Karnataka High Court: Settlement From Contract With Arbitration Clause Must Be Resolved Through Arbitration

Karnataka High Court: Settlement From Contract With Arbitration Clause Must Be Resolved Through Arbitration

The Karnataka High Court, in a judgment delivered by the division bench of Justices Anu Sivaraman and Anant Ramanath Hegde, has determined that the enforcement of a settlement must be pursued through arbitration, given that the underlying transaction was governed by a contract with an arbitration clause.

M/s S P Sai Technologies (the Respondent) had initiated a suit for recovery of money against M/s Akshaya Private Limited (the Appellant). The appellant contested the court's jurisdiction by filing an application under Section 8 of the Arbitration and Conciliation Act, requesting the dispute be referred to arbitration. The respondent objected, claiming that the matter had been settled and that the appellant had agreed to pay a specified sum.

The trial court ruled that the dispute had been settled, interpreting the respondent’s action as an attempt to enforce a settlement agreement rather than pursuing arbitration. It reasoned that since the respondent claimed the dispute was resolved and the appellant had offered payment, the case was not suitable for arbitration.

Displeased with this ruling, the appellant appealed the decision.

The High Court observed that although the Trial Court noted the Appellant had not signed the arbitration agreement, the Respondent did not dispute the agreement’s validity. The bench referred to the Supreme Court decision in SBI General Insurance Co. Ltd. v. Krish Spinning, which held that when a defense of accord and satisfaction is raised and an arbitration agreement is in place, the Arbitral Tribunal should address the claim of accord and satisfaction.

The High Court found that the dispute concerning the appellant’s promise to pay arose from the original contract, which included an arbitration clause. The respondent did not provide evidence that the arbitration agreement had been canceled or overridden. The bench concluded that any attempt to enforce settlement terms related to obligations from the original contract must be pursued through arbitration.

Consequently, the High Court overturned the Trial Court's order, allowing the application under Section 8 of the Arbitration Act and directing that the Respondent pursue arbitration. The suit was thus dismissed.