In the case of Brothers Engineering and Erectors Ltd. vs. Zorin Infrastructure, LLP (2025), the Andhra Pradesh High Court ruled that the disputes which result from not paying a mutually agreed amount after the settlement is done are not arbitrable in nature. It was emphasised by the court that once the settlement is reached by the parties, there is no arbitration issue remaining under the arbitration agreement.
Brief details of Brothers Engineering and Erectors Ltd. vs. Zorin Infrastructure, LLP
| Name of the Case | Brothers Engineering and Erectors Ltd. vs. Zorin Infrastructure, LLP |
| CNR Number | APHC01-039473-2024 |
| Parties of the Case | Appellant- Brothers Engineering and Erectors Ltd. Respondent – Zorin Infrastructure, LLP |
| Representatives of the parties | Petitioner – Varun ByreddyRespondent – Sunkara Rajendra Prasad |
| Equivalent Citations | Civil Miscellaneous Appeal No. 623 of 2024 |
| Type of the Case | Civil Miscellaneous Appeal |
| Court | Andhra Pradesh High Court |
| Statutes, Provisions, Judgements Involved In the Case | Arbitration and Conciliation Act, 1996 |
| Bench | Justice Ravi Nath Tilhari and Justice V Srinivas |
| Judgement Date | 28/01/25 |
Genesis of the dispute
The current case arose from the contractual disagreement between the appellant and the respondent in relation to execution of the mechanical erection work at the Chhattisgarh’s KSK Mahanandi Power Plant. Both the parties had entered into a contract in August of 2011, which consisted of a comprehensive arbitration clause. A civil suit was filed by Zorin Infrastructure, LLP in order to recover money, which also included interest. It was also alleged that there was non-payment even when partial payments were made by Brothers Engineering and Erectors Ltd.
Legal provisions involved in the case
| Legal Provision | Explanation |
| Section 8(1) of Arbitration and Conciliation Act, 1996 | The section gives the parties a right to make a request to the court to refer a dispute to arbitration if the same is subject to it. |
| Section 37 of the Arbitration and Conciliation Act, 1996 | This section states that appeals can be provided against some orders. This also includes refusal to refer the parties to arbitration. |
| Order VIII Rule 1 of the Civil Procedure Code, 1908 (CPC) | The rule under CPC lays down the time frame in relation to filing a written statement by the defendant. |
Key issues involved in Brothers Engineering and Erectors Ltd. vs. Zorin Infrastructure, LLP
- Whether the issue was arbitral in nature?
- Whether it was correct of the Trial Court to forfeit the rights of the appellant to file a written statement when the application was rejected on the same day under Section 8(1) of Arbitration and Conciliation Act, 1996?
- Can the court take away the right to file a written statement because the request was rejected in regards to arbitration?
Arguments from both sides in Brothers Engineering and Erectors Ltd. vs. Zorin Infrastructure, LLP
Grounds raised by appellant
The appellant argued that the dispute in hand comes clearly under the arbitration clause (clause 17). The clause covers ‘any dispute’ under the agreement. An arbitration request was filed honestly and while waiting for the decisions of the court, no written reply was also filed. It was unfair to forfeit the right to file a written statement merely because a request for arbitration was made. As per appellant it was not legally correct.
The appellant further argued that the Trial Court erred by rejecting the request for arbitration and at the same time cancelled that right to file a written statement. There was no separate hearing held for the same and a proper process was not followed. The clause of arbitration agreement was broader in scope and covered the dispute.
Grounds raised by respondent
As per the claims made by the respondent clause 17 only applied to disputes when the work was completed and does not apply to disputes related to payments. The dispute is about recovering the amount from both parties which was already agreed in the past with interest. Hence it does not come under an arbitration clause. The respondent still had not missed the deadline of ninety days to file a reply to the written statement hence they still have their right.
As the dispute was related to paying an amount which was agreed with interest, such dispute does not need to go for arbitration. The parties were clear on what was owed and a part of that was also paid and only another remaining amount was in question.
Judicial analysis in Brothers Engineering and Erectors Ltd. vs. Zorin Infrastructure, LLP
The High Court of Andhra Pradesh ruled that this dispute was in relation to not paying the agreed amount which was mutual in nature. The payment was not denied by the parties. The amount which was owed was admitted, this issue will not fall under arbitration agreement. The suit for recovery of the money not paid yet along with interest is not arbitrable. The High Court dismissed the appeal made under Section 37 of the Arbitration and Conciliation Act, 1996.
The Andhra Pradesh High Court found fault in the order made by the Trial Court which forfeited the right of the petitioner to file a written statement on the same day as the application for the arbitration. The two issues should have been dealt with separately. Under the procedural law it was allowed by the courts to extend the timeline for filing a written statement. The High Court set aside the order which forfeited the right to file a written statement.
Conclusion
It was clarified by the High Court that disputes related to non-payment when there is a mutual agreement to pay is not considered arbitrable. Once the settlement is reached between the parties, arbitration cannot be used to invoke to enforce a payment. This landmark judgement affirms the limits of arbitration clauses in disputes when the settlement is reached. The importance of due process is upheld in the civil proceedings.
