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On 10th April 2023, the Supreme Court of India pronounced its judgment in the case of NTPC Ltd. vs M/s SPML Infra Ltd. Civil Appeal No. 4778 of 2022 (“NTPC vs SPML”), expounding on the jurisdiction of the High Court on deciding an application under Section 11 of the Arbitration and Conciliation Act, 1996 as amended (“Arbitration Act”) for appointment of an arbitrator. The Supreme Court of India set aside the impugned order of the Delhi High Court appointing an arbitrator and directing the constitution of an arbitral tribunal and reiterated that the High Courts are not expected to act mechanically merely to deliver a purported dispute raised by an applicant at the doors of the chosen arbitrator (DLF Home Developers Limited v. Rajapura Homes Pvt. Ltd, 2021 SCC OnLine SC 781). This decision gains significance in the backdrop of Section 11(6)(A) of the Arbitration Act, which confines the scope of a court seized with an application for the appointment of an arbitrator to the examination of the existence of an arbitration agreement. The said Section 11(6)(A) has been omitted by Act 33 of 2019 but the relevant section of Act 33 of 2019 omitting Section 11(6)(A) has not been notified till date. Thus, as a result, Section 11(6)(A) continues to remain in force.

Brief Facts:

1. The NTPC and SPML entered into a contract for the installation of a piping package at the NTPC Thermal Power Project at Simhadri, Visakhapatnam. Pursuant to the terms of the contract, SPML furnished Performance Bank Guarantees and Advanced Bank Guarantees to secure NTPC.

2. On the completion of the contracted work, SPML issued a No-Demand Certificate and NTPC released the final payment due. NTPC however withheld the Bank Guarantees on account of pending liabilities and disputes pertaining to other projects. SPML protested the retention of the Bank Guarantees even after the Completion Certificate and No-Demand Certificate was issued and unjustifiably linking the retention to other projects. Following the protest, SPML went on to raise a demand of approx. INR 72 Lakhs from NTPC as liabilities recoverable for actions attributable to NTPC under the contract.

3. SPML subsequently called upon NTPC to appoint an Adjudicator for resolving pending disputes per the conditions of the contract. After there was no response from NTPC on the same, SPML moved the Delhi Court by filing a Writ Petition under Article 226 of the Constitution of India praying for the quashing of an email issued by NTPC pertaining to the Bank Guarantees and to direct NTPC to release the same. While issuing notice, the Delhi High Court passed an Interim Order directing NTPC to not encash the Bank Guarantees and SPML to keep the same alive. SPML however, allowed the Bank Guarantees to expire inspite of the Interim Order.

4. Pending the Writ proceedings, the parties entered into a Settlement Agreement wherein NTPC agreed to release the Bank Guarantees and SPML agreed to withdraw the Writ Petition and to not initiate any other proceedings including arbitration under the contract. NTPC released the Bank guarantees per the agreed terms. Two months later, SPML issued a letter of repudiation of the settlement agreement and subsequently withdrew the Writ Petition.

5. Following the settlement of disputes and its implementation, SPML repudiated the Settlement Agreement and filed the Application under Section 11(6) of the Arbitration Act before the Delhi High Court alleging coercion and economic duress in the execution of the Settlement Agreement.

Decision of the High Court:

The Delhi High Court allowed the SPML’s Application under Section 11, referring to multiple previous decisions of the Supreme Court and examining two points of contention within the averments being:

Firstly, it rejected NTPC’s challenge that SPML ought to have utilized the alternative dispute resolution mechanism under the contract and recorded that SPML indeed had made such a request which NTPC had rejected.

Secondly, it did not accept that the dispute in question “whether the contract stood discharged in terms with the settlement agreement”, is ex-facie untenable, insubstantial or frivolous.