Rajasthan High Court - Jaipur
M/S Electrosteel Castings Pvt Ltd vs Rajasthan Urban Infratructure on 8 December, 2011
Author: Prem Shanker Asopa
Bench: Prem Shanker Asopa
IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR. ORDER S.B.CIVIL ARBITRATION APPLICATION NO.40/2009 M/s. Electrosteel Castings Ltd. Versus Rajasthan Urban Infrastructure Development Project DATE OF ORDER ::::: 08.12.2011 PRESENT HON'BLE MR.JUSTICE PREM SHANKER ASOPA Mr. Sagar Mal Mehta, Sr. Advocate assisted by Mr. Angad Mirdha for the applicant Dr. P.C. Jain for the non-applicant. BY THE COURT
1. Heard learned counsel for the parties.
2. By this application under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as `the Act of 1996') the Applicant M/s. Electrosteel Castings Ltd. is seeking appointment of an independent Arbitrator for adjudication of disputes and differences between it and the Non-applicant Rajasthan Urban Infrastructure Development Project under clause No.21 arising out of the contract agreement(s) dated 23.5.2003.
3. The facts of the application, in brief, are that three contract agreements dated 23.5.2003 were executed between the Applicant and the Non-applicant for providing, laying, jointing, testing and commissioning of various sizes transmission pipe lines in Kota (Lot No.1, Lot No.2 and Lot No.3) in respect of Contract Package No.KOT/WS/10. The Non-applicant thereafter issued three notices dated 23.5.2003 to proceed to the Applicant, for Lot No.1, Lot No.2 and Lot No.3 whereby it was specifically mentioned that the Contract price for Lot No.1 would be Rs.4,27,77,238/-, for Lot No.2 it would be Rs.4,72,15,805/- and for Lot No.3 it would be Rs.4,19,49,607/-. The Non-applicant vide the said notice also requested the Applicant to commence mobilisation as soon as possible and not later than 14 days from 23.5.2003 i.e. the start date and the contract completion date as per the notice to proceed was 12 months from issuance of notice to proceed i.e. 22.5.2004. However, during the execution of the contract, there were several delays on the part of the Non-applicant which led to prolongation of the contract period. It has been further stated that the contract period expired on 22.5.2004 and due to delay on the part of the Non-applicant, the Applicant could not adhere to the time schedule under the contract and in view of the delays committed on its part, the non-applicant extended the completion date from time to time up to 30.11.2006 for various reasons not attributable to the applicant and after adding the defects liability period of 365 days, it was extended up to 30.11.2007. It is further stated that these delays were attributable to the Non-applicant only and after consideration of the representation by the Applicant, the non-Applicant admitted that these delays were not attributable to the Applicant and consequently reduced the liquidated damages imposed on the applicant and further, the non-applicant wrote a letter dated 16.6.2004 stating that liquidated damages for 29 days i.e. Rs.1216539/- were imposed vide order dated 27.2.2004 and due to different reasons for delay submitted by the contractor and considering the reasons of quantum of delay not attributable to him, matter has been reviewed and interim liquidated damages for delay of 10 days i.e. 1% of contract price is hereby imposed. Thereafter, the correspondence with regard to the delay caused in completion of the works was made, for which the Non-applicant has attributed the same to the Applicant and the Applicant has attributed the same to the Non-applicant. It is also stated in the application that the said delays on the part of the Non-applicant were delay in execution of the contract, beyond the original completion period and the same are compensation events as provided under Clause 38.1 of the Conditions of Contract. The Applicant was regularly giving early warning in respect thereof to the Non-applicant and thus the Non-applicant was fully kept aware of the delays in execution of work for factors attributable to it only. The Applicant due to the delays caused by the Non-applicant duly communicated its concern to the Non-applicant, both orally as well as in writing. It was also stated that on account of the said delay, the Applicant incurred additional expenses due to non-utilisation of the mobilised plant and machinery as well as skilled and un-skilled man-power. Accordingly, the Applicant informed the Non-applicant that these circumstances should be compensation events as per Clause 38.1 of the Conditions of Contract.
(4) It is also stated in the application that there were several objections from PWD / NHAI and due to the same, the pipeline laying activity was completely stopped at Sakatpura stretch since 25.10.2003 and vide letter dated 1.11.2003, the same was intimated to the Non-applicant and a request was made by the Applicant to arrange for permissions.
(5) The Applicant suffered heavily during the execution of the work and incurred additional costs on account of the aforesaid compensation events and therefore, the contract price was required to be adjusted as per Clause 38.3 so as to adequately compensate the Applicant for the delays on the part of the Non-applicant. The Applicant, in view of the abovementioned additional costs incurred by it on account of the aforesaid compensation events, presented its claim dated 18.12.2007 (Anx.10) before the Superintending Engineer, RUIDP under Clause 21 of the Contract claiming an amount of Rs.12,99,244.29 per month for the period from 23.5.2004 to 30.11.2006 and till 30.11.2007 for the claim for interest on performance bank guarantee and for interest on 50% of retention money which has been withheld by the Non-applicant despite the completion of works. Under Clause 21 of the Contract, the Superintending Engineer was required to decide the claim and give written notice of the decision to the Employer and the Contractor i.e. the Non-applicant herein and the Applicant- contractor, within 28 days of the receipt of reference from the parties. However, it is stated that in the present case, the Engineer did not communicate any decision within the aforesaid period and as per Clause 21.2 of the Contract, the Applicant was well within its right to give notice dated 21.1.2008 (Anx.12) within 28 days from the expiry of the initial period of 28 days to the Non-applicant with a copy to the Engineer, of its intention to commence the arbitration of the dispute but no reply has been received the Non-applicant, therefore, the present application for arbitration has been filed.
(6) The Non-applicant filed reply to the arbitration application in which the Non-applicant has raised the preliminary objection stating therein that the dispute of delay with regard to Lot No.1,2 and 3 of the Contract have been amicably settled and after having the same settled, the Applicant has signed three undertakings dated 23.3.2007 that they will not seek any further action, including arbitration or civil suit, under this contract for any issues of any nature, whatsoever. It is pertinent to mention here that in the said undertakings, it has been mentioned that the stipulated completion date was 22.5.2004 and the actual completion date is 30.11.2006, therefore, the total delay in completing the work is of 922 days out of which 912 days' delay is due to the causes outside the Contractor's control and further, delay due to causes within the Contractor's control was 10 days. It is also stated in the reply that the terms of the undertakings have been settled which were unequivocal in nature without there being any pressure / coercion on the Applicant and thereafter, the same has been acted upon inasmuch as the final bill has been settled on the basis thereof. Therefore, the Applicant having taken advantage of the said undertakings arrived at between the parties amicably and after deliberation, the reference is barred. It is also stated that the Applicant having accepted the final payment, is estopped from raising any kind of dispute. Other objections of not following the procedure laid down under section 11 and the bar of limitation u/s 43 of the Act of 1996 have also been taken.
(7) In rejoinder, the Applicant has stated that there was no amicable settlement between the parties with regard to the dispute of delay in completion of Lot No.1,2 and 3. It was further stated that the alleged undertakings / amicable settlements, referred to by the Non-applicant were pressure tactics of the Non-applicant, which being in a dominant position, insisted on signing the alleged documentation before releasing the payment under the said contract and further, the Non-applicant also sought three undertakings from the Applicant that they will not initiate any action with regard to the dispute arising out of the execution of the contract for Lot No.1,2 and 3. It is then stated that the three undertakings dated 23.3.2007, as relied upon by the Applicant, were signed by the Applicant under undue influence and coercion exercised by the Non-applicant, using its dominant position and as such, the said undertakings dated 23.3.2007 are not tenable in law being barred u/s 28 of the Contract Act, 1872 and the genuine and legitimate claim against the Non-applicant cannot be foreclosed by referring to such undertakings. The alleged full and final payment was released after signing of the said undertakings, therefore, the undertakings are neither voluntary nor the terms of the settlement were settled mutually, therefore, the original contract still subsists and the dispute is referable to the arbitration by appointment of the Arbitrator. It is denied in the rejoinder that the arbitration application is barred under section 11(6) or 43(3) of the Act of 1996 or that the same is barred under Clause 21 of the Contract. It is then stated in the rejoinder that the Applicant duly presented its claim dated 18.12.2007 before the Superintending Engineer, RUIDP under Clause 21 of the Contract claiming an amount of Rs.12,99,244.29 per month for the period from 23.5.2004 to 30.11.2006 and till 30.11.2007 for the claim for interest on performance bank guarantee and for interest on 50% of retention money which has been withheld by the Non-applicant despite the completion of works and in this connection, document Annexure-10 has been reiterated. It is further stated in the rejoinder that under Clause 21, the Engineer was required to decide the claim and give a written notice of his decision to the Employer, i.e. the Non-applicant herein and the Contractor i.e. the Applicant herein within 28 days of receiving the reference from the parties. However, it is submitted that in the present case, the Engineer did not communicate any such decision within the aforesaid period and as per Clause 21.2 the Applicant was well within its rights to give notice within a period of 28 days from the expiry of the initial 28 days to the Non-applicant with copy to the Engineer of its intention to commence arbitration for settlement of dispute. The Applicant accordingly and well within the limitation prescribed sent a notice dated 21.1.2008 (Anx.12) conveying its intention to commence arbitration for settlement of dispute, copy of which has been filed as Annexure-12. Relevant Clause 21 has also been annexed as Annexure-11 to the Application.
8. Although the Non-applicant in its reply has taken the plea that the Applicant has failed to comply with the provisions of Section 11 of the Act of 1996 and further the application for appointment of arbitrator is barred by time and the applicant is not entitled for any extension of time under Section 43(3) of the Act of 1996 but neither in the reply nor in the oral submissions the counsel for the Applicant has pointed out as to how the application is not maintainable on the aforesaid ground and is barred by time.
9. The Applicant referred to some dates of disputes, clauses and the arbitral procedure. This arbitration application has been filed on 29.6.2009 and the three undertakings / alleged amicable settlements were signed on 23.3.2007 (Anx.R-1/1). In view of the additional costs incurred by the Applicant on account of the compensation events, the Applicant presented a claim dated 18.12.2007 before the Superintending Engineer, RUIDP under Clause 21 of the Contract. Since the Superintending Engineer failed to give notice of its decision on or before 28 days after the day on which he received the aforesaid claim dated 19.12.2007, the Applicant in accordance with Clause 21.2 of the Contract sent a notice dated 21.1.2008 (Anx.12) conveying its intention to commence arbitration for settlement of the dispute. Therefore, the period of limitation (three years) will be counted from the date of undertakings / alleged amicable settlement i.e.23.3.2007 and even if the period of limitation is counted from the date of undertakings/alleged settlement, then also, the arbitration application is within the period of three years. In view of the above, the claim is neither obviously dead or long time barred nor the present case is of the nature where the arbitration procedure has not been followed by the Applicant.
10. During the course of arguments, counsel for the Non-applicant has not laid much emphasis on the preliminary objection that the claim is long time barred or a dead claim. However, much emphasis has been laid by counsel for the Non-applicant on the preliminary objection relating to novation of contract and even if this Court comes to the conclusion that on account of undertakings/amicable settlements dated 23.3.2007, new contract has not come into force, then also, the Applicant having accepted the amount, as full and final payment, is estopped from raising the dispute.
11. Counsel for the Non-applicant raised the preliminary objection that there has been a novation of contract by way of three undertakings/amicable settlements for Lot No.1,2 and 3 respectively signed by both the parties. Therefore, the earlier contract extinguished and its arbitration clause perishes with it and further both the parties undertook that the delay in completion of the project was attributable to causes that were beyond the control of the Applicant and they undertook and guaranteed that they will not seek any further action including arbitration or civil suit under the contract for any issues of any nature whatsoever. He has further submitted that since the aforesaid undertakings / amicable settlement contain `bar of arbitration' the earlier contract extinguished and the arbitration clause 21 perishes. The Applicant having accepted the full and final payment is estopped from raising the dispute even as per original contract which stood discharged and, therefore, no aribtrable issue is involved. In support of his submissions, has placed reliance on State of Maharashtra vs. Nav Bharat Builders {1994 Supp (3) SCC 83}, P.K.Ramaiah & Co. vs. NTPC {1994 Supp (3) SCC 126}, Nathani Steels Ltd. vs. Associated Constructions {1995 Supp (3) SCC 324} and Indian Oil Corporation vs. SPS Engineering Ltd. {2011 (3) SCC 507}.
12. Counsel for the Applicant submits that the present case is not of novation of contract, therefore, the original contract subsists and the arbitration clause will survive. Counsel for the Applicant then submits that the dispute with regard to the delay in completion of the project was raised on 21.1.2008 and the three undertakings/amicable settlement dated 23.3.2007, as relied upon by the Non-applicant, were obtained by the Non-applicant under the influence and coercion exercised by it, using its dominant position, therefore, the said undertakings are not tenable in law and the genuine and the legitimate claim of the Applicant against the Non-applicant cannot be foreclosed by referring to such undertakings. The full and final payment was received by the Applicant subject to the rights and contentions available to it under law and as such, the said payment cannot be related to the undertakings dated 23.3.2007 so given under undue influence and coercion exercised by the Non-applicant using its dominant position. Since the payment of the Applicant was not released, the Applicant was left with no other alternative except to accept the terms of the undertakings/amicable settlement and sign the same. Therefore, the same cannot be termed as mutual settlement signed voluntarily and there has been no novation of contract. Mere acceptance of the payment in the aforesaid facts and circumstances will not estop the Applicant from raising its genuine and legitimate claim and the same is an arbitrable issue as held in Chairman and MD. NTPC Ltd. vs. Reshmi Constructions, Builders & Contractors {(2004) 2 SCC 663), National Insurance Co. Ltd. vs. Boghara Polyfab (P) Ltd. {(2009) 1 SCC 267} Asian Techs Limited vs. Union of India & Ors. {(2009) 10 SCC 354} and R.L. Kalathyia vs. {(2011) 2 SCC 400}.
13. There is no dispute between the parties that the original contract contained arbitration clause 21 to which the Applicant, who has applied u/s 11 of the Act of 1996, is a party and further, there is also no dispute that this Court has territorial jurisdiction to decide the matter. However, the dispute is that in the fact situation of this case, having given the three undertakings / amicable settlements, there has been novation of contract and the original contract extinguished and the arbitration clause 21 perishes and further, having accepted full and final payment, the Applicant is estopped from raising the dispute.
14. On the basis of the rival submissions of the parties on aforesaid preliminary objection, the following questions emerge for consideration:-
Whether (i) having regard to the given facts situation of this case, there has been novation of contract by signing of undertakings/amicable settlements dated 23.3.2007 voluntarily and the terms of the same have been settled mutually, which extinguished the original contract and the arbitration Clause 21 perishes, therefore, it will bar reference to the Arbitrator or arbitration Clause 21 of the original contract, to which the Applicant is a party, survives;
(ii) having accepted full and final payment, the applicant is estopped from raising the dispute under arbitration clause No.21 of the original contract, which would stand discharged, therefore, no arbitral issue is involved in the matter ?
15. As per Seven learned Judges' Constitution Bench judgment of the Supreme Court in the case of SBP & Co. vs. Patel Engg. Ltd. {(2005)8 SCC 618}, their Lordships of the Supreme Court identified and segregated the preliminary issue that may arise for consideration in an application under Section 11 of the Act of 1996. The aforesaid Questions No.(i) and (ii) are with regard to the fact that the parties have concluded contract/transaction by recording satisfaction of their mutual rights and obligations so that neither the contract nor the arbitration agreement survived or by receiving full and final payment without objection is, discretionary and the Chief Justice/his designate may choose to decide (or leave them to the decision of the Arbitral Tribunal) as per category (ii) as specified in Para 22.2(b) of National Insurance Co. Ltd. vs. Bhoghara Polyfab Pvt. Ltd. {(2009) 1 SCC 267) wherein three categories have been identified and segregated from the aforesaid seven learned Judges' Constitution Bench judgment in SBP & Co. (supra). Similar is the position in para 14 of the judgment of the Supreme Court in Indian Oil Corporation Ltd.V.SPS Engineering Ltd. (2011)3 SCC 507, cited by Dr.P.C.Jain, counsel for the non-applicant.
16. Now, I proceed to consider the judgments cited by Dr. P.C. Jain, Advocate in support of his preliminary objection.
17. In the matter of State of Maharashtra (supra), a dispute relating to labour escalation charges and certain other items, arose in execution of contract agreement, the contractor filed suit for filing the agreement for reference of the disputes to the Arbitrator. During pendency of the suit, under a mutual agreement, the contractor agreed to accept for labour escalation charges. The contractor accepted amount paid to him and unconditionally withdrawn the suit for labour escalation charges. In such a situation, it was held that no arbitrable dispute survives. Paragraph nos. 4 and 6 are as follow:-
4. It is seen that as regards the escalation of labour claims are concerned, the report of the sub-committee constituted by the Government expressly mentioned in paragraph 8 thus:
This decision is also subject to the following conditions:
(i)The contractor shall furnish to Government a letter of acceptance in the prescribed form to the effect that the contractor agrees to accept the amount offered to him in full and final settlement of the said claim and by way of mutual arrangement between the contractor and Government on the terms and conditions herein contained.
(ii)The letter of acceptance shall form part and shall always be deemed to have formed part of the contract.
(iii)Irrespective of the fact whether the contractor accepts this offer of Government or not, in no event the contractor, shall be entitled to claim or take a plea in any dispute that the contractor may raise before the arbitrator, court or any authority in respect of the said claim to the effect that the sum offered by the Government under this letter is the one agreed to be paid by the Government to the contractor or to treat that sum as basis for adjudicating the claim by the said arbitrator, court or authority.
(iv)The offer shall be open for acceptance by the contractor till 10.3.1989. If the contractor fails to communicate acceptance or rejection of offer by him in writing to the Secretary (I) Government of Maharashtra on or before 10.3.1989 then the same shall automatically lapse on the aforesaid date and shall not be binding on Government vis-a-vis the contractor thereafter.
(v)The final amount to be paid to the contractor shall be arrived at only after actual calculations to be made on the basis of the principles enunciated in para 7 above. The amount that would be payable to the contractor in future shall also be regulated accordingly.
(9)You are requested to consider the offer and communicate your decision regarding acceptance or otherwise of the offer to the Secretary (I) Irrigation Department, Government of Maharashtra on or before the aforesaid date in the prescribed form annexed hereto. As soon as your acceptance letter is received by Government, payment will be made after calculation of the actual amount of claim as aforesaid.
Pursuant thereto in paragraph 9, when an option was given to the respondent to consider the offer and communicate his decision regarding acceptance or otherwise of the offer, in his letter dated 3.3.1989, he specifically stated that :
I agree to receive such amount or the price escalation on account of labour component as would be worked out on the principles as offered under the aforesaid Government letter as and by way of full and final settlement of my claim submitted by me under my letter No. NBB/Dimbhe/1013/322/864, dated 18.9.1986 for the payment of the price escalation towards the labour component based on minimum wages. I further agree to accept the payment as decided by Government till completion of the work.
Thereafter the amount was paid and he acknowledged the receipt of the amount and also stated as earlier that unconditionally he was withdrawing his claim in the suit in respect of labour escalation. Thus we hold that there is full and final settlement of the claim and the respondent has accepted the accord and satisfaction, thereby there is no arbitrable dispute in respect of labour escalation.
6. Shri Madhava Reddy, learned Senior Counsel for the appellant contended that in view of the letter dated 3.3.1989 the respondent had accepted to withdraw the entire claim in respect of Item 1 and that therefore there is no arbitrable dispute in that behalf. We find no substance in the contention. In all the letters the respondent has specifically referred at various stages that his acceptance was only in respect of labour escalation. Therefore, any other claims which the respondent made in the suit, the court is to consider whether arbitrable disputes arose under the contract for reference to arbitration and if so whether the respondent is entitled to any amount so claimed. These are the matters to be gone into. Accordingly, the appeal is allowed in part as stated earlier, but in the circumstances, the parties are directed to bear their own costs. (Emphasis supplied)
18. In the case of M/s. P.K. Ramaiah & Co. (supra) voluntary and unconditional written acceptance of payment in full and final settlement of the contract, has been held to be not an arbitral issue in a proceeding under Section 8 of the Arbitration Act, 1940. The relevant paragraphs 6 and 8 read thus:-
6. The reading of the above arbitration clause would clearly establish that all questions and disputes relating to the meaning of the specifications, designs, drawings and instructions hereinbefore mentioned and as to the quality of workmanship or materials used on the work or as to any other question, claims, right, matter or things whatsoever in any way arising out of or relating to the contract, designs, drawings, specifications, estimates, instructions, orders or these conditions or otherwise concerning the works, or the execution or failure to execute the same whether arising during the progress of the work or after the completion or abandonment thereof shall be referred to the sole arbitration of the General Manager of the N.T.P.C. Ltd. On his inability or unwillingness, another arbitrator appointed by C.M.D. alone has to arbitrate the dispute. Thus, it is clear that if there is an arbitrable dispute, it shall be referred to the named arbitrator. But there must exist a subsisting dispute. Admittedly the appellant acknowledged in writing accepting the correctness of the measurements as well as the final settlement and received the amount. Thereafter no arbitrable dispute arises for reference.
8. On those facts, this Court held that although there was alleged payment as final satisfaction of the contract, yet as the respondent did not give any receipt accepting the settlement of the claim, the payment was unilateral, so the dispute still subsisted and therefore, it was arbitrable dispute and the reference was valid. In Bhan Prakash case {(1982) 1 SCC 625) also there was no full and final settlement and payment was not received under a receipt. In L.K. Ahuja & Co. case {(1988) 3 SCC 76} this Court while laying the general law held that if the bill was prepared by the department, the claim gets weakened. That was not a case of accord and satisfaction but one of pleading bar of limitation without prior rejection of the claim. Therefore, the ratio therein is of little assistance. The Calcutta High Court merely followed the statement of law laid in Ahuja & Co. case. It is not shown to us that the Chief Construction Manager was competent to acknowledge the liability or an authority to refer the dispute for arbitration. So neither his letter binds the respondent nor operates as an estoppel. Admittedly the full and final satisfaction was acknowledged by a receipt in writing and the amount was received unconditionally. Thus there is accord and satisfaction by final settlement of the claim. The subsequent allegation of coercion is an afterthought and a devise to get over the settlement of the dispute, acceptance of the payment and receipt voluntarily given. In Russell on Arbitration, 19th Edn., p.396 it is stated that an accord and satisfaction may be pleaded in an action on award and will constitute a good defence. Accordingly, we hold that the appellant having acknowledged the settlement and also accepted measurements and having received the amount in full and final settlement of the claim, there is accord and satisfaction. There is no existing arbitrable dispute for reference to the arbitration. The High Court is, therefore, right in its finding in this behalf. The appeals are dismissed but in the circumstances without costs. (Emphasis supplied)
19. In the case of Nathani Steels (supra), the dispute was amicably settled finally between the parties. Thus, it was held that arbitration clause cannot be invoked by a party to resolve the dispute on the ground of mistake in the settlement. In para 3 of the judgment it was held:-
Once there is a full and final settlement in respect of any particular dispute or difference in relation to a matter covered under the arbitration clause in the contract and that dispute or difference is finally settled by and between the parties, such a dispute or difference does not remain to be an arbitrable dispute and the arbitration clause cannot be invoked even though for certain other matters, the contract may be in subsistence. Once the parties have arrived at a settlement in respect of any dispute or difference arising under a contract and that dispute or the difference is amicably settled by way of a final settlement by and between the parties, unless that settlement is set aside in proper proceedings, it cannot lie in the mouth of one of the parties to the settlement to spurn it on the ground that it was a mistake and to proceed to invoke the arbitration clause. If this is permitted the sanctity of contract, the settlement also being a contract, would be wholly lost and it would be open to one party to take the benefit under the settlement and then to question the same on the ground of mistake without having the settlement set aside. In the circumstances, in the instant case since the dispute or difference was finally settled and payments were made as per the settlement, it was not open to the respondent unilaterally to treat the settlement as non est and proceed to invoke the arbitration clause. (Emphasis supplied)
20. However, Dr. P.C. Jain placing reliance on paragraphs 14, 15 and 16 of the judgment of the Supreme Court in the case of Indian Oil Corporation vs. SPS Engineering Ltd.{2011(3) SCC 507} has submitted that in the said case, the law laid down by the Seven learned Judges of the Constitution Bench of the Supreme Court in the case of M/s. SBP & Co. (supra) has been followed and further National Insurance Co. (supra) has been considered in para 13 and while dealing with the case of res judicata in paragraph nos. 14, 15 and 16 finally held that the Chief Justice or his designate is not expected to go into the merits of the claim. The Chief Justice or his designate may however choose to decide whether the claim is a dead (long-barred) claim or whether the parties have, by recording satisfaction, exhausted all rights, obligations and remedies under the contract, so that neither the contract nor the arbitration agreement survived. Paragraph nos. 14, 15 and 16 read thus:-
14. To find out whether a claim is barred by res judicata, or whether a claim is "mala fide", it will be necessary to examine the facts and relevant documents. What is to be decided in an application under section 11 of the Act is whether there is an arbitration agreement between parties. The Chief Justice or his designate is not expected to go into the merits of the claim or examine the tenability of the claim, in an application under section 11 of the Act. The Chief Justice or his Designate may however choose to decide whether the claim is a dead (long-barred) claim or whether the parties have, by recording satisfaction, exhausted all rights, obligations and remedies under the contract, so that neither the contract nor the arbitration agreement survived. When it is said that the Chief Justice or his Designate may choose to decide whether the claim is a dead claim, it is implied that he will do so only when the claim is evidently and patently a long time barred claim and there is no need for any detailed consideration of evidence. We may elucidate by an illustration : If the contractor makes a claim a decade or so after completion of the work without referring to any acknowledgment of a liability or other factors that kept the claim alive in law, and the claim is patently long time barred, the Chief Justice or his Designate will examine whether the claim is a dead claim (that is, a long time barred claim). On the other hand, if the contractor makes a claim for payment, beyond three years of completing of the work but say within five years of completion of work, and alleges that the final bill was drawn up and payments were made within three years before the claim, the court will not enter into a disputed question whether the claim was barred by limitation or not. The court will leave the matter to the decision of the Tribunal. If the distinction between apparent and obvious dead claims, and claims involving disputed issues of limitation is not kept in view, the Chief Justice or his designate will end up deciding the question of limitation in all applications under section 11 of the Act. (emphasis supplied)
15. An application under section 11 of the Act is expected to contain pleadings about the existence of a dispute and the existence of an arbitration agreement to decide such dispute. The applicant is not expected to justify the claim or plead exhaustively in regard to limitation or produce documents to demonstrate that the claim is within time in a proceedings under section 11 of the Act. That issue should normally be left to the Arbitral Tribunal. If the Chief Justice or his designate is of the view that in addition to examining whether there is an arbitration agreement between the parties, he should consider the issue whether the claim is a dead one (long time barred) or whether there has been satisfaction of mutual rights and obligation under the contract, he should record his intention to do so and give an opportunity to the parties to place their materials on such issue. Unless parties are put on notice that such an issue will be examined, they will be under the impression that only questions of jurisdiction and existence of arbitration agreement between the parties will be considered in such proceedings.
16. The question whether a claim is barred by res judicata, does not arise for consideration in a proceeding under Section 11 of the Act. Such an issue will have to be examined by the Arbitral Tribunal. A decision on res judicata requires consideration of the pleadings as also the claim/issues/points and the award in the first round of arbitration, in juxta position with the pleadings and the issues/ points/claims in the second arbitration. The limited scope of Section 11 of the Act does not permit such examination of the maintainability or tenability of a claim either on facts or in law. It is for the Arbitral Tribunal to examine and decide whether the claim was barred by res judicata. There can be no threshold consideration and rejection of a claim on the ground of res judicata, while considering an application under Section 11 of the Act. (Emphasis supplied)
21. Out of the aforesaid judgments cited by Dr. P.C. Jain, counsel for the Non-applicant, the judgment in M/s. P.K. Ramaiah & Co. (supra)and State of Maharashtra (supra), were considered by the Supreme Court in the case of Reshmi Constuction (supra). Both these judgments and one more judgment State of Maharashtra (supra) cited by Dr. Jain have been considered by the Supreme Court in the case of National Insurance Co. Ltd vs. Boghara Polyfab (P) Ltd. {(2009) 1 SCC 267} cited by Mr. Mehta, learned Sr. Counsel appearing for the applicant and mention about the same finds place in the further judgment cited by Mr. Mehta.
22. As regards the judgment in the case of Indian Oil Corporation (supra) is concerned, all the aforesaid judgments have been considered and the judgment of National Insurance Co. Ltd. (supra) has been considered in detail in a case where the issue was related to res judicata and the Supreme Court in paragraphs 14,15 and 16 has decided that the Chief Justice or his Designate has limited scope under Section 11 of the Act 1996 which does not permit such examination of maintainability or tenability of the claim either on facts or in law.
23. Now, I proceed to consider the judgments cited by Mr. Mehta, learned counsel appearing for the applicant.
24. The cases of Nathani Steels (supra) and P.K. Ramaiah & Co. (supra) were considered in Reshmi Construction Co. (supra) wherein it was observed in para 26 of the judgment that the appellant therein did not raise the question that there has been a novation of contract. However, after dealing with the cases of P.K. Ramaiah & Co. and Nathani Steels Ltd. drawing conclusion in the fact situation of that case that the arbitration clause subsists, in para 39(xi) it has been concluded that the cases of P.K. Ramaiah & Co. (supra) and Nathani Steels Ltd. (supra) would show that the decisions therein were rendered having regard to the finding of fact that the contract agreement containing the arbitration clause was substituted by another agreement and such a question has to be considered and determined in each individual case having regard to the fact situation obtaining therein. It has further been held that dispute will survive even after giving `no-demand certificate'. For ready reference the relevant paragraphs 18, 26, 27,28 and 29 and 39(xi) of the judgment of Reshmi Construction Co. (supra) are being reproduced:-
18. Normally, an accord and satisfaction by itself would not affect the arbitration clause but if the dispute is that the contract itself does not subsist, the question of invoking the arbitration clause may not arise. But in the event it be held that the contract survives, recourse to the arbitration clause may be taken ( See Union of India vs. Kishorilal Gupta, AIR 1959 SC 1362 and Naihati Jute Mills Ltd. vs. Khyaliram Jagannath, AIR 1968 SC 522)
26.The appellant herein did not raise a question that there has been novation of contract. The conduct of the parties as evidence in their letters, as noticed hereinbefore, clearly goes to show that not only the final bill was prepared submitted by the respondent was rejected but another final bill was prepared with a printed format that a No-Demand Certificate has been executed as otherwise the final bill would not be paid. The respondent herein, as noticed hereinbefore, categorically stated in its letter dated 20.12.1990 as to under what circumstances they were compelled to sign the said printed letter. It appears from the appendix appended to the judgment of the learned trial Judge that the said letter was filed even before the trial court. It is, therefore, not a case whether the respondent's assertion of under influence or coercion can be said to have been taken by way of an afterthought.
27.Even when rights and obligations of the parties are worked out, the contract does not come to an end inter alia for the purpose of determination of the disputes arising thereunder, and, thus, the arbitration agreement can be invoked. Although it may not be strictly in place but we cannot shut our eyes to the ground reality that in a case where a contractor has made huge investment, he cannot afford not to take from the employer the amount under the bills, for various reasons which may include discharge of his liability towards the banks, financial institutions and other persons. In such a situation, the public sector undertakings would have an upper hand. They would not ordinarily release the money unless a No-Demand Certificate is signed. Each case, therefore, is required to be considered on its own facts.
28. Further, necessitas non habet legem is an age-old maxim which means necessity knows no law. A person may sometimes have to succumb to the pressure of the other party to the bargain who is in a stronger position.
29.We may, however, hasten to add that such a case has to be made out and proved before the arbitrator for obtaining an award.
39(xi) The cases cited by the learned counsel for the appellant (P.K. Ramaiah and Co. and Nathani Steels) would show that the decisions therein were rendered having regard to the finding of fact that the contract agreement containing the arbitration clause was substituted by another agreement. Such a question ha to be considered and determined in each individual case having regard to the fact situation obtaining therein. (Emphasis supplied)
25. In Reshmi Constructions (supra) the appellant thereof did not raise a question that there has been a novation of the contract as specifically referred to in paragraph 26. However, the conclusions of para 39(xi) are relevant to decide whether the contract agreement containing arbitration clause was substituted by another agreement having regard to fact situation in the present case.
26. In the matter of National Insurance Company Ltd. vs. Boghara Polyfab Private Ltd. {(2009)1 SCC 267} while answering the question in what circumstances the Court will refuse to refer the dispute relating to quantum to arbitration particularly when it resists on the ground that the applicant had issued the full and final settlement discharge voucher and the applicant contends that he was constrained to issue it due to coercion and undue influence and economic compulsion, the Supreme Court has also considered the question as to whether the arbitration clause in the contract will cease to have effect, when the contract stood discharged as a result of settlement. The judgment of the Supreme Court in the matter of Union of India vs. Kishorilal Gupta & Bros. (AIR 1959 SC 1362) has been considered in paragraph nos. 16, 17 & 18. Further while reproducing paragraph 10 of the said judgment in the matter of Kishorilal Gupta (supra) the Supreme Court culled out five general principles as to when arbitration agreement operate and when they do not operate and it has been held in point no. (iv) that the parties may put an end to a contract as if it had never existed and substitute a new contract for it, solely governing their rights and liabilities. In such an event, as the original contract is extinguished by the substituted one, the arbitration clause of the original contract perishes with it and the said principle refers to novation of contract. In the same very judgment in paragraph 22 after following the judgment of the Constitution Bench in the matter of SBP & Co. (supra) three categories have been identified and segregated. According to the said paragraph 22.1, the Chief Justice or his designate will have to decide two issues (first category). As per para 22.2 the Chief Justice or his designate may choose to decide or leave them to the decision of the Arbitral Tribunal two issues (second category) and further in para 22.3 the issues (third category) which the Chief Justice/his designate should leave exclusively to the Arbitral Tribunal have been enumerated.
27. While dealing with the case of Nav Bharat Builders (supra) and Nathani Steels (supra) the Supreme Court in National Insurance Co. (supra) on examination of the facts of the aforesaid cases, was satisfied that there were negotiations and voluntary settlement of all pending disputes and the contract was discharged by accord and satisfaction. In P.K. Ramaiah the Supreme Court was satisfied that there was a voluntary acceptance of the measurements and full and final payment of the amount found due, resulted in discharge of the contract leaving no outstanding claim or pending dispute. In those circumstances, the Supreme Court in para 34 held that after such voluntary accord and satisfaction or discharge of the contract, there could be no arbitrable disputes.
28. Before proceeding further it would be appropriate to reproduce the relevant paragraphs 16, 17, 18, 19, 20, 21, 22, 23, 29, 34, 42, 43 and 44 of the judgment in the case of National Insurance Co. (supra), which are as under:-
16. In Union of India v. Kishorilal Gupta & Bros. this Court considered the question whether the arbitration clause in the contract will cease to have effect, when the contract stood discharged as a result of settlement. While answering the question in the affirmative, a three-Judge Bench of this Court culled out the following general principles as to when arbitration agreements operate and when they do not operate: (AIR p. 1370, para 10)
(i)An arbitration clause is a collateral term of a contract distinguished from its substantive terms; but none the less it is an integral part of it.
(ii)Howsoever comprehensive the terms of an arbitration clause may be, the existence of the contract is a necessary condition for its operation; and the arbitration clause perishes with the contract.
(iii)A contract may be non est in the sense that it never came legally into existence or it was void ab initio. In that event, as the original contract has no legal existence, the arbitration clause also cannot operate, for along with the original contract, it is also void.
(iv)Though the contract was validly executed, the parties may put an end to it as if it had never existed and substitute a new contract for it, solely governing their rights and liabilities. In such an event, as the original contract is extinguished by the substituted one, the arbitration clause of the original contract perishes with it. (emphasis supplied)
(v)Between the two extremes referred to in paras (iii) and (iv), are the cases where the contract may come to an end, on account of repudiation, frustration, breach, etc. In these cases, it is the performance of the contract that has come to an end, but the contract is still in existence for certain limited purposes, in respect of disputes arising under it or in connection with it. When the contracts subsist for certain purposes, the arbitration clauses in those contracts operate in respect of those purposes.
The principle stated in para (i) is now given statutory recognition in Section 16(1)(a) of the Act. The principle in para (iii) has to be now read subject to Section 16(1)(b) of the Act. The principles in paras (iv) and (v) are clear and continue to be applicable. The principle stated in para (ii) requires further elucidation with reference to contracts discharged by performance or accord and satisfaction.
17. The decision in Kishorilal Gupta was followed and reiterated in several decisions including Naihati Jute Mills Ltd. v. Khyaliram Jagannath, Damodar Valley Corpn. v. K.K. Kar and Indian Drugs & Pharmaceuticals Ltd. v. Indo Swiss Synthetics Gem Mfg. Co. Ltd. In Damodar Valley Corpn. this Court observed: (SCC p. 145, para 7)
7. A contract is the creature of an agreement between the parties and where the parties under the terms of the contract agree to incorporate an arbitration clause, that clause stands apart from the rights and obligations under that contract, as it has been incorporated with the object of providing a machinery for the settlement of disputes arising in relation to or in connection with that contract. The questions of unilateral repudiation of the rights and obligations under the contract or of a full and final settlement of the contract relate to the performance or discharge of the contract. Far from putting an end to the arbitration clause, they fall within the purview of it. A repudiation by one party alone does not terminate the contract. It takes two to end it, and hence it follows that as the contract subsists for the determination of the rights and obligations of the parties, the arbitration clause also survives. This is not a case where the plea is that the contract is void, illegal or fraudulent, etc. in which case, the entire contract along with the arbitration clause is non est, or voidable. As the contract is an outcome of the agreement between the parties it is equally open to the parties thereto to agree to bring it to an end or to treat it as if it never existed. It may also be open to the parties to terminate the previous contract and substitute in its place a new contract or alter the original contract in such a way that it cannot subsist. In all these cases, since the entire contract is put an end to, the arbitration clause, which is a part of it, also perishes along with it.
(emphasis supplied)
18. Section 16 of the Act bestows upon the Arbitral Tribunal, the competence to rule on its own jurisdiction. Sub-section (1) of the section reads thus:
16. Competence of Arbitral Tribunal to rule on its jurisdiction.(1) The Arbitral Tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,
(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and
(b) a decision by the Arbitral Tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.
19. In SBP & Co. v. Patel Engg. Ltd. {(2005) 8 SCC 618}, a seven-Judges Bench of this Court considered the scope of Section 11 of the Act and held that the scheme of Section 11 of the Act required the Chief Justice or his designate to decide whether there is an arbitration agreement in terms of Section 7 of the Act before exercising his power under Section 11(6) of the Act and its implications. It was of the view that sub-sections (4), (5) and (6) of Section 11 of the New Act, combined the power vested in the court under Sections 8 and 20 of the old Act (the Arbitration Act, 1940). This Court held: (SCC pp.660-61 & 663, paras 39 & 47)
39. It is necessary to define what exactly the Chief Justice, approached with an application under Section 11 of the Act, is to decide at that stage. Obviously, he has to decide his own jurisdiction in the sense, whether the party making the motion has approached the right High Court. He has to decide whether there is an arbitration agreement, as defined in the Act and whether the person who has made the request before him, is a party to such an agreement. It is necessary to indicate that he can also decide the question whether the claim was dead one; or a long-barred claim that was sought to be resurrected and whether the parties have concluded the transaction by recording satisfaction of their mutual rights and obligations or by receiving the final payment without objection. It may not be possible at that stage, to decide whether a live claim made, is one which comes within the purview of the arbitration clause. It will be appropriate to leave that question to be decided by the Arbitral Tribunal on taking evidence, along with the merits of the claims involved in the arbitration. The Chief Justice has to decide whether the applicant has satisfied the conditions for appointing an arbitrator under Section 11(6) of the Act. For the purpose of taking a decision on these aspects, the Chief Justice can either proceed on the basis of affidavits and the documents produce or take such evidence or get such evidence recorded, as may be necessary. We think that adoption of this procedure in the context of the Act would best serve the purpose sought to be achieved by the Act of expediting the process of arbitration, without too many approaches to the court at various stages of the proceedings before the Arbitral Tribunal.
47.(iv)The Chief Justice or the Designated Judge will have the right to decide the preliminary aspects as indicated in the earlier part of this judgment. These will be his own jurisdiction to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for the exercise of his power and on the qualifications of the arbitrator or arbitrators.
20. This Court in SBP & Co. (supra) also examined the competence of the Arbitral Tribunal to rule upon its own jurisdiction and about the existence of the arbitration clause, when the Chief Justice or his designate had appointed the Arbitral Tribunal under Section 11 of the Act, after deciding upon such jurisdictional issue. This Court held:(SCC pp.644 & 649, paras 12 & 20) (emphasis supplied)
12.....We are inclined to the view that the decision of the Chief Justice on the issue of jurisdiction and the existence of a valid arbitration agreement would be binding on the parties when the matter goes to the Arbitral Tribunal....
20. Section 16 is said to be recognition of the principle of Kompetenz-Kompetenz. The fact that the Arbitral Tribunal has the competence to rule on its own jurisdiction and to define the contours of its jurisdiction, only means that when such issues arise before it, the Tribunal can, and possibly, ought to decide them. This can happen when the parties have gone to the Arbitral Tribunal without recourse to Section 8 or 11 of the Act. But where the jurisdictional issues are decided under these sections, before a reference is made, Section 16 cannot be held to empower the Arbitral Tribunal to ignore the decision given by the judicial authority or the Chief Justice before the reference to it was made. The competence to decide does not enable the Arbitral Tribunal to get over the finality conferred on an order passed prior to its entering upon the reference by the very statute that creates it. That is the position arising out of Section 11(7) of the Act read with Section 16 thereof. The finality given to the order of the Chief Justice on the matters within his competence under Section 11 of the Act, are incapable of being reopened before the Arbitral Tribunal. (emphasis supplied)
21. It is thus clear that when a contract contains an arbitration clause and any dispute in respect of the said contract is referred to arbitration without the intervention of the court, the Arbitral Tribunal can decide the following questions affecting its jurisdiction: (a) whether there is an arbitration agreement; (b) whether the arbitration agreement is valid; (c) whether the contract in which the arbitration caluse is found is null and void, and if so, whether the invalidity extends to the arbitration clause also. It follows, therefore, that if the respondent before the Arbitral Tribunal contends that the contract has been discharged by reason of the claimant accepting payment made by the respondent in full and final settlement, and if the claimant counters it by contending that the discharge voucher was extracted from him by practicising fraud, undue influence, or coercion, the Arbitral Tribunal will have to decide whether the discharge of contract was vitiated by any circumstance which rendered the discharge voidable at the instance of the claimant. If the Arbitral Tribunal comes to the conclusion that there was a valid discharge by voluntary execution of a discharge voucher, it will refuse to examine the claim on merits, and reject the claim as not maintainable. On the other other hand, if the Arbitral Tribunal comes to the conclusion that such discharge of contract was vitiated by any circumstance which rendered it void, it will ignore the same and proceed to decide the claim on merits.
22. Where the intervention of the court is sought for appointment of an Arbitral Tribunal under Section 11, the duty of the Chief Justice or his designate is defined in SBP & Co. This Court identified and segregated the preliminary issues that may arise for consideration in an application under Section 11 of the Act into three categories, that is, (i) issues which the Chief Justice or his designate is bound to decide; (ii) issues which he can also decide, that is, issues which he may choose to decide; and (iii) issues which should be left to the Arbitral Tribunal to decide. (emphasis supplied) 22.1.The issues (first category) which the Chief Justice/his designate will have to decide are;
(a) Whether the party making the application has approached the appropriate High Court.
(b) Whether there is an arbitration agreement and whether the party who has applied under Section 11 of the Act, is a party to such an agreement.
22.2.The issues (second category) which the Chief Justice/his designate may choose to decide (or leave them to the decision of the Arbitral Tribunal) are:
(a) Whether the claim is a dead (long-barred) claim or a live claim.
(b)Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection.
22.3.The issues (third) category which the Chief Justice/his designate should leave exclusively to the Arbitral Tribunal are:
(i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration)
(ii)Merits or any claim involved in the arbitration.
(emphasis supplied)
23. It is clear from the scheme of the Act as explained by this Court in SBP & Co.(supra), that in regard to issues falling under the second category, if raised in any application under Section 11 of the ct, the Chief Justice/his designate may decide them, if necessary, by taking evidence. Alternatively, he may leave those issues open with a direction to the Arbitral Tribunal to decide the same. If the Chief Justice or his designate chooses to examine the issue and decides it, the Arbitral Tribunal cannot re-examine the same issue. The Chief Justice/his designate will, in choosing whether he will decide such issue or leave it to the Arbitral Tribunal, be guided by the object of the Act (that is expediting the arbitration process with minimum judicial intervention). Where allegations of forgery/fabrication are made in regard to the document recording discharge of contract by full and final settlement, it would be appropriate if the Chief Justice/his designate decides the issue.
(emphasis supplied)
29. It is thus clear that the arbitration agreement contained in a contract cannot be invoked to seek reference of any dispute to arbitration, in the following circumstances, when the contract is discharged on account of performance, or accord and satisfaction, or mutual agreement, and the same is reduced to writing (and signed by both the parties or by the party seeking arbitration):
(a) where the obligations under a contract are fully performed and discharge of the contract by performance is acknowledged by a full and final discharge voucher/receipt, nothing survives in regard to such discharged contract;
(b) where the parties to the contract, by mutual agreement, accept performance of altered, modified and substituted obligations and confirm in writing the discharge of contract by performance of the altered, modified or substituted obligations;
(c) where the parties to a contract, by mutual agreement, absolve each other from performance of their respective obligations (either on account of frustration or otherwise) and consequently cancel the agreement and confirm that there are no outstanding claims or disputes.
34. What requires to be noticed is that in Nav Bharat Builders and Nathani Steels this Court on examination of facts, was satisfied that there were negotiations and voluntary settlement of all pending disputes, and the contract was discharged by accord and satisfaction. In P.K. Ramaiah the court was satisfied that there was a voluntary acceptance of the measurements and full and final payment of the amount found due, resulting in discharge of the contract, leaving no outstanding claim or pending disputes. In those circumstances, this Court held that after such voluntary accord and satisfaction or discharge of the contract, there could be no arbitrable disputes. (emphasis supplied).
42. We thus find that the cases referred to fall under two categories. The cases relied on by the appellant are of one category where the Court after considering the facts, found that there was a full and final settlement resulting in accord and satisfaction, and there was no substance in the allegations of coercion/undue influence. Consequently, this Court held that there could be no reference of any dispute to arbitration. The decisions in Nav Bharat (supra) and Nathani Steels (supra) are cases falling under this category where there were bilateral negotiated settlements of pending disputes, such settlements having been reduced to writing either in the presence of witnesses or otherwise. P.K. Ramaiah (supra) in a case where the contract was performed and there was a full and final settlement and satisfaction resulting in discharge of the contract. It also falls under this category.
43. The cases relied on by the respondent fall under a different category where the Court found some substance in the contention of the claimants that No-dues/claim certificates, or full and final settlement discharge vouchers were insisted and taken (either in a printed format or otherwise) as a condition precedent for release of the admitted dues. Alternatively, they were cases where full and final discharge was alleged, but there were no documents confirming such discharge. Consequently, this Court held that the disputes were arbitrable.
44. None of the three cases relied on by the appellant lay down a proposition that mere execution of a full and final settlement receipt or a discharge voucher is a bar to arbitration, even when the validity thereof is challenged by the claimant on the ground of fraud, coercion or undue influence. Nor do they lay down a proposition that even if the discharge of contract is not genuine or legal, the claims cannot be referred to arbitration. In all the three cases, the Court examined the facts and satisfied itself that there was accord and satisfaction or complete discharge of the contract and that there was no evidence to support the allegation of coercion/undue influence.
(Emphasis supplied)
29. The further judgment cited by Mr. Mehta, learned Sr. Counsel appearing for the Applicant is Asian Techs Limited vs. Union of India & Ors. {(2009) 10 SCC 354} wherein the question considered was whether the liability has been satisfied or not, resulting in termination and discharge of the contract. Their lordships of the Supreme Court while considering the cases of National Insurance Co.Ltd. vs. Boghara Polyfab (P) Ltd. {(2009)1 SCC 267} and NTPC Ltd. vs. Reshmi Constructions (supra), Port of Calcutta vs. Engineers-De-Space-Age, {(1996) 1 SCC 516} and Bharat Drilling & Treatment (P) Ltd. vs. State of Jharkhand {(2009) 16 SCC 705} held that even in case of issuance of full and final discharge/settlement voucher/no-dues certificate, the arbitrator or the court can go into the question whether the liability has been satisfied or not. This decision has followed the view taken in Reshmi Constructions (supra). In para 21 of the judgment it has been held that a clause like clause 11 only prohibits the department from entertaining the claim but it did not prohibit the Arbitrator from entertaining it. However, for ready reference, paragraph nos. 20 and 21 of the judgment are reproduced hereunder:-
20. It has been held by this Court in National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd. that even in the case of issuance of full and final discharge / settlement voucher/no-dues certificate, the arbitrator or court can go into the question whether the liability has been satisfied or not. This decision has followed the view taken in NTPC Ltd. vs. Reshmi Constructions, Builders and Contractors.
21. Apart from the above, it has been held by this Court in Port of Calcutta vs. Engineers-De-Space-Age that a clause like Clause 11 only prohibits the Department from entertaining the claim, but it did not prohibit the arbitrator from entertaining it. This view has been followed by another Bench of this Court in Bharat Drilling & Treatment (P) Ltd. vs. State of Jharkhand. (Emphasis supplied)
30. Mr. Mehta, learned Sr. Advocate appearing for the Applicant has also cited one more judgment of the Supreme Court in the case of R.L. Kalathia and Company vs. State of Gujarat {(2011) 2 SCC 400} wherein it has been held that signing of no-claim certificate/ no-dues certificate by the contractor will not be an absolute bar to the contractor from raising genuine claims. The relevant Paragraph No.13 reads thus:-
13. From the above conclusions of this Court, the following principles emerge:
(i)Merely because the contractor has issued no-dues certificate, if there is an acceptable claim, the court cannot reject the same on the ground of issuance of no-dues certificate.
(ii)Inasmuch as it is common that unless a discharge certificate is given in advance by the contractor, payment of bills are generally delayed, hence such a clause in the contract would not be an absolute bar to a contractor raising claims which are genuine at a later date even after submission of such no-claim certificate.
(iii)Even after execution of full and final discharge voucher/receipt by one of the parties, if the said party is able to establish that he is entitled to further amount for which he is having adequate materials, he is not barred from claiming such amount merely because of acceptance of the final bill by mentioning without prejudice or by issuing no-dues certificate. (Emphasis supplied).
31. I have gone through the record of the arbitration application and further considered the rival submissions of the counsel for the parties in the light of the judgments cited by them, as discussed hereinabove.
Consideration of the Questions
32. Question No.(i) framed in the preceding para is as follows:-
Whether (i) having regard to the given facts situation of this case, there has been novation of contract by signing of undertakings/amicable settlements dated 23.3.2007 voluntarily and the terms of the same have been settled mutually, which extinguished the original contract and the arbitration clause 21 perishes, therefore, it will bar reference to the Arbitrator or arbitration Clause 21 of the original contract, to which the Applicant is a party, survives;
33. The aforesaid Question No.(i) was framed after consideration of the preliminary objection raised by Dr. P.C. Jain, counsel for the Non-applicant that there has been a novation of contract by way of undertakings/amicable settlements signed by both the parties. Therefore, the earlier contract extinguished and its arbitration clause perishes with it and further both the parties settled the issue that the delay in completion of the project was attributable to causes that were beyond the control of the contractor and they undertook and guaranteed that they will not seek any further action including arbitration or civil suit under the contract for any issues of any nature whatsoever. Submission of Dr.P.C.Jain is that as the aforesaid undertakings / amicable settlements contain `bar of arbitration' no reference can be made. Counsel for the applicant further submits that the undertakings / amicable settlement dated 23.3.2007, relied upon by the Non-applicant as full and final settlement, were obtained by the Non-applicant under the influence and coercion exercised by it, using its dominant position, therefore, the said undertakings are not tenable in law and the settlement(s) cannot be termed as mutual settlement signed voluntarily. In the aforesaid facts and circumstances of the case, counsel for the Applicant submits that the present case is not of novation of contract, therefore, the original contract subsists and the arbitration clause will survive and the reference can be made to the Arbitrator.
34. In support of the aforesaid submission, Dr. P.C. Jain placed reliance on the judgments of the Supreme Court in the case of Nav Bharat Builders (supra), P.K. Ramaiah, Nathani Steels and Indian Oil Corporation whereas Mr. Mehta has placed reliance on Reshmi Construction (supra), National Insurance Co., Asian Tech and R.L. Kalathia & Co.
35. As discussed hereinabove, Nav Bharat Builders was a case where the dispute was settled by the parties in the court and the suit was withdrawn and subsequently application for arbitration was filed. In Nathani Steels, signing of the settlement by the applicant was said to be under mistake and further in P.K. Ramaiah, there was a voluntary and unconditional acceptance of the payment for full and final settlement of the contract. In Reshmi Construction, the question of novation of contract was not raised as referred to hereinabove in para 26. However, the Supreme Court in para 39(xi) has drawn a conclusion that in P.K. Ramaiah and Nathani Steels the contract agreement containing arbitration clause was substituted by another contract and such a question is to be considered and determined in each individual case having regard to the fact situation obtaining therein. Nav Bharat Builders cited by Dr. P.C. Jain was also considered along with the cases of Nathani Steels and P.K. Ramaiah in para 34 of National Insurance Co.(supra) and it was concluded that the Court was satisfied that there were negotiations and voluntary settlement of all pending disputes and therefore, there could be no arbitral issue.
(36) Adverting to the fact situation of this case, the issue of terms and conditions of the alleged voluntary undertakings / amicable settlements has been raised by the Non-applicant whereas the Applicant submits that the undertakings/amicable settlements, relied upon by the Non-applicant as full and final settlement were obtained by the Non-applicant under the influence and coercion exercised by it, using its dominant position, therefore, I have to find out whether in the fact situation of the present case, there has been mutual agreement with regard to the terms and conditions of the amicable settlement and further the Applicant has signed the undertakings/mutual settlements dated 23.3.2007 voluntarily by recording satisfaction of their mutual rights and obligations under the contract so that neither the contract nor the arbitration agreement survived, which bars reference to the Arbitrator. The dispute with regard to the delay in completion of the project attributable to the non-applicant was going on leading to the compensation events much prior to the undertakings dated 23.3.2007 and the payment was not released, the Applicant was left with no other alternative except to sign the undertaking/amicable settlement. However, the payment was released subsequently. Considering the ratio of the judgment cited by Dr. P.C. Jain to the present fact situation of this case, as discussed hereinabove, I am of the view that the same are distinguished on facts and the judgments cited by Mr. Mehta are applicable on the issue that there is no novation of contract. Since the payment was withheld by the Non-applicant and the Applicant was under the pressure that the same will not be released unless the undertakings / amicable settlements were signed, the Non-applicant was in a dominant position. Therefore, considering the present fact situation of this case, as discussed hereinabove, I record my preliminary satisfaction that the Non-applicant, who was in a dominant position, obtained the undertakings / amicable settlements dated 23.3.2007 under undue influence and coercion, hence, the terms of the mutual agreement cannot be said to be settled mutually and there has been no novation of contract and further, neither the original contract extinguished nor arbitration clause 21 of the original contract perishes which will bar reference to the Arbitrator and the arbitration Clause 21 of the original contract, to which the Applicant is a party, will survive.
(37) The said Question No.(i) can only be conclusively decided after taking evidence of both the parties. The said question is discretionary for me to decide as per para 22.2(b) of National Insurance Co. and para 14 of Indian Oil Corporation (supra) and in my view, evidence is required on the issue of dominant position, undue influence and coercion, as raised by the Applicant, which has been disputed by the Non-applicant by submitting that the said undertakings / amicable settlements were signed voluntarily, therefore, I am leaving the said issue to be decided by the Sole Arbitrator.
Consideration of Question No.(ii)
(ii) having accepted full and final payment, the applicant is estopped from raising the dispute under arbitration clause No.21 of the original contract, which would stand discharged, therefore, no arbitral issue is involved in the matter ?
(38) Submission of the counsel for the Non-applicant is that even if this Court comes to the conclusion that the arbitration Clause 21 of the contract survives, then also, having accepted full and final payment, the Applicant is estopped from raising the dispute under clause 21 of the original agreement which stood discharged whereas the submission of Mr. Mehta, learned Sr. Advocate is that the dispute regarding the delay on the part of the Non-applicant was raised by the Applicant for the first time on 16.6.2004 prior to the undertakings/amicable settlements dated 23.3.2007. The genuine and legitimate claims of the Applicant against the Non-applicant cannot be foreclosed by referring to the three undertakings / amicable settlements dated 23.3.2007 which were neither signed voluntarily nor the terms of the same were settled mutually. Since the payment of the Applicant was to be released, the Applicant was left with no option except to accept the terms of the undertakings/amicable settlements and sign it, therefore, mere acceptance of the claim, which would not discharge the parties from all rights, obligations and remedies under the contract, will not estop the Applicant from raising genuine and legitimate claim and the same is an arbitral issue.
(39) Question No.(ii) is with regard to estoppel. In the latest case of R.L. Kalathia & Co. (supra) cited by Mr. Mehta, learned counsel for the applicant, their Lordships of the Supreme Court after considering the various judgments including Reshmi Constructions and National Insurance Co. laid down three principles according to which mere acceptance of the bill would not be an absolute bar to the contractor for raising claims which are genuine and even after submission of 'no such-claim'. In Asian Tech., National Insurance Co., Reshmi Construction Co., Port of Calcutta, Bharat Drillings have been considered and it has been held that even in the case of discharge/settlement voucher/ no dues certificate, are arbitral issues and the Court can go into the question whether the liability has been satisfied or not.
(40) Now, adverting to the fact situation of the present case, on Question No.(ii) with regard to estoppel, the contractor was raising the dispute that the delay in completion of the project is attributable to the Non-applicant and he is entitled for compensation on account of the said delay but his payment was not released unless he signed the undertakings / amicable settlements which according to him were not signed voluntarily and the terms of the same were not settled mutually. The full and final payment was received by the Applicant subject to the rights and contentions available to it under law and as such, the said payment cannot be related to the undertakings / amicable settlements dated 23.3.2007 so given under undue influence and coercion exercised by the non-applicant using its dominant position. The cases - Nathani Steels, P.K. Ramaiah and Nav Bharat Builders, which are on the issue of estoppel, are also distinguished on the present fact situation of this case, as discussed hereinabove. The judgment in the case of Indian Oil Corporation cited by Dr. P.C. Jain is of res judicata and not of estoppel and in the aforesaid judgments cited by Mr. Mehta, the issue of estoppel has been held to be arbitral issue. On the Question No.(ii) relating to estoppel, considering the present fact situation of this case, as discussed hereinabove, I record my preliminary satisfaction that payment has been accepted by the Applicant subject to the rights and contentions available to it under law which would not discharge the original contract, by recording satisfaction of all rights and obligations under the contract, and the same will not foreclose the right of reference under Clause 21 of the original contract by referring to the three undertakings / amicable settlements dated 23.3.2007 and the said issue is arbitral.
(41) The said Question No.(ii) of estoppel, can also be conclusively decided after taking evidence of both the parties and it is also discretionary for me to decide as per Para 22.2.(b) of National Insurance Co.(supra) therefore, I am leaving the said issue to be conclusively decided by the Sole Arbitrator.
(42) The dispute of delay in completion of the project is attributable to the non-applicant or not ?, for which the Applicant is entitled for compensation or not ? are the issues which are required to be decided by the Sole Arbitrator after recording evidence of the parties. Both the aforesaid Questions No.(i) and (ii) relate to Second Category in Para 22.2.(b) of National Insurance Co. and para 14 of the Indian Oil Corporation (supra) which requires evidence, therefore, I am leaving them to the decision of the Sole Arbitrator.
(43) The Applicant duly presented its claim dated 18.12.2007 before the Superintending Engineer, RUIDP under Clause 21 of the Contract claiming an amount of Rs.12,99,244.29 per month for the period from 23.5.2004 to 30.11.2006 and till 30.11.2007 for the claim for interest on performance bank guarantee and for interest on 50% of retention money which has been withheld by the Non-applicant despite the completion of works and in this connection, document Annexure-10 has been reiterated. It is further stated that under Clause 21, the Engineer was required to decide the claim and give a written notice of his decision to the Employer, i.e. the Non-applicant herein and the Contractor i.e. the Applicant herein within 28 days of receiving the reference from the parties. However, it is submitted that in the present case, the Engineer did not communicate any such decision within the aforesaid period and as per Clause 21.2 the Applicant was well within its rights to give notice within a period of 28 days from the expiry of the initial 28 days to the Non-applicant with copy to the Engineer of its intention to commence arbitration for settlement of dispute. The Applicant accordingly and well within the limitation prescribed sent a notice dated 21.1.2008 (Anx.12) conveying its intention to commence arbitration for settlement of dispute, copy of which has been filed as Annexure-12. Relevant Clause 21 has also been annexed as Annexure-11 to the Application. Thus, the Applicant has followed the arbitral procedure laid down under Clause 21 of the original contract, therefore, the Applicant is entitled for reference to the Arbitrator.
(44) I deem it proper to refer the present case to Mr. Justice S.N. Bhargava, Former Chief Justice, Sikkim High Court.
(45) Accordingly, the application is allowed and Mr. Justice S.N. Bhargava, Former Chief Justice, Sikkim High Court residing at 20/46, Renu Path, Ambedkar Marg, Mansarovar, Jaipur-302020 is appointed as the Sole Arbitrator. It is open for the Non-applicant to raise all the objections before the Sole Arbitrator. The fees of the Sole Arbitrator and the office expenses shall be settled by the Sole Arbitrator as per the Arbitration Manual.
(46) A copy of this order be sent to the Sole Arbitrator Mr. Justice SN Bhargava, Former Chief Justice, Sikkim High Court residing at 20/46, Renu Path, Ambedkar Marg, Mansarovar, Jaipur-302020.
(PREM SHANKER ASOPA) J.
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