Case: M/S. Gayatri Project Ltd Vs. M/S. Sai Krishna Construction

settlement is to be doubted, it cannot be doubted before the Arbitrator. It must be remembered that the appellant is relying on the alleged settlement by way of defence. The respondent has not accepted the same. Nor has the respondent denied the execution of the document. The respondent has also not claimed that the full and final settlement was signed under coercion, undue influence, fraud, misrepresentation or mistake. Furthermore, the appellant had not made a claim on the basis of the settlement. It would have been different, if the appellant had made a claim on the basis of settlement which was denied by the respondent by one or more of the defences, as noticed above. In such circumstances, following the judgment in Nathanis case (supra), it would have to be held that the settlement can only be challenged in "proper proceedings". But these observations would be applicable only if there was a clear cut acceptance by the parties that there was a "full and final settlement".In fact, the matter would be squarely covered against the appellant by the ratio of the judgment in National Insurance Company Limited (supra) wherein this Court has considered the cases which were earlier considered in Nathanis Steel (supra) and observed as follows:- "33. Nathani Steels related to a dispute on account of non-completion of the contract. The Court found that the said dispute was settled by and between the parties as per deed dated 20.12.1980 signed by both parties. The deed referred to the prior discussions between the parties and recorded the amicable settlement of the disputes and differences between the parties in the presence of the Architect on the terms and conditions set out in clauses 1 to 8 thereof. In view of it, the Court rejected the contention of the contractor that the settlement was liable to be set aside on the ground of mistake. A three-Judge Bench of this Court, after referring to the decisions in P.K. Ramaiah and Nay Bharat Builders, held thus: (SCC p.326, para 3) ?3??.. that once the parties have arrived at a settlement in respect of any dispute or difference arising under a contract and that dispute or the difference is amicable settled by way of a final settlement by and between the parties, unless that settlement is set aside in proper proceedings, it cannot lie in the mouth of one of the parties to the settlement to spurn it on the ground that it was a mistake and proceed to invoke the Arbitration clause. If this is permitted the sanctity of contract, the settlement also being a contract, would be wholly lost and it would be open to one party to take the benefit under the settlement and then to question the same on the ground of mistake without having the settlement set aside. In the circumstances, we think that in the instant case since the dispute or difference was finally settled and payments were made as per the settlement, it was not open to the respondent unilaterally to treat the settlement as non est and proceed to invoke the Arbitration clause." 34. What requires to be noticed is that in Nav Bharat Builders and Nathani Steels, this Court on examination of facts, was satisfied that there were negotiations and voluntary settlement of all pending disputes, and the contract was discharged by accord and satisfaction. In P.K. Ramaiah, the Court was satisfied that there was a voluntary acceptance of the measurements and full and final payment of the amount found due, resulting in discharge of the contract, leaving no outstanding claim or pending dispute. In those circumstances, this Court held that after such voluntary accord and satisfaction or discharge of the contract, there could be no arbitrable disputes. 36. In Damodar Valley Corporation, the question that arose for consideration of this Court was as follows: (SCC p. 144 para 4) where one of the parties refers a dispute or disputes to arbitration and the other party takes a plea that there was a final settlement of all claims, is the Court, on an application under Sections 9(b) and 33 of the Act, entitled to enquire into the truth and validity of the averment as to whether there was or was not a final settlement on the ground that if that was proved it would bar a reference to the arbitration inasmuch as the arbitration clause itself would perish." In that case the question arose with reference to a claim by the supplier. The purchaser required the supplier to furnish a full and final receipt. But the supplier did not give such a receipt. Even though there was no discharge voucher, the purchaser contended that the payments made by it were in full and final settlement of the bills. This Court rejected that contention and held that the question whether there has been a settlement of all the claims arising in connection with the contract also postulates the existence of the contract which would mean that the arbitration clause operates. This Court held that the question whether there has been a full and final settlement of a claim under the contract is itself a dispute arising upon or in relation to or in connection with the contract; and where there is an arbitration clause in a contract, notwithstanding the plea that there was a full and final settlement between the parties, that dispute can be referred to arbitration. It was also observed that mere claim of accord and satisfaction may not put an end to the arbitration clause. It is significant that neither P.K. Ramaiah nor Nathani Steels disagreed with the decision in Damodar Valley Corporation but only distinguished it on the ground that there was no full and final discharge voucher showing accord and satisfaction in that case." In our opinion, since there is no acceptance of the full and final settlement by the Respondent which has been relied upon by the appellant, the issue clearly had to be left to the Arbitrator to be adjudicated.

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

Explanation:
0[ds]In our opinion, the question as to whether letter datedwould constitute a "full and final settlement"would have to be determined on proper appreciation of the evidence led by the parties. It is, in our opinion, open to two interpretations. Which of the two interpretations is ultimately accepted will have to be decided by the appropriate forum. We are also not inclined to accept the submissions of Mr. Kathpalia that if the alleged settlement is to be doubted, it cannot be doubted before the Arbitrator. It must be remembered that the appellant is relying on the alleged settlement by way of defence. The respondent has not accepted the same. Nor has the respondent denied the execution of the document. The respondent has also not claimed that the full and final settlement was signed under coercion, undue influence, fraud, misrepresentation or mistake. Furthermore, the appellant had not made a claim on the basis of the settlement. It would have been different, if the appellant had made a claim on the basis of settlement which was denied by the respondent by one or more of the defences, as noticed above. In such circumstances, following the judgment in Nathanis case (supra), it would have to be held that the settlement can only be challenged in "proper proceedings". But these observations would be applicable only if there was a clear cut acceptance by the parties that there was a "full and final settlement".Inthat case the question arose with reference to a claim by the supplier. The purchaser required the supplier to furnish a full and final receipt. But the supplier did not give such a receipt. Even though there was no discharge voucher, the purchaser contended that the payments made by it were in full and final settlement of the bills. This Court rejected that contention and held that the question whether there has been a settlement of all the claims arising in connection with the contract also postulates the existence of the contract which would mean that the arbitration clause operates. This Court held that the question whether there has been a full and final settlement of a claim under the contract is itself a dispute arising upon or in relation to or in connection with the contract; and where there is an arbitration clause in a contract, notwithstanding the plea that there was a full and final settlement between the parties, that dispute can be referred to arbitration. It was also observed that mere claim of accord and satisfaction may not put an end to the arbitration clause. It is significant that neither P.K. Ramaiah nor Nathani Steels disagreed with the decision in Damodar Valley Corporation but only distinguished it on the ground that there was no full and final discharge voucher showing accord and satisfaction in that case." In our opinion, since there is no acceptance of the full and final settlement by the Respondent which has been relied upon by the appellant, the issue clearly had to be left to the Arbitrator to be adjudicated.