Accord And Satisfaction Does Not Affect The Existence Of An Arbitration Agreement: SBI General Insurance Ltd V Krish Spinning

A 3–Judge bench of the Supreme Court clarified the scope of judicial intervention under §11(6) of the Arbitration & Conciliation Act 1996, and also held that an insurance dispute about "accord and satisfaction" between parties does not affect the existence of an arbitration agreement and can be adjudicated upon by the arbitral tribunal as a preliminary issue.

Background

SBIG issued a Standard Fire and Special Perils (Material Damage) Policy to Krish. Disputes arose and Krish invoked the arbitration clause under the policy. An arbitrator was not agreed upon by the parties so Krish approached the Gujarat High Court to appoint an arbitrator under §11(6) of the Arbitration Act. SBIG contested the approach on the basis that Krish had signed an unqualified discharge voucher and there was thus no dispute between the parties. Krish contended that the discharge voucher was signed under coercion and financial duress. The High Court appointed an arbitrator and held that the question of whether there was a dispute should be decided by the arbitrator as there was an arbitration agreement between the parties. SBIG appealed to the Supreme Court.

Decision

The Supreme Court upheld the High Court's orders on the basis that a §11 court must not conduct an intricate evidentiary enquiry of the claims. The Court held that a dispute about accord and satisfaction does not affect the existence of an arbitration agreement and must therefore be adjudicated upon by an arbitral tribunal.

The Court noted the following:

1. Insurance policies contain a conditional arbitration clause which triggers on the Insurer's admission of liability.
2. The doctrine of separability under the Arbitration Act is attracted to arbitration clauses even if obligations under the main contract are discharged by accord and satisfaction, as the obligation to settle a quantum dispute through arbitration is not discharged.
3. The term "examination" under §11(6-A) was distinguished from the term "rule" under §16. This implies that the scope of enquiry under §11(6-A) is limited to a prima facie scrutiny of the existence of an arbitration agreement and does not include a laborious enquiry.
4. The observations made in Vidya Drolia v Durga Trading Corporation¹ and NTPC Ltd v SPML Infra Ltd² regarding the jurisdiction of a §11 court to reject reference of non-arbitrable disputes on the ground of accord and satisfaction are no longer applicable.
5. Pursuant to the 7-Judge Bench judgment in In Re: Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act 1966 and the Indian Stamp Act 1899³, §11 courts are prohibited from interfering in matters about the jurisdiction of the arbitral tribunal. Matters of jurisdiction vest with the arbitral tribunal and a §11 court cannot venture into what is the exclusive domain of the arbitral tribunal.
6. On the issue of limitation, a §11 court should limit its enquiry to examining whether the §11(6) application has been filed within the limitation period of three years. The question of whether the claims to be raised in the arbitration are time barred should be left for an arbitral tribunal to decide.

Conclusion

A §11 court does not have jurisdiction to look beyond the existence of an arbitration agreement, and issues of accord and satisfaction are now exclusively within the ambit of the arbitral tribunal.

Footnotes

1. (2021) 2 SCC 1

2. (2023) 9 SCC 385

3. 2023 INSC 1066

Originally published 29 August 2024.

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