Delhi High Court: While hearing an arbitration petition filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 (‘Act’) seeking appointment of a sole arbitrator to adjudicate upon disputes arising out of a settlement agreement, the Single Judge Bench of Jyoti Singh, J, held that the mere execution of a settlement agreement does not render subsequent disputes between the parties non-arbitrable. The Court clarified that a settlement does not extinguish the arbitration agreement; rather, the arbitration clause survives to adjudicate disputes that emerge from the settlement.
Background
The petitioner and Respondent 1 had entered into a collaboration agreement for development and construction of a commercial colony. Disputes had arisen between parties out of the collaboration agreement and a sole arbitrator had been appointed. With a view to resolve the said disputes, the parties entered into a settlement agreement, which clearly recorded the mutual obligations of the parties and provided a mechanism for resolution of disputes through arbitration.
Subsequently, disputes arose between the parties with respect to the performance and implementation of the terms of the settlement agreement. The petitioner alleged that Respondent 1 had failed to adhere to its obligations under the settlement, resulting in fresh disputes between the parties.
Invoking the arbitration clause contained in the settlement agreement, the petitioner issued a notice calling upon Respondent 1 to concur in the appointment of an arbitrator. Respondent 1, however, declined to do so, contending that the disputes raised were not arbitrable and that the settlement agreement had brought the earlier disputes to an end.
In view of Respondent 1’s refusal, the petitioner approached the Court by way of the present petition under Section 11(6) of the Act, seeking appointment of an arbitrator.
Analysis, Law and Decision
The Court examined the contents of the settlement agreement and noted that it was a conscious and voluntary arrangement entered into between the parties to finally resolve their disputes. The Court further observed that the settlement agreement specifically contained an arbitration clause, which was agreed to by both parties.
The Court held that the mere execution of a settlement does not render subsequent disputes non-arbitrable. On the contrary, where the settlement agreement itself contemplates arbitration as the mode of dispute resolution, any disagreement relating to the interpretation, execution, or alleged breach of the settlement would necessarily fall within the scope of the arbitration clause.
The Court rejected the respondent’s contention that the settlement extinguished the arbitration clause. It observed that the arbitration clause survives for the purpose of adjudicating disputes arising out of the settlement itself. The Court reiterated that arbitration clauses are separable from the substantive terms of the contract and continue to operate unless expressly excluded.
The Court further noted that at the stage of considering a petition under Section 11 of the Act, the scope of judicial scrutiny is limited to examining the existence of an arbitration agreement. Issues relating to the merits of the disputes or the alleged breach of the settlement are matters to be adjudicated by the arbitral tribunal.
Finding that a valid arbitration agreement existed between the parties and that the disputes raised were covered by the arbitration clause contained in the settlement agreement, the Court held that the petition was maintainable.
Accordingly, the Court allowed the petition and proceeded to appoint an arbitrator to adjudicate the disputes between the parties in terms of the settlement agreement.
[Ashutosh Infra Pvt. Ltd. v. Pebble Downtown India, ARB. P. No 1294. of 2023, decided on 4-12-2025]
Advocates who appeared in this case:
For the Petitioner: Anand Kumar, Aditya Giri, Chetan Singh, Harshit Kumar, Preetesh Sharma, Advocates
For the Respondent: Akhil Sibal, Rajshekar Rao, Senior Advocates, Vikas Mishra, Nikhil Chawla, Varun Ahuja, Sugandha Shahi, Nilay Kaushal, Dhanesh Relan, Brinda Ajmani, Shikhar Misra, Nandini Sahni, Tanya Singh, Advocates
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