SBI General Insurance Co. Ltd. vs. Krish Spinning
Background
Krish Spinning, a cotton-spinning firm, held a fire insurance policy from SBI General Insurance. After a fire damaged its factory in 2018, the insurer's surveyor assessed the loss at roughly Rs 84 lakh (far less than the firm's initial claim of about Rs 1.76 crore). The firm signed a discharge voucher accepting this amount as "full and final settlement," but later argued the settlement had been coerced and invoked the arbitration clause in the policy to seek fuller compensation. Two coordinate Gujarat High Court benches accepted the firm's request and appointed a retired judge as arbitrator; the insurer challenged both High Court orders before the Supreme Court, arguing that once a full-and-final discharge voucher is signed, no arbitrable dispute survives.
Decision Breakdown
The Supreme Court held that an arbitration clause, by the doctrine of "separability," survives independently even after the main contract is claimed to be discharged by "accord and satisfaction" (mutual settlement), so a dispute over whether such a settlement was genuine or coerced is itself an arbitrable question, not one that automatically defeats arbitration. It clarified that at the Section 11(6) stage, a referral court's scrutiny must be kept minimal and "prima facie". Courts should not conduct a detailed "mini-trial" weighing evidence about whether the discharge voucher was validly obtained, and should instead let the arbitral tribunal decide that issue itself, consistent with the Supreme Court's own recent seven-judge "Interplay" ruling favouring minimal judicial interference at the referral stage. Since the dispute here was genuinely about the quantum of the fire-loss claim (not about whether the arbitration agreement itself existed), the Court upheld the appointment of the arbitrator and allowed the arbitration to proceed, keeping all of the insurer's substantive objections open for the arbitrator to decide. The Court also used the occasion to clarify (without disturbing) its earlier ruling in Arif Azim on how limitation periods are assessed at the referral stage.
Lesson Learnt
Signing a "full and final settlement" discharge form after an insurance claim does not automatically shut the door on arbitration if the arbitration clause exists in the underlying contract: a dispute about whether that settlement was fair or coerced can itself be sent to an arbitrator to decide, rather than being finally decided by a court at the outset.