Delhi High Court Emphasizes Plea Of Fraud, Coercion Not Adequate To Challenge Settlement Agreement Under A&C Act

Delhi High Court Emphasizes Plea Of Fraud, Coercion Not Adequate To Challenge Settlement Agreement Under A&C Act

Highlights that the petitioners lacked credibility and contradicted the evidence

The Delhi High Court has held that a bare plea of fraud, coercion, or duress cannot justify a challenge to the Settlement Agreement under Section 34 of the Arbitration and Conciliation (A&C) Act, 1996.

The bench of Justice Sachin Datta held that once a party voluntarily participated in the mediation proceedings without any protest or demur resulting in the settlement agreement, it cannot be allowed to challenge the settlement agreed on grounds of fraud or coercion. The court exercising powers under Section 34 of the A&C Act could not consider the rationale under the agreement terms.

The dispute arose regarding a loan transaction, wherein the petitioners, Sanjeev Bansal and Usha Bansal were borrowers. They took a loan from the respondent and a mortgage was created over a property as security.

While recognizing the need for a resolution, the parties opted for mediation to settle their disputes amicably. During the mediation proceedings, they engaged in negotiations facilitated by a mediator appointed for the purpose. Subsequently, the parties reached a consensus, leading to the execution of a Settlement Agreement.

The Agreement outlined the terms and conditions under which the outstanding loan amount would be repaid by the borrowers in exchange for the release of the mortgaged property.

The borrowers offered to repay Rs.7 crores by specific dates with interest. The outstanding loan amount was to be restructured into a new term loan at a reduced interest rate. The borrowers agreed to withdraw the notices and allegations and acknowledged the settlement without coercion.

The Agreement was to be considered as an arbitral award under the A&C Act. However, aggrieved by the Agreement, the borrowers challenged it under Section 34 of the A&C Act.

The petitioner challenged the award-cum-settlement agreement on the grounds:

• They were coerced into signing the Settlement Agreement under duress. The circumstances surrounding the execution of the agreement left them with no genuine choice but to agree.

• Fraudulent means were employed by the other party to induce them into the Settlement Agreement.

• They did not receive a copy of the Settlement Agreement, and, therefore, were not fully aware of its contents. It asserted that one of the parties had no knowledge of the agreement and had not authorized representation in the mediation proceedings.

• They stated a previous communication from the other party, claiming it was ignored in the context of the Settlement Agreement.

The respondent made the counter-submissions:

• The Settlement Agreement was executed voluntarily by both parties.

• At no point during the mediation proceedings or the execution of the agreement any coercive tactics were employed.

• The petitioner waited for almost 21 months before challenging the Settlement Agreement. This raised questions about the bona fides of the challenge.

• The petitioner made no payment towards the settlement amount after the execution of the agreement.

• The Agreement contained clauses explicitly stating that it was entered into voluntarily, without any force, coercion, or duress.

• The court should give due weight to the clear language of the agreement.

The court highlighted that one of the petitioners, Sanjeev Bansal, admitted to signing the Settlement Agreement. Thus, the attempt to challenge the agreement based on the non-supply of a copy lacked credibility.

The bench observed the claim of the other petitioner, Usha Bansal, stating she had no knowledge of the Settlement Agreement, which contradicted the evidence. It noted a message from her email address authorizing her husband to represent her in the mediation proceedings.

The court examined the petitioners’ contention that the Agreement was vitiated by fraud, coercion, and undue influence. It emphasized that the Agreement explicitly stated that it was reached without coercion and after the contents were understood by the parties.

Justice Datta held that the petitioners did not protest before or soon after the execution of the Settlement Agreement; they voluntarily participated in the mediation process. If there was no consensus during mediation, the petitioners could have defended their stand in a commercial suit. However, they chose to execute the Agreement.

The bench emphasized that the lack of credible evidence supporting the plea of fraud, coercion, or duress affirmed the binding nature of the Settlement Agreement. It stated that an objective reading of the Agreement revealed the parties' mutual consent to establish a final and binding contract.

Thus, while dismissing the petition, the court stressed the importance of encouraging amicable settlements and discouraging litigants from challenging settlements on flimsy grounds.