Source: Supreme Court 

Why in News? 

A bench of Justice Abhay S Oka and Justice Ujjal Bhuyan held that the question of whether the appellant was compelled to sign the standardized voucher out of economic duress is clearly within the domain of arbitral tribunal.  

• The Supreme Court held this in the case of Arabian Exports Private Limited v. National Insurance Company Ltd. (2025). 

What was the Background of Arabian Exports Private Limited v. National Insurance Company Ltd. (2025) Case?   

• The appellant is a company incorporated under the Companies Act, 1956, engaged in the business of exporting meat and meat products. 
• On 8th October 2004, the appellant took a comprehensive Standard Fire and Special Perils Policy from the respondent to insure their meat processing facility, building, plant, machinery, furniture, fixtures, and fittings at Taloja plant for Rs.3,28,55,000.00 covering the period from 9th October 2004 to 3rd October 2005. 
• The appellant also took a Fire Declaration Policy insuring all stock-in-trade and finished products stored in the cold storage facility for Rs.5,76,85,000.00 covering the period from 15th March 2005 to 15th March 2006. 
• On 26th July 2005, unprecedented heavy rainfall caused flooding at the factory premises in Taloja, submerging it underwater for several hours. 
• Due to communication lines breaking down, the incident remained unnoticed until 28th July 2005. 
• The appellant informed the respondent on 29th July 2005 about the damage and requested a surveyor to assess the damage. 
• The appellant claimed Rs.56,07,027.00 for damage to plant and machinery under the Standard Fire and Special Perils Policy and Rs.5,15,62,527.00 for damage to stock in cold storage under the Fire Declaration Policy. 
• On 28th July 2005, Dr. A.S. Patil inspected the factory premises and certified that the stock-in-trade was unfit for human consumption. 
• On 29th November 2005, the surveyor appointed by the respondent, Chempro Inspection Private Limited, conducted a survey and acknowledged the loss suffered by the appellant. 
• After considerable delay, the appellant was presented with an undated standardized voucher/advance receipt for Rs.1,88,14,146.00 in December 2008. 
• Due to financial strain and pressure from bankers and creditors, the appellant signed and submitted the voucher on 12th December 2008 and received the payment on 19th December 2008. 
• On 24th December 2008, the appellant called upon the respondent to settle the balance amount of Rs.3,83,55,408.00 while reserving the right to invoke the arbitration clause. 
• On 17th April 2009, the appellant invoked the arbitration clause in the insurance policy and nominated Mr. Ramakant W. Gudal as the sole arbitrator. 
• The respondent refused to accept arbitration through letters dated 18th May 2009 and 12th October 2009. 
• The appellant filed applications under Section 11 of the Arbitration and Conciliation Act, 1996, before the Bombay High Court for appointment of an arbitrator. 
• The High Court dismissed both applications, holding that no arbitrator could be appointed as the appellant had accepted the amount in full and final settlement.

What were the Court’s Observations?

• The two insurance policies contained an identically worded arbitration clause for resolving disputes regarding the quantum to be paid when liability is admitted. 
• In the letter dated 24th December 2008, the appellant stated they accepted the inadequate amount of Rs.1,88,14,146.00 (against their claim of Rs.5,71,69,554.00) only due to financial strain and pressure from bankers and creditors. 
• The appellant invoked the arbitration clause on 17th April 2009, nominating Mr. Ramakant W. Gudal as the Sole Arbitrator. 
• The respondent refused arbitration on 12th October 2009, claiming the appellant had accepted the amount in "full and final settlement" which amounted to "accord and satisfaction." 
• The High Court observed that the payment was accepted without prejudice on 19th December 2008, and ruled no arbitrator could be appointed given this acceptance in full and final settlement. 
• The Supreme Court referred to Nathani Steels case, which established that parties cannot invoke arbitration after reaching an amicable settlement unless that settlement is set aside in proper proceedings. 
• In Boghara Polyfab case, the Court distinguished between voluntary bilateral settlements and discharge vouchers taken as a condition for releasing admitted dues, with disputes in the latter category being arbitrable. 
• The Court held that the doctrine of Kompetenz-Kompetenz is firmly embedded in Indian arbitration jurisprudence, where arbitral tribunals are competent to rule on their own jurisdiction. 
• The Supreme Court concluded the High Court was wrong in rejecting the Section 11(6) applications, as questions about economic duress and sustainability of claims are within the domain of the arbitral tribunal. 
• The Court set aside the High Court's order and appointed Justice (Retd.) Suresh Chandrakant Gupte as the sole arbitrator, with parties directed to report to him by 15th May 2025.

When Should the Disputes be Referred to Arbitration? 

• Duro Felguera SA v. Gangavaram Port Ltd. (2017): 
  • A two judge bench in this case held that the Court should look into only one aspect i.e. existence of the arbitration agreement. 
  • Thus, the Court held that the questioned to be examined is only this- nothing more nothing less. 
  • The legislative policy and purpose is essentially to minimize the court’s intervention at the stage of appointing the arbitrator. 
• Vidya Drolia v. Durga Trading Corporation (2021): 
  • The Court held that the subject matter qua arbitrability cannot be decided at the stage of Sections 8 or 11 of the 1996 Act unless it is a clear case of dead wood. 
  • The Court under Sections 8 and 11 has to refer a matter to arbitration or to appoint an arbitrator, as the case may be, unless a party has established a prima facie case of nonexistence of a valid arbitration agreement. 
  • The Court should refer a matter if the validity of the arbitration agreement cannot be determined on a prima facie basis. The rule should be: when in doubt, do refer. 
• Oriental Insurance Company Ltd v. Dicitex Furnishing Ltd. (2020): 
  • In this case an objection was raised that the claimant had signed the discharge voucher and had accepted the amount offered, thus signifying ‘accord and satisfaction’ which in turn meant that there was no arbitrable dispute.