause in the original agreement remains
enforceable.”
(emphasis supplied)
29. In the present case, the finding by the Arbitral Tribunal in the
Impugned Award that there was no coercion/undue influence
exercised by the petitioner on the respondent to execute the
supplementary agreement and that there seems to be dispute of claims
which have not been settled are mutually inconsistent findings and
cannot be reconciled.
30. Once the supplementary agreement is held to be valid and legal, all
claims under the principal agreement stood discharged including the
arbitration clause. In case, the finding by the Arbitral Tribunal that the
dispute of the claims have not settled and hence are arbitrable is to be
accepted, then the first part of the Impugned Award i.e., the
supplementary agreement was signed voluntarily and without any
coercion/undue influence becomes nugatory and of no effect.
31. To my mind, the Impugned Award is patently illegal and perverse.
The concept of patent illegality and perversity has been elaborated
upon in a catena of judgments by various courts. It has been
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consistently held that an arbitral award suffers from patent illegality
when it is perverse, based on no evidence, ignores vital evidence, or
records findings that are internally contradictory or against the terms
of the contract. In this regard, the Hon‟ble Supreme Court in Delhi
Metro Rail Corporation Limited vs Delhi Airport Metro Express
Private Limited (2024) 6 SCC 357 inter alia held as under:
“34. The contours of the power of the competent court to set
aside an award under Section 34 has been explored in
several decisions of this Court. In addition to the grounds
on which an arbitral award can be assailed laid down in
Section 34(2), there is another ground for challenge against
domestic awards, such as the award in the present case.
Under Section 34(2-A) of the Arbitration Act, a domestic
award may be set aside if the Court finds that it is vitiated
by “patent illegality” appearing on the face of the award.
35. In Associate Builders v. DDA [Associate Builders v.
DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , a two-
Judge Bench of this Court held that although the
interpretation of a contract is exclusively within the domain
of the arbitrator, construction of a contract in a manner that
no fair-minded or reasonable person would take, is
impermissible. A patent illegality arises where the
arbitrator adopts a view which is not a possible view. A
view can be regarded as not even a possible view where no
reasonable body of persons could possibly have taken it.
This Court held with reference to Sections 28(1)(a) and
28(3), that the arbitrator must take into account the terms of
the contract and the usages of trade applicable to theDigitally Signed O.M.P. (COMM) 142/2020 Page 26 of 29
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transaction. The decision or award should not be perverse
or irrational. An award is rendered perverse or irrational
where the findings are:
(i) based on no evidence;
(ii) based on irrelevant material; or
(iii) ignores vital evidence.
…..
39. In essence, the ground of patent illegality is available
for setting aside a domestic award, if the decision of the
arbitrator is found to be perverse, or so irrational that no
reasonable person would have arrived at it; or the
construction of the contract is such that no fair or
reasonable person would take; or, that the view of the
arbitrator is not even a possible view. [Patel Engg. Ltd. v.
North Eastern Electric Power Corpn. Ltd., (2020) 7 SCC
167 : (2020) 4 SCC (Civ) 149.] A “finding” based on no
evidence at all or an award which ignores vital evidence in
arriving at its decision would be perverse and liable to be
set aside under the head of “patent illegality”. An award
without reasons would suffer from patent illegality. The
arbitrator commits a patent illegality by deciding a matter
not within his jurisdiction or violating a fundamental
principle of natural justice.
(emphasis supplied)
32. In this regard, this court further places reliance on the judgment
passed by the Hon‟ble Supreme Court in McDermott International
Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181 and a coordinate
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bench of this court in Jaiprakash Associates Ltd. v. NHPC Ltd., 2023
SCC OnLine Del 3295.
33. In my view, the finding that “since the claimant has signed the final
bill under protest there seems to be dispute of claims which have not
been settled and hence the same can be arbitrable” is perverse and
patently illegal. Once the Arbitral Tribunal had already concluded that
the supplementary agreement was validly executed without coercion
or undue influence, then as per the terms of the supplementary
agreement all prior claims stood settled and the arbitration clause was
discharged. Reopening the same claims on the basis of an “under
protest” remark not only contradicts the earlier finding but also
undermines the sanctity of the supplementary agreement. Such a
finding goes to the root of the matter.
34. In this view of the matter, the petition is allowed and the Impugned
Award is set aside.
35. However, having said that I also find force in the submission of the
respondent that the respondent could not have challenged the
Impugned Award especially the finding that the supplementary
agreement was not executed under coercion or undue influence as it
held that the claims of the respondent were arbitrable. In this regard,
reliance on Section 16 (5) and (6) of the 1996 Act is well placed.
Section 16 (5) and (6) of the 1996 Act reads as under:
“16. Competence of arbitral tribunal to rule on its
jurisdiction
……
(5) The arbitral tribunal shall decide on a plea referred to in
sub-section (2) or sub-section (3) and, where the arbitralDigitally Signed O.M.P. (COMM) 142/2020 Page 28 of 29
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tribunal takes a decision rejecting the plea, continue with
the arbitral proceedings and make an arbitral award.
(6) A party aggrieved by such an arbitral award may make
an application for setting aside such an arbitral award in
accordance with section 34
……”
36. Hence, there was no occasion for the respondent to assail the
Impugned Award dated 11.05.2013 and the order dated 13.11.2014 by
which the Arbitral Tribunal gave its reasoning. The respondent vide
Impugned Award dated 11.05.2013 was permitted to pursue its claims
through arbitral process and hence, there was no reason for the
respondent to challenge the same.
37. In view of my findings above, the respondent is now free to avail of
all its legal remedies, including but not limited to challenging the
Impugned Award dated 11.05.2013 and the order dated 13.11.2014 on
all grounds and shall be entitled to the benefit of limitation under
Section 43 (4) of the 1996 Act. The findings returned by me in this
judgment, will not affect the merits of the petition filed by the
respondent, if and when filed and the same shall be adjudicated on its
own merits.
38. With the above directions, the present petition, along with pending
applications, if any, are disposed of.
JASMEET SINGH, J
JULY 15, 2025 / P
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