Karnataka HC Rules Disputes Must Be Resolved Through Arbitration in Key Ruling

New Delhi, Jul 31 (KNN) In a significant ruling, the Karnataka High Court has reinforced the primacy of arbitration clauses in commercial contracts.

The division bench, comprising Justice Anu Sivaraman and Justice Anant Ramanath Hegde, ruled that any settlement arising from a contract containing an arbitration clause must be enforced through arbitration.

The High Court's decision sets aside the lower court's order, allows the application under Section 8 of the Arbitration and Conciliation Act, and directs S P Sai Technologies to seek arbitration in accordance with the law. As a result, the original suit has been dismissed.

The High Court's decision overturned a lower court ruling that had rejected the plea for arbitration. The Trial Court had reasoned that since the parties had allegedly reached a settlement, the matter could not be referred to arbitration.

However, the High Court bench observed that the alleged settlement was intrinsically linked to the original contract containing the arbitration clause.

The bench emphasised that even claims of accord and satisfaction should be resolved by an Arbitral Tribunal if the parties are bound by a pre-existing arbitration agreement.

The High Court noted that the Respondent (S P Sai Technologies) had not provided any evidence to suggest that the arbitration agreement had been nullified or superseded by the alleged settlement.

Consequently, the court held that the right to enforce any settlement terms must be pursued through the arbitration process as stipulated in the original contract.

The case, titled "M/S Akshaya Private Limited Vs M/S S P Sai Technologies" (Commercial Appeal No. 189 of 2024), centered on a dispute between the two companies. S P Sai Technologies had filed a suit for recovery of money, which Akshaya Private Limited contested, citing the jurisdiction of an arbitration clause in their original contract.

This ruling underscores the importance of arbitration clauses in commercial contracts and their binding nature, even in cases where parties claim to have reached an out-of-court settlement.

It reinforces the legal principle that disputes arising from contracts with arbitration clauses should be resolved through the agreed-upon arbitration mechanism, rather than through civil courts.

(KNN Bureau)