Payment Under Protest Is Not A Concluded Settlement: Madras High Court Upholds ₹3.25 Cr Arbitral Award Against Madras Fertilizers

"A payment or undertaking made expressly under protest and without prejudice cannot, by itself, be treated as a concluded settlement extinguishing the underlying dispute." High Court of Judicature at Madras, in a significant ruling, held that interim payments tendered strictly "under protest and without prejudice" to resume commercial supplies cannot extinguish an underlying dispute or operate as a binding settlement.

A Division Bench comprising Justice P. Velmurugan and Justice K. Govindarajan Thilakavadi dismissed an appeal filed by public sector undertaking Madras Fertilizers Ltd, reiterating that courts exercising arbitral review jurisdiction cannot embark on a merit review or substitute their own view where an arbitrator has taken a plausible interpretation of the contract and evidence.

Madras Fertilizers Ltd had entered into a long-term agreement on December 30, 1993, to supply carbon dioxide to SICGIL India Ltd for a ten-year term expiring in December 2003. A dispute arose when the appellant altered the invoicing mechanism based on newly installed flow meter readings, which was resisted by the respondent, leading the appellant to prematurely terminate supplies on December 31, 2002. SICGIL invoked arbitration claiming damages for wrongful stoppage of supply, following which the Sole Arbitrator passed an award dated January 30, 2017, awarding ₹3,25,40,500 with 18% interest per annum along with costs. Madras Fertilizers challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, which was dismissed by the Single Judge on August 9, 2021, prompting this commercial appellate challenge.

The primary question before the court was whether the commercial dispute fell squarely within the arbitration clause and whether the correspondence and payments made during negotiations constituted a concluded settlement. The court was also called upon to determine whether unexplained delay in pronouncing the arbitral award vitiated the proceedings, and whether a plea of mitigation of damages could be introduced for the first time in appellate proceedings under Section 13(1) of the Commercial Courts Act, 2015.

Dispute Over Invoicing Fell Squarely Within Contractual Arbitration Clause

The Division Bench rejected the appellant’s contention that the arbitral tribunal lacked jurisdiction because the arbitration clause was limited exclusively to issues of textual interpretation. The bench noted that the controversy was intrinsically rooted in the application of the agreed commercial mechanisms governing product measurement and subsequent billings.

The court observed that the dispute between the parties was not an independent or isolated monetary claim divorced from the underlying contract. It held that the arbitrator was acting strictly within jurisdiction when interpreting the contractual stipulations alongside the longstanding twenty-two-year operational practice of the parties.

Payment Under Protest Does Not Constitute Accord And Satisfaction

Examining the appellant's defense that inter-party correspondence demonstrated a full and final accord, the bench highlighted that the respondent had only agreed to remit disputed differential sums under express reservation of rights.

The bench affirmed that commercial payments remitted under duress solely to secure the urgent resumption of raw material supply cannot be weaponised as proof of an amicable settlement. The court noted that an undertaking rendered without prejudice cannot extinguish substantive claims or terminate the right to invoke dispute resolution mechanisms.

Court Cannot Re-Appreciate Evidence Under Section 34 Jurisdiction

Addressing the appellant's challenge to the finding of breach of contract, the court reiterated that arbitral findings grounded on contractual appreciation and factual evidence remain insulated from judicial review unless stained by patent illegality or perversity.

Citing the landmark Supreme Court ruling in Ssangyong Engineering and Construction Co. Ltd. v. National Highways Authority of India (2019), the bench underscored that courts cannot re-examine the merits of a dispute under the guise of public policy violations. Where two views are reasonably possible, the arbitral view must prevail.

"The appellate jurisdiction under Section 13 of the Commercial Courts Act cannot be utilised to enlarge the statutory grounds available for interference with an arbitral award."

New Factual Pleas Cannot Be Introduced At The Appellate Stage

The High Court took serious exception to the appellant's attempt to raise the issue of mitigation of damages before the appellate forum without having laid any foundation in the initial arbitral pleadings or the Section 34 petition.

The bench held that an entirely new factual contention requiring fresh evidentiary examination cannot be permitted to be agitated for the first time during an appeal under Section 13 of the Commercial Courts Act.

Mere Delay In Pronouncing Award Does Not Automatically Vitiate Proceedings

The bench considered the appellant's argument that delay in pronouncing the arbitral award vitiated the adjudication. While acknowledging that speedy disposal is the core objective of arbitration, the bench held that mere passage of time cannot invalidate an award if there is no demonstrable failure of application of mind.

The court observed that the record clearly showed the delay in releasing the award was linked to arbitral fee deposits, while the award itself comprehensively evaluated all evidence and rival arguments across extensive findings.

Legislative Policy Mandates Minimal Judicial Intervention

Concluding the analysis, the High Court observed that the appeal was a thinly veiled effort to seek a second factual re-appreciation of commercial liabilities, which goes against the core framework of the Arbitration and Conciliation Act.

The bench affirmed that Section 13 of the Commercial Courts Act cannot be deployed as an expansive appellate avenue to re-litigate settled contractual findings, upholding the judgment of the Single Judge and confirming the arbitral award in its entirety.

The Madras High Court dismissed the Original Side Appeal and upheld the arbitral award directing Madras Fertilizers Ltd to pay ₹3.25 Crores with 18% interest to SICGIL India Ltd. The ruling firmly cements the principle that payments made under protest do not extinguish commercial claims and that appellate courts will not re-evaluate evidence under the Commercial Courts Act.

Date of Decision: August 21, 2026