3 The limited scrutiny & Ors. v. Durga Trading Corporation (2021) 2 SCC 1 – relied on. Mayavati Trading & Ors.

1.3 The limited scrutiny, through the eye of the needle, is necessary and compelling. It is intertwined with the duty of the referral court to protect the parties from being forced to arbitrate when the matter is demonstrably non-arbitrable. It has been termed as a legitimate interference by courts to refuse reference in order to prevent wastage of public and private resources. Further, as noted in Vidya Drolia’s case, if this duty within the limited compass is not exercised, and the Court becomes too reluctant to intervene, it may undermine the effectiveness of both, arbitration and the Court. Therefore, this Court or a High Court, as the case may be, while exercising jurisdiction under Section 11(6) of the Act, is not expected to act mechanically merely to deliver a purported dispute raised by an applicant at the doors of the chosen arbitrator. [Para 28][863-E-F; 864-A]

2.1 A simple narration of the bare fact leads to conclude that the allegations of coercion and economic duress are not bona fide, and that there were no pending claims between the parties for submission to arbitration. The respondent’s claim fits in the description of an attempt to initiate “ex facie meritless, frivolous and dishonest litigation” [Para 44][867-D]

2.2 The whole dispute revolves around the solitary act of the Appellant, NTPC, in not returning the Bank Guarantees despite the successful completion of work. This continued even after SPML issued the No-Demand Certificate and NTPC released the final payment. These undisputed facts led to the institution of the Writ Petition before the Delhi High Court. There were no allegations of coercion or economic duress compelling SPML to withdraw any pending claims under the subject contract as a condition for the return of the Bank Guarantees. On the contrary, the only allegation by SPML was with respect to NTPC’s “illegal” action of interlinking the release of the Bank Guarantees with some other contracts. This was precisely the argument before the High Court, and, in fact, this submission is recorded by the High Court while issuing notice and injuncting NTPC. This fact clearly indicates that the plea of coercion and economic duress leading to the Settlement Agreement is an afterthought. [Para 45][867-E-G] A B C D E F G H NTPC LTD. v. M/S SPML INFRA LTD. 849

2.3. It was during the subsistence of the Writ Petition and the High Court’s interim order, when SPML had complete protection of the Court, that the parties entered into the Settlement Agreement. This agreement was comprehensive. It inter alia provided for the release of Bank Guarantees by NTPC, the withdrawal of SPML’s Writ Petition, restraining NTPC from filing contempt proceedings against SPML for letting the Bank Guarantees expire, and finally, restraining SPML from initiating any proceedings under the subject contract, including arbitration. The Settlement Agreement also recorded that there were no subsisting issues pending between the parties. [Para 46][868-A- C]

2.4. After reaping the benefits of the Settlement Agreement, the Writ Petition was withdrawn on 21.09.2020. It is thereafter that the present application under Section 11(6) of the Act was filed. The sequence of events leads to conclude that the letter of repudiation was issued only to wriggle out of the terms of the Settlement Agreement. Thus, it is clarified that the claims sought to be submitted to arbitration were raised as an afterthought. Further, SPML’s allegations of coercion and economic duress in the execution of the Settlement Agreement lack bona fide. They are liable to be knocked down as ex facie frivolous and untenable. [Paras 47 and 48][868-E-G]

2.5. This is a case where the High Court should have exercised the prima facie test to screen and strike down the ex- facie meritless and dishonest litigation. These are the kinds of cases where the High Court should exercise the restricted and limited review to check and protect parties from being forced to arbitrate. Thus, the High Court erred in allowing the application under Section 11(6) of the Act. The 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’s case. Thus, the decision of the High Court is set aside. [Paras 49-51][868-G- H; 869-A-B] Vidya Drolia and Ors. v. Durga Trading Corporation (2021) 2 SCC 1 – relied on. Mayavati Trading (P) Ltd. v. Pradyuat Deb Burman (2019) 8 SCC 714 : [2019] 12 SCR 123; Duro A B C D E F G H 850 SUPREME COURT REPORTS [2023] 2 S.C.R. A B C D E Felguera, S.A. v. Gangavaram Port Ltd.

(2017) 9 SCC 729 : [2017] 10 SCR 285; Sanjiv Prakash v. Seema Kukreja and Ors. (2021) 9 SCC 732; Oriental Insurance Co. Ltd. and Anr. v. Dicitex Furnishing Ltd. (2020) 4 SCC 621 : [2019] 14 SCR 389; Emaar India Ltd. v. Tarun Aggarwal Projects LLP & Anr 2022 SCC OnLine SC 1328; National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd (2009) 1 SCC 267 : [2008] 13 SCR 638; Union of India & Ors. v. Master Construction Co. (2011) 12 SCC 349 : [2011] 5 SCR 853; New India Assurance Co. Ltd. v. Genus Power Infrastructure Ltd. (2015) 2 SCC 424 : [2014] 12 SCR 360; United India Insurance Co. Ltd. v. Antique Art Exports Pvt. Ltd. (2019) 5 SCC 362 : [2019] 5 SCR 521; Pravin Electricals Pvt. Ltd. v. Galaxy Infra and Engg. Pvt. Ltd. (2021) 5 SCC 671; Sanjiv Prakash v. Seema Kukreja and Ors. (2021) 9 SCC 732; Indian Oil Corporation Ltd. v. NCC Ltd. (2022) SCC OnLine SC 896; BSNL and Anr. v. Nortel Networks India (P) Ltd. (2021) 5 SCC 738; Secunderabad Cantonment Board v.

B. Ramachandraiah & Sons (2021) 5 SCC 705; DLF Home Developers Limited v. Rajapura Homes Pvt. Ltd 2021 SCC OnLine SC 781 – referred to. Case Law Reference [2019] 12 SCR 123 [2017] 10 SCR 285 F (2021) 9 SCC 732 [2019] 14 SCR 389 [2008] 13 SCR 638 [2011] 5 SCR 853 [2014] 12 SCR 360 [2019] 5 SCR 521 (2021) 5 SCC 671 (2021) 9 SCC 732 G H referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to Para 13 Para 13 Para 13 Para 13 Para 17 Para 17 Para 17 Para 20 Para 24 Para 24 NTPC LTD. v. M/S SPML INFRA LTD. 851 (2021) 5 SCC 738 (2021) 5 SCC 705 (2021) 2 SCC 1 referred to referred to relied on Para 24 Para 24 Para 28, 50 CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4778 of 2022. From the Judgment and Order dated 08.04.2021 of the High Court of Delhi at New Delhi in ARBP No. 477 of 2020. Adarsh Tripathi, Vikram S. Baid, Ajitesh Garg, Gaurav, Advs. for the Appellant. Jaideep Gupta, Soumya Dutta, Advs. for the Respondent. The Judgment of the Court was delivered by PAMIDIGHANTAM SRI NARASIMHA, J.

The present appeal arises out of a decision of the High Court of Delhi1, allowing the Respondent’s application under Section 11(6) of the Arbitration and Conciliation Act, 19962 for the constitution of an Arbitral Tribunal. It is the case of Appellant NTPC that there were no subsisting disputes between the parties in view of the Settlement Agreement dated 27.05.2020 and that the application for arbitration is an afterthought and abuse of the process.

By an order dated 15.07.2022, this Court, while granting leave, stayed all further proceedings before the Arbitral Tribunal. Short facts giving rise to the filing of the petition under Section 11 of the Act and leading to the impugned decision of the High Court are as follows.

Facts: The Appellant and Respondent, hereinafter referred to as NTPC and SPML respectively, entered into a contract for “Installation Services for Station Piping Package for Simhadri Super Thermal Power Project Stage II at NTPC at Simhadri, Vishakapatnam”. In terms of the contract agreement, SPML furnished Performance Bank Guarantees and Advanced Bank Guarantees3for Rs. 14,96,89,136/- to secure the Appellant. 1 In ARBP No. 477/2020, dated 08.04.2021. 2 hereinafter ‘the Act’. 3 hereinafter referred to as ‘Bank Guarantees’. A B C D E F G H 852 SUPREME COURT REPORTS [2023] 2 S.C.R.

Pursuant to the successful completion of the project, a Completion Certificate was issued by NTPC on 27.03.2019. By its letter dated 10.04.2019, NTPC informed SPML that the final payment under the contract would be released upon the receipt of a No-Demand Certificate from SPML. The No-Demand Certificate was issued by SPML on 12.04.2019 and NTPC also released the final payment amounting to Rs. 1,40,00,000/-in April 2019. The Bank Guarantees were however withheld.

On 14.05.2019, NTPC informed SPML that the Bank Guarantees were withheld on account of pending liabilities and disputes between the parties with respect to other projects at Bongaigon, Barh, and Korba. SPML naturally protested. By its letter dated 15.05.2019, SPML informed NTPC that the retention of Bank Guarantees, despite issuance of the Completion Certificate and the No-Demand Certificate, by linking them to some other projects, was unjustified. Following the protest, SPML raised a demand of Rs. 72,01,53,899/- from NTPC as liabilities recoverable for actions attributable to NTPC under this very contract.

By its letter dated 12.06.2019, SPML called upon NTPC to appoint an Adjudicator for resolving pending disputes in terms of the General and Special Conditions of Contract. As no action was taken by NTPC, SPML moved the Delhi High Court by filing Writ Petition No. 7213 of 2019 under Article 226 of the Constitution, for the release of the Bank Guarantees. The prayer in the Writ Petition is to:

(a) Pass an appropriate Writ, Order or Direction quashing the e-mail dated 14.05.2019 issued by the Respondent insofar as it pertains to the release of the Bank Guarantees being (a) 0040ILG002609, (b) 0040ILG001109, (C) 0040ILG001209, (d) 0040ILG001309 and direct the Respondent to release the aforesaid Bank Guarantees forthwith, and (b) Pass any other order or such other orders as may be necessary in the interests of justice, equity and good conscience.

While issuing notice, the High Court, by its interim order dated 08.07.2019, directed NTPC not to encash the Bank Guarantees, and further directed SPML to keep the Bank Guarantees alive. A B C D E F G H NTPC LTD. v. M/S SPML INFRA LTD. [PAMIDIGHANTAM SRI NARASIMHA, J.] 853

Pending the Writ Petition, negotiations between the parties culminated in a Settlement Agreement on 27.05.2020. Through the Settlement Agreement, NTPC agreed to release the withheld Bank Guarantees. SPML also agreed to withdraw its pending Writ Petition and undertook not to initiate any other proceedings, including arbitration, under the subject contract.

Following the Settlement Agreement, the Bank Guarantees were released by NTPC on 30.06.2020. SPML withdrew the Writ Petition, as recorded in the Order of the Delhi High Court dated 21.09.2020.

After the aforesaid settlement of the disputes, followed by its implementation, SPML repudiated the Settlement Agreement and filed the present application under Section 11(6) of the Act in the Delhi High Court on 10.10.20204. In this Arbitration Petition, SPML alleged coercion and economic duress in the execution of the Settlement Agreement. The allegation was, that the retention of the Bank Guarantees compelled SPML to accept the terms of Settlement Agreement. SPML also averred that NTPC had failed to appoint an arbitrator in spite of repeated requests, and therefore the High Court must constitute an Arbitral Tribunal, in exercise of its jurisdiction under the Act.

In its reply to the Arbitration Petition, NTPC raised two-fold objections. Firstly, that SPML failed to follow the mandatory pre- arbitration procedure of first referring the disputes to an Adjudicator as per the terms of the Dispute Resolution Clause5. Secondly, that the 4 Clause 6.2 of the General Conditions of Contract is as under:

6.2 Arbitration 6.2.1 If either the Employer or the Contractor is dissatisfied with the Adjudicator’s decision, or if the Adjudicator fails to give a decision within twenty eight (28) days of a dispute being referred to it, then either the Employer or the Contractor may, within fifty six (56) days of such reference, give notice to the other party, with a copy for information to the Adjudicator of its intention to commence arbitration, as hereinafter provided, as to the matter in dispute, and no arbitration in respect of this matter may be commenced unless such notice is given.

5 Dispute resolution was provided under clause 6.1 of the General Conditions of Contract and clause 3 of Special Conditions of Contract; hereinafter ‘the Dispute Resolution Clause’; Clause 6.1 of the General Conditions of Contract is as under: “6. Settlement of Disputes 6.1 Adjudicator 6.1.1 If any dispute of any kind whatsoever shall arise between the Employer and the Contractor in connection with or arising out of the Contract, including without prejudice to the generality of the foregoing, any question regarding its existence, A B C D E F G H 854 SUPREME COURT REPORTS [2023] 2 S.C.R. disputes between the parties were settled by virtue of the Settlement Agreement dated 27.05.2020. Acting under the Settlement Agreement, NTPC released the Bank Guarantees and SPML also proceeded to withdraw the Writ Petition, and therefore, there was discharge of the contract by accord and satisfaction. The allegations of coercion and economic duress were denied as false, as all events occurred during the subsistence of proceedings before the Delhi High Court, and the parties willingly complied with the terms of the Settlement Agreement. Further, the demand of Rs. 72,01,53,899/- was an afterthought, never raised during the subsistence of the contract. Under these circumstances, NTPC submitted that the application under Section 11(6) of the Act must be rejected.

High Court: The High Court examined the correspondence between the parties in detail. It rejected the first contention of NTPC that SPML should have first resorted to an alternative dispute resolution mechanism under the Dispute Resolution Clause. It noted that such a request was, in fact, made by SPML on an earlier occasion, but NTPC failed to respond to the same. On the request for arbitration and the allegation of economic duress that allegedly prevailed in signing the Settlement Agreement, the High Court observed that:

66. SPML had invoked the arbitration clause and had sought reference of disputes to arbitration. It had also approached this Court. Thus, it would be difficult for SPML to establish that it was economically coerced to enter into the Settlement Agreement. However, this Court is unable to accept that the dispute whether the Contract Agreement stood discharged/ novated in terms of the Settlement Agreement, is ex facie untenable, insubstantial or frivolous.

(emphasis supplied) validity or termination, or the execution of the Facilities- whether during the progress of the Facilities or after their completion and whether before or after the termination, abandonment or breach of the Contract- the parties shall seek to resolve any such dispute or difference by mutual consultation. If the parties fail to resolve such a dispute or difference by mutual consultation, then the dispute shall be referred in writing by either party to the Adjudicator, with a copy to the other party.” A B C D E F G H NTPC LTD. v. M/S SPML INFRA LTD. [PAMIDIGHANTAM SRI NARASIMHA, J.] 855

After referring to the decisions of this Court in Mayavati Trading (P) Ltd. v. Pradyuat Deb Burman6, Vidya Drolia and Ors. v. Durga Trading Corporation7, Duro Felguera, S.A. v. Gangavaram Port Ltd.8, Sanjiv Prakash v. Seema Kukreja and Ors.9, and Oriental Insurance Co. Ltd. and Anr. v. Dicitex Furnishing Ltd.10, the High Court allowed the Arbitration Petition. It appointed a former Judge of the Delhi High Court as the Arbitrator on behalf of NTPC, and directed the respective arbitrators to appoint the presiding Arbitrator.

Submissions by the Parties: Shri Adarsh Tripathi, Advocate appearing with and on behalf of the Solicitor General, for NTPC, submitted that the Settlement Agreement dated 27.05.2020 was arrived at during the pendency of the Writ Petition before the High Court. The allegations of coercion and economic duress were, therefore, false and unbelievable. He also submitted that SPML never raised claims during the subsistence of the contract, before the Completion Certificate was issued, or even before the final payment was made. 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, clearly demonstrated that the allegation of coercion was not bona fide. Finally, he submitted that the High Court was under an obligation to undertake a limited scrutiny to examine whether a matter is prima facie arbitrable. For this purpose, he relied on a recent decision of this Court in Emaar India Ltd. v. Tarun Aggarwal Projects LLP & Anr11.

Shri Jaideep Gupta, Advocate appearing for the Respondent, SPML, has submitted that the legal principles governing an application under Section 11(6) of the Act are well-settled following the decisions of this Court in Mayavati Trading (supra) and Vidya Drolia (supra). 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 submitted that the decision of the High Court was unexceptionable, since the question as to whether the Settlement