NTPC LTD.(APPELLANT) Vs. M/S SPML INFRA LTD.(RESPONDENT)
(CIVIL APPEAL No. 4778 of 2022)
(2JB, Dr Dhananjaya Y Chandrachud and Pamidighantam Sri Narasimha JJ., delivered by PAMIDIGHANTAM SRI NARASIMHA, J.)

Facts: Appeal filed against decision of the Delhi HC, allowing the Respondent’s application under Section 11(6) of the Arbitration and Conciliation Act, 1996 for the constitution of an Arbitral Tribunal, even though there were no subsisting disputes between the parties in view of the Settlement Agreement entered into during the pendency of the Writ Petition before the High Court

Issue: Whether the High Court has committed an error in allowing the application under Section 11(6) of the arbitration act after a settlement agreement?

Arguments on behalf of counsel for appellant: Adv. Adarsh Tripathi appearing on behalf of S.G.,He submitted that the application for arbitration after settlement agreement dated 27.05.2020 is an afterthought and abuse of the process. Further, the conduct of SPML, in waiting for the release of the Bank Guarantees as per the Settlement Agreement before withdrawing the Writ Petition, and thereafter instituting the Arbitration Petition shows that there was no coercion and economic duress. He also submitted that the High Court was under an obligation to undertake a limited scrutiny to examine whether a matter is prima facie arbitrable, for which he relied on a recent decision of this Court in Emaar India Ltd. v. Tarun Aggarwal Projects LLP & Anr.

Arguments on behalf of counsel for respondent: Adv. Jaideep Gupta, He submitted that legal principles governing an application under Section 11(6) of the Arbitration Act are well-settled following the decisions of this Court in Mayavati Trading vs. Ltd. v. Pradyuat Deb Burman and Vidya Drolia and Ors. v. Durga Trading Corporation, which stated that at the pre-referral stage, the jurisdiction of the court is restricted to the examination of whether an arbitration agreement exists between the parties. He further submitted that the decision of the High Court was unexceptionable, since the question as to whether the Settlement Agreement was executed under undue influence or coercion could be determined by an Arbitral Tribunal.

Held: The SC set aside the Delhi HC decision, allowing the present appeal, while holding that ‘The High Court has committed an error in allowing the application under Section 11(6) of the Act. High Court ought to have examined the issue of the final settlement of disputes in the context of the principles laid down in Vidya Drolia case.