Safiya Malik

The High Court of Bombay, Single Bench of Justice Abhay Ahuja, on 18 December 2025, dismissed a metro project operator’s request to divert a contractor’s commercial summary suit to arbitration, holding that the dispute must proceed before the civil court. The suit concerns recovery of an unpaid settlement amount agreed after earlier disagreements under a 2010 works contract, including issues linked to performance bank guarantees and outstanding invoices. The Court found that a “full and final” settlement agreement superseded the original contract and did not carry forward its arbitration mechanism, noting that “the arbitration clause in the prior Contract cannot be read into the terms of the Settlement Agreement unless expressly mentioned”, and therefore refused a reference to arbitration under Section 8.

The dispute arose out of contractual arrangements relating to execution of civil works for a metro rail project. The defendant had engaged the plaintiff as a contractor under a contract executed in August 2010, which contained an arbitration clause governing disputes arising out of or in connection with the contract. During execution of the works, disputes emerged relating to performance bank guarantees furnished by the contractor, leading to initiation of proceedings under the Arbitration and Conciliation Act, 1996.

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While those proceedings were pending, the parties entered into a settlement agreement in March 2024. Under this agreement, the defendant agreed to return the performance bank guarantees and to pay a fixed monetary amount towards full and final settlement of all claims arising under the contract and work orders. The bank guarantees were returned and arbitral proceedings were disposed of as infructuous, with liberty to recover the settlement amount.

The settlement amount, however, remained unpaid, prompting the plaintiff to institute a commercial summary suit for recovery based solely on the settlement agreement. In response, the defendant filed an interim application seeking reference of the suit to arbitration under Section 8 of the Arbitration and Conciliation Act, contending that the arbitration clause in the original contract survived and governed disputes arising from the settlement agreement. The plaintiff opposed the application, asserting that the settlement agreement superseded the original contract and did not contain any arbitration clause.

The Court examined the scope and applicability of Section 8 of the Arbitration and Conciliation Act, 1996, and recorded that “an application under Section 8 of the Arbitration Act can be made only if the subject matter of the suit is also the same as the subject-matter of arbitration.” It noted that the summary suit was founded entirely on the settlement agreement and that “admittedly there is no arbitration clause in the Settlement Agreement.”

After analysing the terms of the settlement agreement, the Court observed that “the perusal of the clauses and the language of the Settlement Agreement leave no manner of doubt that the Settlement Agreement clearly modified and superseded the Contract.” The Court recorded that the settlement agreement expressly provided for governing law and exclusive jurisdiction of courts at Mumbai, while omitting any alternate dispute resolution mechanism.

The Court further stated that “there is also no specific reference to the arbitration clause of the Contract in the Settlement Agreement,” and therefore the arbitration clause contained in the prior contract “does not get incorporated or become applicable or govern the rights of the parties when the parties have settled their differences and compromised the matter.”

While considering the doctrine of separability, the Court clarified that “this does not in any way suggest that when the parties consciously enter into a subsequent agreement that finally determines their rights, the arbitration clause embedded in the prior contract survived independently of that contract.” The Court also distinguished precedents relied upon by the applicant, noting that they arose in different factual contexts or under applications for appointment of arbitrators, and were therefore inapplicable.

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On the issue of arbitrability, the Court observed that “there are no claims raised by the Plaintiff which arise out of the Contract at all,” and that the only claim before the Court related to non-payment of an admitted amount under the settlement agreement.

The Court recorded that “the Settlement Agreement is a separate agreement between the parties which does not contain any arbitration clause. The Settlement Agreement having superseded the Contract and as it does not make a specific reference to arbitration despite containing a specific governing law and jurisdiction clause, no case is made out under Section 8 of the Arbitration Act.”

On this basis, the Court concluded that “the dispute involved in the Suit cannot be referred to Arbitration,” and accordingly dismissed the interim application seeking reference to arbitration.

Advocates Representing the Parties

For the Petitioners: Mr. Karl Tamboly, Advocate, along with Mr. Tushad Kakatiya, Mr. Paresh Patkar, Mr. Kartik Hede, Mr. Ayaan Zariwalla, and Ms. Bhakti Chandan, instructed by Mulla and Mulla & CBC

For the Respondents: Mr. Shanay Shah, Advocate, along with Ms. Viloma Shah, Mr. Ativ Patel, and Mr. Harshad Vyas, instructed by AVP Partners

Case Title: Mumbai Metro One Private Limited v. Hindustan Construction Company
Neutral Citation: 2025: BHC-OS:25300
Case Number: Interim Application No. 1969 of 2025
Bench: Justice Abhay Ahuja