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Neither final nor a discharge

Business

By Shourav Lahiri, Partner, Pinsent Masons LLP

A party signs a discharge voucher in full and final settlement of a claim. It gets paid in return. Subsequently, the party claims that it was coerced into signing the discharge, and seeks to bring a claim to arbitration for the additional sums it says it should have been paid. Is this something that should go to arbitration? In this light, let us consider the decision of the Supreme Court in National Insurance v Boghara Polyfab.

The Boghara case involved an insurance claim dispute. The dispute was over whether Boghara had accepted payment from National Insurance in full and final settlement of a claim. Boghara argued that it had accepted the payment under duress; National Insurance disagreed and said that since the matter had been settled in full, there was no dispute.

The insurance contract had an arbitration clause and Boghara wrote to National Insurance to appoint an arbitrator. National Insurance said that the contract had been settled and was at an end, and hence it would not enter into arbitration or appoint an arbitrator. Boghara therefore sought the court’s assistance under Section 11 of the Arbitration and Conciliation Act to appoint an arbitrator. Its position was that the issue of duress made the discharge voucher invalid – and this meant that there was a dispute which should be submitted to arbitration.

The High Court held in favour of Boghara and National Insurance appealed to the Supreme Court (SC). The SC admitted that the usual position is that when a party signs a discharge in full and final settlement, the party loses the right to subsequently bring a claim that has been settled. The exception to this rule is if the party argues that he had to sign a discharge under coercion or duress. In that case, the ‘agreement’ to fully settle claims was not a valid agreement – and the party could seek the court or arbitrator’s assistance to revoke that agreement.

The SC held that it was not in a position to, nor was it required to, adjudge whether there had been a final settlement. That was a matter for the arbitrator. Accordingly, any dispute on this issue should be sent to arbitration, and it would assist the parties in furthering the arbitration.

The signing of a discharge voucher may not be enough to put claims to rest. This may give cause for concern to recipients of discharge vouchers, and some hope to those who have ‘buyers remorse’ after signing a full and final settlement. But such concern or hope will be short lived; ultimately, a party will have to prove duress to be able to get out of the settlement agreement. This is not easy to do, particularly where parties are commercial parties and have equal bargaining positions. Also, a party would have to show that it signed the settlement under protest and there was some threat or economic duress that forced it to sign. These are not easy matters to prove.

In Boghara, the court held that it would not stop an arbitration from being instituted even though one party argued that there was no dispute. The court however refused to go into the merits of the dispute – leaving that issue for the arbitrator. Next month, I will look at the case of Indian Oil Corporation v SPS Engineering where the court’s approach was slightly different in that case.

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June 2020
10 Jun 2020