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Delhi High Court: In an appeal challenging Single Judge’s order refusing to set aside an arbitral award where it was held that the appellant’s insurance claim had already been discharged by accord and satisfaction when it executed unconditional discharge vouchers accepting the insurer’s payment as “full and final settlement,” a Division Bench of C. Hari Shankar* and Om Prakash Shukla, JJ., upheld the arbitral award and Single Judge’s order, holding that the claim stood discharged by accord and satisfaction upon execution of the discharge vouchers and acceptance of payment without protest. The Court held that “mere assertion of financial stringency cannot suffice to escape the effect of an unconditional no claim certificate or discharge voucher.”
Factual Matrix
In the instant matter, the appellant was engaged in the manufacture and trade of mint and pine-based essential oil and had obtained an insurance policy from the respondent covering its building, plant and machinery, stock, furniture, fixtures and fittings for a total sum insured of ₹32,25,00,000. The policy was valid from 20 August 2012 to 19 August 2013. During the subsistence of the policy, a fire broke out on 13 February 2013 in the appellant’s premises causing extensive damage to the building, machinery and stock. The appellant lodged a claim for ₹27,08,30,874.13 under the policy.
The respondent appointed a spot surveyor followed by a final survey and the final survey report assessed the loss at ₹12,18,21,908, which amount was paid to the appellant. The appellant, however, maintained that the actual loss was much higher and invoked the arbitration clause in the insurance policy for recovery of the balance amount. A former Chief Justice of a High Court was appointed as the sole arbitrator.
Before the arbitrator, the respondent contended that the appellant had executed two discharge vouchers dated 30 March 2014 and 2 July 2014 acknowledging receipt of the assessed amount in full and final settlement, and therefore the claim stood discharged by accord and satisfaction. The appellant did not dispute execution of the vouchers but pleaded that they were signed under compulsion and financial distress, as the respondent would not release payment without execution of the discharge vouchers and the appellant was facing severe financial pressure from creditors and bankers after the fire.
Procedural History
The principal issue for determination was whether the execution of the discharge vouchers amounted to voluntary settlement of the claim, thereby resulting in discharge of the contract by accord and satisfaction, or whether the vouchers were executed under coercion, duress or financial compulsion.
The Arbitral Tribunal noted that the claimant had accepted the assessed loss, had written to the surveyor accepting the assessed amount for stock loss, and had never objected to the survey report before signing the discharge vouchers. The Tribunal also relied on internal minutes of the claimant company which recorded that, owing to financial difficulty, the company decided to accept the offered amount for the time being and pursue the balance later, but this reservation was never communicated to the respondent. The Tribunal found no evidence that the respondent had compelled the appellant to sign the vouchers. The tribunal held that once a discharge voucher is voluntarily executed and payment is accepted without protest, the claim stands discharged by accord and satisfaction and the dispute is not arbitrable.
The appellant challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996 (the Act). The Single Judge held that the Tribunal had returned a clear finding of fact that the discharge vouchers were voluntarily executed and that the claimant had accepted the assessed loss without protest. It was observed that the question whether the vouchers were signed under duress is a question of fact, and unless the finding is perverse, the court cannot interfere. Since the arbitrator’s view was a plausible view based on evidence, the Court held that the award did not warrant interference and dismissed the petition.
Court’s Analyis
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Scope of Interference under Sections 34 and 37
The Court reiterated that interference with an arbitral award under Section 34 is limited and can be made only if the award suffers from patent illegality, perversity, or violation of fundamental policy of law. An erroneous application of law or re-appreciation of evidence is not permissible.
The Court asserted that Courts apply the law, therefore, if the arbitrator had understood the law correctly, but errs in applying it to the facts before him, that would not constitute a ground of challenge. However, if the arbitrator had misunderstood the law and proceeded on a fundamentally incorrect legal principle, the award would be rendered vulnerable to interference as would amount to “patent illegality.”
“Section 37 does not provide a second bite at the Section 34 cherry.”
The Court further observed that in an appeal under Section 37, the scope of review is even narrower, as the appellate court is examining the correctness of the Section 34 decision, not the arbitral award afresh.
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Accord and Satisfaction in Discharge Voucher
The Court referred extensively to National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267, which explains that when a party accepts payment in full and final settlement and executes a discharge voucher, the contract stands discharged, unless the voucher was obtained by fraud, coercion, undue influence, or similar vitiating factors. If the settlement is voluntary, no dispute survives for arbitration.
The Court further noted that the Supreme Court in Boghara Polyfab (supra) deprecated the practice of insisting on receipts in advance, or discharge vouchers, even before releasing the admitted dues.
The Court emphasised that “mere fact that the signatory may feel financial pressure, and therefore decide to sign the discharge voucher, would not ipso facto render the voucher unenforceable on the ground of fraud, coercion, undue influence, or even compulsion.”
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Analysis of the Present Case
The Court held that the arbitrator had applied the correct legal principles. The finding that the respondent did not coerce the claimant was based on evidence, including the claimant’s own correspondence, internal board resolution, and absence of protest at the time of signing the vouchers. The fact that the claimant was in financial difficulty did not by itself prove coercion, particularly when the difficulty was not caused by the respondent.
The Court also noted that the claimant had sufficient opportunity to object to the survey report, to refuse the discharge vouchers, or to record protest while accepting payment, but did none of these. The Tribunal’s conclusion that the settlement was voluntary was therefore a possible and reasonable view.
The Court held that the only exception to the principle of discharge of claim by accord and satisfaction, where there was an element of fraud/coercion/undue influence. The Court stated that if a party could escape the consequences of an unconditional discharge voucher merely by pleading financial hardship, such documents would become “meaningless scraps of paper.”
Court’s Decision
The Court upheld the arbitral award and Single Judge’s order, holding that the claim stood discharged by accord and satisfaction upon execution of the discharge vouchers and acceptance of payment without protest. Accordingly, the Court dismissed the appeal
[Supermint Exports (P) Ltd. v. New India Assurance Co. Ltd., , decided on 16-3-2026]
*Judgment by Justice C. Hari Shankar
Advocates who appeared in this case :
Mr. Sudhir Nandrajog, Sr. Adv. with Mr. Bhaskar Tiwari, Mr. Ramakant Shukla and Ms. Priscilla Kom, Advs., Counsel for the Appellant
Mr. Saurav Agrawal, Mr. Rajat Dasgupta, Ms. Sidhika Dwivedi, Ms. Anadi Mishra, Ms. Raadhika Chawla and Mr. Tushar Nair, Advs., Counsel for the Respondents