The Indian Arbitration and Conciliation Act 1996 (the Act) provides for recourse to a court against an arbitral award by way of an application to set aside the award under section 34 of the Act, on the grounds specified in that section.

Section 19(1) of the Act provides that the Indian Civil Procedure Code 1908 and the Indian Evidence Act 1872 do not strictly apply to arbitrations under the Act. However, certain fundamental principles of civil procedure and evidence do apply. One such fundamental principle is that evidence is required to be considered before deciding a disputed question of fact.

The doctrine of "economic duress" is one of the elements recognised under Indian Law to vitiate accord and satisfaction. However, "economic duress" must not be confused with "commercial pressure" ordinarily exercised by parties commanding superior bargaining power. Under the common law, the commercial pressure alleged to constitute such duress must be illegitimate pressure of such a nature that the victim is compelled and coerced into entering into the agreement against his will, having had no alternative course open to him.

In this case, Sarvesh Chopra (the petitioner) had entered into a contract with Ircon International Limited (the respondent). The total consideration under the contract was 8 million Indian Rupees (INR). However, the payment made by the respondent to the petitioner under the contract, allegedly by way of accord and satisfaction, was merely INR 2 million.

The petitioner subsequently referred the matter to arbitration. In the arbitration proceedings, the respondent argued that satisfaction and accord had been reached between the parties, that there had been valid discharge of the contract and thus there were no claims left to be arbitrated. The sole arbitrator, without going into any other aspects of the matter, decided that no issue arose for consideration as there had been accord and satisfaction between the parties, and issued an award on 29 October 2009.

The petitioner challenged the award by filing a petition before the Delhi High Court under section 34 of the Act.

The Delhi High Court set aside the award and remitted the matter to the arbitrator for fresh consideration on the ground that the arbitrator was wrong to make his decision without calling for evidence on whether there was accord and satisfaction.

The Delhi High Court referred to the judgment of the Supreme Court in National Insurance Co. Ltd v Bogara Polyfab 2009 (1) SCC 267. In that case, the Supreme Court discussed the doctrine of economic duress and gave examples of situations in which there would be no bar to arbitration even if the claim was settled, where the consent of one of the parties had been obtained under economic duress or undue coercion.

The Delhi High Court held that the possibility of the petitioner having been subject to economic duress should be examined.

The extension of the doctrine of economic duress to arbitration will come as a relief to parties who have been forced, because of financial difficulties, to settle their claims for a much lesser amount than that legitimately due. Such parties can now arbitrate disputes under contracts which have been allegedly discharged by accord and satisfaction achieved by economic duress, thus allowing them to recover the full amount due.