M/s ARSS Infrastructure Projects Ltd. vs. NHIDC Ltd.: Delhi High Court Dismisses Petition for Appointment of Arbitrator Due to Prior Settlement

Introduction:

The Delhi High Court, in M/s ARSS Infrastructure Projects Ltd. vs. NHIDC Ltd., reaffirmed that the scope of inquiry under Section 11 of the Arbitration and Conciliation Act, 1996, is limited to examining the prima facie existence of an arbitration agreement. The Court held that where a settlement agreement has already been reached, it is enforceable as an arbitral award under Section 74, and disputes related to its validity must be challenged under Section 34, not through a Section 11 petition. Consequently, the Court dismissed the petitioner’s request for the appointment of an arbitrator, leaving it open for them to challenge the settlement in appropriate proceedings.

Background:

The dispute arose from an EPC Agreement executed on December 9, 2020, between M/s ARSS Infrastructure Projects Ltd. (Petitioner) and National Highway and Infrastructure Development Corporation Ltd. (Respondent). The agreement contained a dispute resolution clause, under which disputes were to be resolved through conciliation first, and failing that, by arbitration.

On May 25, 2023, the Respondent issued a termination notice, triggering a dispute regarding pending payments. As per Clause 26.2, the Petitioner sought conciliation, but no Conciliator was appointed by the Respondent. Following this, the Petitioner invoked the second part of Clause 26.2 and sought resolution through the Chairman of the Authority. This resulted in a Conciliation Meeting on February 13, 2024, culminating in Minutes of Meeting (MoM) dated March 4, 2024.

The MoM recorded that a settlement was reached but did not quantify the exact payment. The Petitioner later claimed that the payment released (Rs. 10,52,71,116) was inadequate, and issued a conciliation notice on August 23, 2024, which was denied. The Petitioner then invoked arbitration under Clause 26.2, leading to the present Section 11 petition for appointment of an arbitrator.

The Respondent objected, arguing that the MoM amounted to a binding settlement agreement, enforceable as an arbitral award under Section 74, and could only be challenged under Section 34.

Questions of Law:

1. Whether a prior settlement agreement recorded in the Minutes of Meeting (MoM) could preclude arbitration under the contract.
2. Whether the Delhi High Court, under Section 11, could examine the validity of a settlement agreement or if such an inquiry was within the scope of Section 34.
3. Whether the Petitioner’s claim of financial duress in signing the MoM could be considered in a Section 11 petition.

Findings and Rationale:

1. Scope of Section 11: Limited to Prima Facie Existence of Arbitration Agreement: The Court emphasized that its jurisdiction under Section 11 is limited to determining the existence of an arbitration agreement, and it cannot adjudicate on the validity of a settlement agreement. The Court stated:“The veracity of the allegations of the Petitioner qua the settlement agreement cannot be looked into by this Court in a petition under Section 11 of the Act.” Relying on Cox and Kings Pvt. Ltd. v. SAP India Pvt. Ltd. (2024) 4 SCC 1, the Court reinforced that a Section 11 Court must not delve into disputed questions regarding the validity of settlements, which are matters for a Section 34 challenge.
2. MoM Constitutes a Binding Settlement Agreement: The Court noted that the MoM consistently referred to the meetings as ‘Conciliation Meetings’, aligning with Clause 26.2 of the EPC Agreement. The Petitioner itself acknowledged this in its letter dated July 8, 2024, stating: “To resolve the dispute, conciliation meetings were conducted between NHIDCL and the EPC contractor, and minutes of conciliation meeting were issued on 04.03.2024.” The Court ruled that merely because the Conciliator was not the Authority’s Engineer did not invalidate the settlement, stating: “Clause 26.2 itself allows that the conciliation can be conducted by not just the Authority’s Engineer, but also any other such person as the parties may mutually agree upon.”Thus, the Court found that the settlement was valid and binding.
3. Settlement Agreement is Enforceable as an Arbitral Award Under Section 74: The Court held that settlement agreements reached in conciliation proceedings have the same status as an arbitral award on agreed terms under Section 30, as per Section 74 of the A&C Act. Citing Anuradha SA Investments LLC v. Parsvnath Developers Ltd. (2017 SCC OnLine Del 7970), the Court noted: “A Settlement Agreement under Section 73 of the Act would be enforceable as an arbitral award under Section 36 of the Act.” Thus, the only remedy available to the Petitioner was to challenge the MoM under Section 34, not invoke arbitration.
4. Financial Duress Argument Not Maintainable in Section 11 Petition: The Petitioner contended that the settlement agreement was vitiated by financial duress. However, the Court held that such allegations must be examined under Section 34 and cannot be a grounds for appointment of an arbitrator: “If the Petitioner wishes to challenge the settlement agreement, they would have to take recourse under Section 34 of the A&C Act, subject to the rules of limitation.” This ruling aligns with Haresh Dayaram Thakur v. State of Maharashtra (2000) 6 SCC 179, reinforcing that once a settlement is recorded, claims of coercion must be adjudicated separately and do not reopen arbitration rights.

Conclusion:

The Delhi High Court dismissed the petition, holding that the prior settlement agreement recorded in the MoM precluded arbitration. It reaffirmed that:

1. The Court’s role under Section 11 is limited to confirming the existence of an arbitration agreement, not assessing the validity of a settlement.
2. The MoM constituted a binding conciliation settlement, enforceable as an arbitral award under Section 74.
3. The Petitioner’s allegations of financial duress must be challenged under Section 34, not in a Section 11 petition.

By rejecting the petition, the judgment underscores the finality of conciliation agreements and limits judicial interference in arbitration matters.

Disclaimer:

This post is for educational and informational purposes only. It is not intended to defame, discredit, or tarnish the reputation of any individual, entity, or organization. The opinions expressed are based on publicly available judicial decisions and are aimed at fostering a better understanding of legal principles. For specific legal advice, readers are encouraged to consult a professional.