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Excuse of economic duress can be used to demerit the discharge of arbitration clause: Supreme Court

In the supreme court case of THE ORIENTAL INSURANCE CO. LTD V. DICITEX FURNISHING LTD. November 13, 2019 – CIVIL APPEAL No. 8550 OF 2019 (ARISING OUT OF SLP (C) NO. 34186 OF 2015)

The bench comprising of JUSTICE ARUN MISHRA and JUSTICE S. RAVINDRA BHAT, the appeal was held to be unmerited. The rejection of the application was based on the facts and circumstances of the case. The court also upheld the concept of economic duress in the present case.

The appeal was filed against the decision of a single judge of the Bombay High Court, who allowed the respondent’s application under Section 11(6) of the Arbitration and Conciliation Act, 1996. It was argued on behalf of the respondents, that it was subjected to economic duress and coercion which resulted in the signing of the discharge voucher, which could not preclude its invocation of the arbitration agreement.

“In our opinion, there is no rule of the absolute kind. In a case where the claimant contends that a discharge voucher or no­claim 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   no­claim   certificate   or settlement agreement, prima facie, appears to be lacking in credibility, there may not be necessity to refer the dispute for arbitration at all.”

The appellant resisted the application, contending that the appellants had not demonstrated whether the second discharge voucher signed by it was under economical or financial duress under the arbitration agreement. It was urged that since the appellants have signed the discharge voucher and accepted the payment made by the respondents unconditionally and confirmed that the said payment was received in full and final settlement of their claim, present or future, arising directly/indirectly in respect of the said loss/accident and subrogated all their rights and remedies to the appellant in respect of the loss/damages, there exists no dispute between the parties which can be referred to arbitration.

The appellant further stated that, in the arbitration agreement itself that it had to explain the exact correctness of the allegation of coercion and duress with details and particulars about signing the discharge voucher. However, the fact remained that at the relevant time, it faced a crisis of existence. Its acceptance was under financial compulsion which amounted to economic coercion. This court in the context of an application under Section 11(6) dealt with the issue, holding that if there were accord and satisfaction due to a no dues certificate, a reference under Section 11 was not maintainable.

The court observed that when The coercion is subtle but very much real, the ‘accord’ is not by free consent. The arbitration agreement can thus be invoked to refer the disputes to arbitration. The present case facts through the pleadings in the initial application under Section 11(6) are weak, nevertheless, the materials on the record, in the form of copies of the inter se correspondence of the parties.This court is conscious of the fact that an application under Section 11(6) is in the form of a pleading which merely seeks an order of the court, for the appointment of an arbitrator. It cannot be conclusive of the pleas or contentions that the claimant or the concerned party can take, in the arbitral proceedings.

The court which is required to ensure that an arbitrable dispute exists, has to be prima facie convinced about the genuineness or credibility of the plea of coercion. If the court was to take a contrary approach and minutely examine the plea and judge its credibility or reasonableness, there would be a danger of it’s denying a forum to the applicant altogether, because rejection of the application would render the finding final, thus, precluding the applicant of its right event to approach a civil court.

Pranav M Varma



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