Case Analysis 2 Saakshi Annajigar

FACTS
- Appellant and Respondent entered into a contract for Installation Services for Station Piping
Package for a Super Thermal Power Project.
- Respondent provided Performance Bank Guarantees and Advanced Bank Guarantees to secure the
Appellant as per the contract agreement.
- After the successful completion of the project, a Completion Certificate was issued by the Appellant,
and the final payment was released.
- However, Bank Guarantees were not returned Respondent due to pending liabilities and disputes
related to other projects.
- Despite the issuance of the Completion Certificate and the No-Demand Certificate, the Bank
Guarantees were not released.
- Respondent requested the appointment of an Adjudicator to resolve disputes, but no action was taken
by the Appellant.
- Respondent filed a Writ Petition in the High Court seeking the release of the Bank Guarantees.
- During the Writ Petition, negotiations led to a Settlement Agreement where the Appellant agreed to
release the Bank Guarantees, and Respondent agreed to withdraw the Writ Petition and refrain from
initiating further proceedings.
- After the settlement, Respondent repudiated the agreement and filed an application under Section
11(6) of the Act in the High Court.
- The High Court allowed the Arbitration Petition, appointed an Arbitrator, and directed arbitrators to
appoint the presiding Arbitrator.
- The appeal was allowed, with the following key points:
- The dispute centered around the Appellant not returning Bank Guarantees despite project
completion and the issuance of certificates.
- Respondent's argument focused on the illegal interlinking of Bank Guarantees with other contracts.
- The plea of coercion and economic duress was considered an afterthought by the court.
- The execution of the Settlement Agreement and the release of Bank Guarantees were not disputed.
- A letter of repudiation was issued by Respondent almost three weeks after the release of Bank
Guarantees, suggesting an attempt to back out of the Settlement Agreement after benefiting from it.
- The sequence of events indicated that the letter of repudiation was issued to avoid the terms of the
Settlement Agreement.
Case Analysis: NTPC vs. SPML
1. Background:
- The case involves a contractual dispute between NTPC and SPML.
- The appeal originated from a Delhi High Court decision allowing an application under Section
11(6) of the Arbitration and Conciliation Act for the formation of an Arbitral Tribunal.
- NTPC contends that there were no ongoing disputes due to a Settlement Agreement, and the
arbitration application is an afterthought and misuse of the legal process.
2. Court Proceedings:
- On July 15, 2022, the Supreme Court stayed further proceedings before the Arbitral Tribunal.
- The dispute arose from a contract between NTPC and SPML for installation services, involving
bank guarantees and a project completion certificate.
3. Key Events:
- Dispute arose over bank guarantees after project completion.
- Settlement Agreement in May 2020 led to the release of bank guarantees and withdrawal of the
writ petition by SPML.
- SPML, after implementing the settlement, repudiated the agreement, alleging coercion, and filed
an application under Section 11(6) in October 2020.
4. High Court Decision:

- The High Court allowed the arbitration petition, appointing an arbitrator.
- It considered the dispute regarding the Settlement Agreement as not ex facie untenable.
5. Legal Submissions:
- NTPC argued Settlement Agreement during the writ petition's pendency makes coercion claims
false.
- Accused SPML of tactical maneuvers.
- SPML's submission relied on settled legal principles postulated in prior decisions like Mayavati
Trading and Vidya Drolia.
6. Legal Position:
- The Supreme Court emphasized the limited scope of pre-referral jurisdiction under Section 11(6)
of the Act.
- Legislative amendments in 2015 confined the court's examination to the existence of an arbitration
agreement during pre-referral stages.
- Past precedents emphasized the court's duty to examine allegations of non-arbitrability, accord,
and satisfaction before referring parties to arbitration.
7. Conclusion:
- The case involves a contractual dispute between NTPC and SPML, with complexities arising from
a Settlement Agreement.
- The Supreme Court's focus is on the limited scope of pre-referral jurisdiction and the examination
of the existence of an arbitration agreement.
Legislative Change:
- Post-2015 Amendments, Section 11(6) of the Arbitration Act limited the court's jurisdiction to
examining the existence of an arbitration agreement.
- United India Insurance Co. Ltd. v. Antique Art Exports Pvt. Ltd. (2019) initially accepted an
'accord and satisfaction' objection, but Mayavati Trading (2019) expressly overruled this approach.
- Vidya Drolia (2019) laid down an overarching principle for pre-referral jurisdiction under Section
11(6) of the Act.
Principle from Vidya Drolia:

- The expression "existence of an arbitration agreement" includes the validity of the arbitration
agreement.
- The court's role is limited to a prima facie review at the referral stage.
- The court must force parties to arbitrate when disputes are prima facie arbitrable, and only rarely
interfere when the arbitration agreement is demonstrably non-existent, invalid, or non-arbitrable.
- The court's limited review is to cut off deadwood and protect parties from being forced to arbitrate
in clear non-arbitrable cases.
Prima Facie Review:

- Prima facie case refers to whether the subject matter is prima facie arbitrable under a valid
arbitration agreement.
- Prima facie examination is not a full review but a primary first review to identify manifestly non-
existent or invalid arbitration agreements and non-arbitrable disputes.
- The court must not decide debatable questions of facts at this stage.
Limited Judicial Scrutiny:

- The court's scrutiny is limited, and detailed reviews at the referral stage should be avoided to
maintain the integrity and efficacy of arbitration.
- The court may leave matters for final determination by the Arbitral Tribunal when prima facie
review is inconclusive or inadequate.
Application to the Case:

- SPML completed work under the contract, and NTPC released the final payment.
- Dispute arose over the withholding of bank guarantees by NTPC.
- SPML filed a Writ Petition, leading to a Settlement Agreement in May 2020, with NTPC releasing
bank guarantees.
- SPML repudiated the Settlement Agreement, alleging coercion and economic duress, and filed an
application under Section 11(6) in October 2020.
Court's Finding:
- The court found SPML's claims of coercion and economic duress to be an afterthought, lacking
bona fide.
- The court emphasized that the claims were an attempt to initiate meritless and dishonest litigation.
- SPML's allegations were considered ex facie frivolous and untenable.
- The High Court erred in allowing the application under Section 11(6) of the Act.
Conclusion:
- The decision of the High Court was set aside, and the Civil Appeal was allowed.
- Parties were directed to bear their own costs.
1. March 27, 2019: NTPC issued a Completion Certificate to SPML for the stipulated work under the
project contract.
2. April 10, 2019: NTPC agreed to release the final payment to SPML.
3. April 12, 2019: SPML issued a No-Demand Certificate, and the final payment was released.
4. May 14, 2019: NTPC justified withholding SPML's Bank Guarantees citing disputes with other
projects.
5. May 15, 2019: SPML objected, claiming the withholding of Bank Guarantees was unjustified and
raised a claim of INR 72,01,53,899 against NTPC.
6. June 12, 2019: SPML requested the appointment of an adjudicator per the agreement's dispute
resolution mechanism.
7. July 3, 2019: SPML filed a Writ Petition in the Delhi High Court seeking a direction to return the
Bank Guarantees.
8. July 8, 2019: Delhi High Court issued an interim order restraining NTPC from invoking the Bank
Guarantees, subject to SPML keeping them alive.
9. July 23, 2019: SPML sent a Notice to NTPC, intimating its intention to invoke Arbitration under
the Dispute Resolution Clause.
10. May 27, 2020: Parties settled disputes through a Settlement Agreement, and NTPC released the
Bank Guarantees.
11. June 30, 2020: NTPC released the Bank Guarantees as per the Settlement Agreement.
12. September 21, 2020: SPML withdrew the Writ Petition following the release of the Bank
Guarantees.
13. October 10, 2020: SPML filed an Arbitration Petition Under Section 11(6) of the Act, alleging
coercion and economic duress in the execution of the Settlement Agreement.
14. July 22, 2020: SPML issued a letter of repudiation, disputing the Settlement Agreement.
15. April 8, 2021: Delhi High Court allowed the application Under Section 11(6) of the Act.
16. May 27, 2020: Settlement Agreement between NTPC and SPML reached during the pendency of
the Writ Petition before the High Court.
17. October 4, 2022: Supreme Court grants leave and stays all further proceedings before the Arbitral
Tribunal.
18. Present: Supreme Court hears the appeal against the decision of the High Court, examining the
pre-referral jurisdiction and the limited scope of Section 11(6) of the Arbitration and Conciliation Act.

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FACTS

Case Analysis: NTPC vs. SPML

4. High Court Decision:

Principle from Vidya Drolia:

Prima Facie Review:

Limited Judicial Scrutiny:

Application to the Case:

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