Case: THE ORIENTAL INSURANCE CO. LTD Vs. DICITEX FURNISHING LTD

the other side contests the correctness thereof, the Chief Justice/his designate must look into this aspect to find out at least, prima facie, whether or not the dispute is bona fide and genuine. Where the dispute raised by the claimant with regard to validity of the discharge voucher or no-claim certificate or settlement agreement, prima facie, appears to be lacking in credibility, there may not be necessity to refer the dispute for arbitration at all.?Likewise, in Genus Power (supra), the court cautioned that a ?bald plea? of coercion, without any supporting material is insufficient for a court to hold that the accord/satisfaction or no dues certificate was involuntarily given. 19. A close look at the facts in the present case would show that though the pleadings in the initial application under Section 11(6) are weak, nevertheless, the materials on the record, in the form of copies of the inter se correspondence of the parties – which span over 2 years, clearly show that Dicitex kept repeatedly stating that it was facing financial crisis; it referred to credits obtained for its business and the urgency to pay back the bank. It is a matter of record that the Surveyor?s report, dated 14.08.2014, recommended payment of 12,93,26,704.98/- ? to Dicitex. Equally, it is a matter of record that the appellant referred the matter to a chartered accountant?s firm, to verify certain inventory and sales figures. It went by the report of the latter, who stated that the estimate of loss could not be more than 7,16,30,148/-. This is what ? was offered to Dicitex, by May, 2014. Dicitex?s application under Section 11(6) is replete with references to the number of letters written to the appellant, seeking release of amounts; it also averred to inability to pay its income tax dues, the pressure from bankers (in support of which, copies of letters of bankers were produced along with the application). 20. The averments by Dicitex, regarding the circumstances which led it to execute the no objection discharge voucher, are reproduced below:?31. The Respondents did not pay anything to the Petitioner after the submission of its letter, dated 31 st May, 2014 and the submission of its letter, dated 31 st May, 2014 and therefore several telephonic calls were made on behalf of the Petitioner, to the Respondent?s Regional Office at Mumbai in an effort to persuade the Respondents to increase the settlement amount so as to include the differential amount of about Rs. 7 crores. The Petitioner also specifically requested the Respondents not to, in any event, insist on the execution of the Discharge Voucher strictly as prescribed as a condition precedent for the payment of any part of the balance amount of claim. 32. Since, on the one hand, the Respondents did not show any inclination to relent on any count and instead continued to insist continued to insist that any further payment would be made to the Petitioner if and only if the Discharge Voucher was executed exactly at the time and in the form and manner as required by the Respondents as well as the letter dated 31 st May, 2014 withdrawn and, on the other hand, the Petitioner was in urgent need of funds to meet its mounting liabilities the Petitioner was forced to withdraw its earlier letter dated 31 st May, 2014 and coerced into executing the Discharge Voucher exactly as dictated by the Respondents. Accordingly, the Petitioner wrote a letter dated 6 th June, 2014 to the Respondent No. 2 stating therein that it was withdrawing its letter dated 31 st May, 2-14 and also enclosing the duly executed discharge Voucher. The Petitioner also requested that the claim amount be paid over to it, immediately.?The averments in the application, later are that the appellant paid the amount. Dicitex, nevertheless later, by three letters questioned the basis of reduction of the amount of claim. It later alleged that it wrote a letter ?dated 14 th July, 2014 to the respondents stating therein, inter alia, that since they were forced to accept the offered amount and that since there was a dispute on the quantum of claim settlement paid to the Petitioner, the Petitioner was invoking arbitration proceedings under Clause 13 of the said Policy to recover the differential amount.? 21. An overall reading of Dicitex?s application (under Section 11(6)) clearly shows that its grievance with respect to the involuntary nature of the discharge voucher was articulated. It cannot be disputed, that several letters – spanning over two years- stating that it was facing financial crisis on account of the delay in settling the claim, were addressed to the appellant. This court is conscious of the fact that an application under Section 11(6) is in the form of a pleading which merely seeks an order of the court, for appointment of an arbitrator. It cannot be conclusive of the pleas or contentions that the claimant or the concerned party can take, in the arbitral proceedings. At this stage, therefore, the court- which is required to ensure that an arbitrable dispute exists, has to be prima facie convinced about the genuineness or credibility of the plea of coercion; it cannot be too particular about the nature of the plea, which necessarily has to be made and established in the substantive (read: arbitration) proceeding. If the court were to take a contrary approach and minutely examine the plea and judge its credibility or reasonableness, there would be a danger of its denying a forum to the applicant altogether, because rejection of the application would render the finding (about the finality of the discharge and its effect as satisfaction) final, thus, precluding the applicant of its right event to approach a civil court. There are decisions of this court (Associated Construction v Pawanhans Helicopters Ltd. (2008) 16 SCC 128 and Boghara Polyfab (supra) upheld the concept of economic duress. Having regard to the facts and circumstances, this court is of the opinion that the reasoning in the impugned judgment cannot be faulted.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]19. A close look at the facts in the present case would show that though the pleadings in the initial application under Section 11(6) are weak, nevertheless, the materials on the record, in the form of copies of the inter se correspondence of the parties – which span over 2 years, clearly show that Dicitex kept repeatedly stating that it was facing financial crisis; it referred to credits obtained for its business and the urgency to pay back the bank. It is a matter of record that the Surveyor?s report, dated 14.08.2014, recommended payment of 12,93,26,704.98/- ? to Dicitex. Equally, it is a matter of record that the appellant referred the matter to a chartered accountant?s firm, to verify certain inventory and sales figures. It went by the report of the latter, who stated that the estimate of loss could not be more than 7,16,30,148/-. This is what ? was offered to Dicitex, by May, 2014. Dicitex?s application under Section 11(6) is replete with references to the number of letters written to the appellant, seeking release of amounts; it also averred to inability to pay its income tax dues, the pressure from bankers (in support of which, copies of letters of bankers were produced along with the application).An overall reading of Dicitex?s application (under Section 11(6)) clearly shows that its grievance with respect to the involuntary nature of the discharge voucher was articulated. It cannot be disputed, that several letters – spanning over two years- stating that it was facing financial crisis on account of the delay in settling the claim, were addressed to the appellant. This court is conscious of the fact that an application under Section 11(6) is in the form of a pleading which merely seeks an order of the court, for appointment of an arbitrator. It cannot be conclusive of the pleas or contentions that the claimant or the concerned party can take, in the arbitral proceedings. At this stage, therefore, the court- which is required to ensure that an arbitrable dispute exists, has to be prima facie convinced about the genuineness or credibility of the plea of coercion; it cannot be too particular about the nature of the plea, which necessarily has to be made and established in the substantive (read: arbitration) proceeding. If the court were to take a contrary approach and minutely examine the plea and judge its credibility or reasonableness, there would be a danger of its denying a forum to the applicant altogether, because rejection of the application would render the finding (about the finality of the discharge and its effect as satisfaction) final, thus, precluding the applicant of its right event to approach a civil court. There are decisions of this court (Associated Construction v Pawanhans Helicopters Ltd. (2008) 16 SCC 128     and Boghara Polyfab (supra) upheld the concept of economic duress. Having regard to the facts and circumstances, this court is of the opinion that the reasoning in the impugned judgment cannot be faulted.