Supreme Court clarifies that a court can refer a matter to arbitration if a plea of coercion and economic duress is raised, even if the claimant has accepted an amount in full and final settlement.

Brief facts

The present Special Leave Petition was filed by the Appellant, impugning a decision of the Bombay High Court allowing the Respondent’s application under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“Act”). The Respondent took a Standard Fire and Special Peril Policy containing an arbitration
clause from the Appellant, to cover goods lying in its godown. A fire destroyed the Respondent’s stocks. A surveyor appointed by the Appellant assessed the loss suffered at INR 12.93 crores against the Respondent’s claim of INR 14.88 crores. Thereafter, the Respondent accepted a discharge voucher for INR 3.5 crores as ‘on account’ payment pending final assessment, as the Appellant had appointed another surveyor to resurvey, who recomputed the loss at INR 7.16 crores. The Appellant sent an unconditional discharge voucher for the remaining INR 3.66 crores to the Respondent which it refused to endorse for lack of basis/explanation in arriving at the reduced figure. Eventually the Respondent relented due to grave financial distress and endorsed the discharge voucher.

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