Superseding Settlement Agreement Nullifies Original Agreement’s Arbitration Clause: Delhi High Court


In the case of Larsen & Turbo Ltd Vs. IREO Victory Valley Pvt Ltd, the High Court of Delhi delineated the interplay between a settlement agreement and an arbitration clause contained within an original agreement. The Honorable Bench, presided over by Justice Pratibha M. Singh, rendered a significant decision, clarifying the circumstances under which an arbitration clause in the original contract would cease to be operative upon the execution of a subsequent settlement agreement.


Factual Background:

The Plaintiff, Larsen & Turbo Ltd, was contracted by the Defendant, IREO Victory Valley Pvt Ltd, for various construction works related to the “IREO Victory Valley” project. Despite completing the assigned tasks, a substantial sum remained unpaid by the Defendant to the Plaintiff. Following negotiations, the parties entered into a Settlement Agreement on 18th January 2020, aiming to resolve the outstanding disputes. However, the Defendant failed to adhere to the terms of the settlement, prompting the Plaintiff to initiate legal action seeking enforcement of the Settlement Agreement.


Submissions by the Parties:

The Plaintiff contended that the Defendant’s failure to fulfil its obligations as per the Settlement Agreement rendered the dispute non-arbitrable, effectively rescinding the original agreement along with its arbitration clause.


In response, the Defendant asserted the continued validity of the arbitration clause contained in the original agreement, positing that the mere execution of a settlement agreement did not render the dispute non-arbitrable.


Court’s Analysis and Decision:

The High Court meticulously analysed the contentions raised by both parties and examined the legal precedents governing settlement agreements and arbitration clauses. Emphasising the principle of sanctity of settlement agreements, the Court underscored that a mutual settlement, if intended to supplant the original contract, extinguishes the arbitration clause contained therein.


Drawing upon established jurisprudence, including the landmark cases of Union of India Vs. Kishorilal Gupta and Bros. (1959 SCC OnLine SC 6) and Damodar Valley Corporation Vs. K.K. Kar ((1974) 1 SCC 141), the Court reaffirmed that upon the execution of a full and final settlement, the original contractual obligations stand discharged, thereby nullifying any associated arbitration clause.


In the present case, the Settlement Agreement between the parties unequivocally constituted a comprehensive resolution of their disputes, precluding any further claims under the original contract. The Court highlighted specific clauses within the Settlement Agreement, which manifestly indicated the parties’ intent to conclude the matter conclusively. Moreover, the Defendant’s acknowledgement of the settlement agreement’s finality further reinforced the Court’s determination.



In light of the foregoing analysis, the High Court decreed the suit in favour of the Plaintiff, affirming the non-arbitrable nature of the dispute and upholding the enforceability of the settlement agreement. This landmark decision elucidates the paramount importance accorded to settlement agreements in resolving commercial disputes, while also delineating the limitations on the applicability of arbitration clauses in such contexts.

Disclaimer: This article is for informational purposes only and does not constitute legal advice. The content may not reflect the most current legal developments and is not guaranteed to be accurate, complete, or up-to-date. Readers should consult a qualified legal professional before taking any action based on the information provided. The authors and publishers disclaim any liability for any loss or damage incurred as a result of reliance on this article. This article does not create an attorney-client relationship.

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