Gujarat High Court
Jay Jawan Construction Company vs Western Railway & on 12 February, 2016
Author: Akil Kureshi
Bench: Akil Kureshi
O/IAAP/79/2015 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
PETN. UNDER ARBITRATION ACT NO. 79 of 2015
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JAY JAWAN CONSTRUCTION COMPANY....Petitioner(s)
Versus
WESTERN RAILWAY & 1....Respondent(s)
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Appearance:
MR.CHIRAG K SUKHWANI, ADVOCATE for the Petitioner(s) No. 1
MR RAVI KARNAVAT, ADVOCATE for the Respondent(s) No. 1 - 2
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
Date : 12/02/2016
ORAL ORDER
1. The petitioner seeks appointment of an arbitrator to resolve the disputes between the petitioner and the respondents respectively.
2. Brief facts are as under. The petitioner - a partnership firm, was awarded work of construction of road under bridge by the Railways in connection with Viramgam Samakhiyali Doubling project. The work was issued in June 2013 and had to be completed by 11.3.2014. The petitioner had deposited a sum of Rs.4.34 lacs by way of Earnest Money Deposit and by way of performance guarantee, the petitioner had given irrevocable bank guarantee of Rs.30,00,512/. During the execution of such work, disputes surfaced between the petitioner and the Railways. Since the petitioner's request for release of security deposit and return of bank guarantee was not entertained by the Railways, the petitioner filed Special Page 1 of 14 HC-NIC Page 1 of 14 Created On Thu Feb 18 00:53:36 IST 2016 O/IAAP/79/2015 ORDER Civil Application No.10893/2014. Such petition came to be disposed of by order dated 5.8.2014 in which the Court directed the Railways to decide the representation of the petitioner. Thereupon the Railway authorities wrote to the petitioner on 20.8.2014 and asked the petitioner to attend the office to explore all possibilities to resolve the issues raised in the said petition. It is undisputed that the representative of the petitioner firm remained present on 22.8.2014. The petitioner gave two letters to the Railways. In first such letter he stated as under :
"In reference to above, our Special Civil Application No.10893 of 2014 filed before the Honourable High Court of Gujarat at Ahmedabad, we are ready to withdraw our Special Application filed before the Honourable High Court, if our dues like Earnest Money Deposit and Performance Guarantee submitted to Railways against above mentioned work are released immediately. We will not go for any arbitration for that."
3. In the second letter, he had stated as under :
"In reference to above, our Special Civil Application No.10893 of 2014 filed before the Honourable High Court of Gujarat at Ahmedabad, we are ready to withdraw our Special Application filed before the Honourable High Court, if our dues like Earnest Money Deposit and Performance Guarantee submitted to Railways against above mentioned work are released immediately. We will not go for any arbitration for that. This may be treated as full and final settlement with the Railways for the subject work."
4. In view of personal meeting between the representative of the petitioner partnership firm and the Railway authorities Page 2 of 14 HC-NIC Page 2 of 14 Created On Thu Feb 18 00:53:36 IST 2016 O/IAAP/79/2015 ORDER and two undertakings that the petitioner gave to the Railways on 22.8.2014 under letter dated 12.11.2014, the Railways released the EMD of Rs.4.34 lacs and also the performance bank guarantee for a sum of Rs.30,01,000/ and conveyed that "Please note that on release of your EMD & PG, your all claims towards above mentioned work are treated as settled." The petitioner thereafter, on 14.11.2014 issued a legal notice to the Railways and raised the claim of Rs.90,01,536.77 towards loss of profit, with interest, contending that the petitioner reserved its right to claim loss of profit in Special Civil Application No. 10893/2014 since such petition was filed only for release of EMD and performance of bank guarantee.
5. In response to such letter of the petitioner, the Railways under communication dated 7.1.2015 asserted that the petitioner had accepted the release of EMD and performance bank guarantee towards all dues arising under work order and that therefore, no question of loss of profit could be raised. It was also conveyed that the petitioner had not done any work at the site nor applied for extension though reminded twice. There was thus a clear breach of contract on part of the petitioner. The petitioner thereupon issued notice dated 15.5.2015 activating arbitration clause giving 30 days' time to the Railways to respond.
6. Under such circumstances, this arbitration petition has been filed. The prayer for appointment of arbitrator is opposed by the Railways on two counts. Firstly, according to the Railways the arbitration clause envisages Page 3 of 14 HC-NIC Page 3 of 14 Created On Thu Feb 18 00:53:36 IST 2016 O/IAAP/79/2015 ORDER appointment of arbitrator only after completion of work. In the present case, since the work was not completed, the petitioner cannot resort to arbitration. Important and more fundamental objection of the Railways is that the petitioner had accepted release of EMD and bank guarantee document by way of full and final settlement of all claims. The petitioner had specifically agreed that it will not resort to arbitration for raising any further claim. Having so agreed, it was not open for the petitioner to reopen the issues.
7. Learned counsel for the petitioner vehemently contended that the petitioner had at no point of time given up the claims of damages in the form of loss of profit on account of default attributable to the Railways. He submitted that even after giving the declarations dated 22.8.2015, it was always open for the petitioner to approach the legal forum and any agreement to the contrary would be void. He submitted that the petitioner had never accepted the security deposit and release of bank guarantee by way of full and final settlement of all the claims arising out of work order. He relied on the following decisions :
1) R.L. Kalathia and co. v. State of Gujarat reported in AIR 2011 Supreme Court 754.
2) A.V. M. Sales Corporation v. Anuradha Chemicals Private Limited reported in (2012) 2 Supreme Court Cases
315.
3) Ambica Construction v. Union of India reported in (2006) 13 Supreme Court Cases 475.
4) Sugam Constrcution (P) Ltd. v. Ahmedabad Urban
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O/IAAP/79/2015 ORDER
Development Authority and others (SCA No.104/2012,
order dated 5.4.2013)
8. On the other hand learned counsel for the Railways opposed the petition contending that the petitioner had given up all the claims while accepting the release of security deposit and the performance bank guarantee. Only on such condition, the same were released as is clearly borne out from the letter of the Railways dated 12.11.2014. He would also refer to reply dated 7.1.2015 of the Railways to the legal notice issued by the petitioner in which the Railways had multiple disputes with the petitioner.
9. We may summarise the relevant facts as under. The petitioner was awarded work order for construction of Railway underbridge. Soon after the work was awarded, disputes surfaced between the petitioner and the Railways. Since the Railways were not releasing the security deposit of Rs. Rs.4.34 lacs and bank guarantee of Rs.30,00,512/, the petitioner filed Special Civil Application No.10893/2014 in which the Court directed the Railways to decide the representation of the petitioner. Thereupon, the Railways called upon the petitioner for personal negotiation under communication dated 20.8.2014. Representative of the petitioner partnership firm remained present before the Railways authorities on 22.8.2014 and gave two declarations. First was that if the petitioner's dues like EMD and performance bank guarantee are released immediately, the petitioner will not go for arbitration for that. He gave a further undertaking also on 22.8.2014 that Page 5 of 14 HC-NIC Page 5 of 14 Created On Thu Feb 18 00:53:36 IST 2016 O/IAAP/79/2015 ORDER if dues like EMD and performance bank guarantee are released immediately, the petitioner will not go for arbitration and this may be treated as full and final settlement with the Railways for the subject work. It was only thereafter, that the Railways under communication dated 12.11.2014 released said two amounts and conveyed that all claims of the petitioner arising out of such work order are treated as settled.
10. The petitioner having accepted the release of EMD and performance bank guarantee of sizeable amount by way of full and final settlement of all its claim arising out of work order, now cannot turn around and seek to make any further claim before any forum. It was always open for the petitioner to assert its legal rights, raise all claims including for release of bank guarantee and EMD. In such a situation, it would have been open for the Railways also to raise counter claims and point out that the petitioner had from the outset defaulted in carrying out the work and had not asked for extension nor started the work. Be that as it may, when the Railways decided to bury the hatchet and offer the release of the bank guarantee and EMD by way of full and final settlement, it was still open for the petitioner to refuse to accept the same under such conditions. Instead, the petitioner gave two separate undertakings. In first such undertaking, he stated that if EMD and bank guarantee are released immediately, the petitioner will not approach arbitrator for such purpose. Perhaps realising that such language was open to disputes in future, the petitioner gave yet another undertaking in which he clearly stated that if the said amount/document Page 6 of 14 HC-NIC Page 6 of 14 Created On Thu Feb 18 00:53:36 IST 2016 O/IAAP/79/2015 ORDER are released immediately, the petitioner would accept the same as full and final settlement of all claims under the contract. This being a clear understanding on part of the petitioner and the Railways having acted on basis of such undertaking, it would simply not be open for the petitioner to now contend that the petitioner would be allowed to raise other claims for damages due to loss of profit. The Railways while returning the EMD amount and the bank guarantee documents under its communication dated 12.11.2004 conveyed to the petitioner that "on release of your EMD and PG, your all claims towards above mentioned work are treated as settled." If the petitioner did not agree to such conditional release, it should have refused to accept the benefits out of such order/letter. It is by now well settled that the Chief Justice or his designate while deciding the application for appointment of arbitrator under section 11 of the Act, can also go into certain optional issues, one of them being whether the claim sought to be raised is one which has been forgone by way of full and final settlement. Reference in this respect can be made in case of SBP & Co. v. Patel Engineering and another reported in (2005) 8 Supreme Court Cases 618. It was held :
"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 Page 7 of 14 HC-NIC Page 7 of 14 Created On Thu Feb 18 00:53:36 IST 2016 O/IAAP/79/2015 ORDER decide the question whether the claim was a 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 produced 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."
11. In case of Union of India and others v. Onkar Nath Bhalla and sons reported in (2009) 7 Supreme Court Cases 350, it was observed as under :
"8) In the present case, appellants made the full and final payment of the final bill and to which respondent certified by signing the bill without any protest or reservation.
Respondent with the intention of receiving further payments, after two years, raised yet another claim and tried to bring up a dispute. And when the claim was denied by the appellants, respondent requested to appoint an Arbitrator.
9) The condition 65 of General conditions of contract IAFW 2249 states that no further claim shall be made by the Page 8 of 14 HC-NIC Page 8 of 14 Created On Thu Feb 18 00:53:36 IST 2016 O/IAAP/79/2015 ORDER contractor after submission of final bill and these shall be deemed to have been waived and extinguished. Also condition 70 states that, all dispute between the parties to the contract shall after written notice by either party to the contract, be referred to the sole arbitration of a serving officer having degree in Engineering or equivalent.
10) While appointing an Arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996, two things must be kept in mind:
i. That there exists a dispute between the parties to the agreement and that the dispute is alive.
ii. Secondly, an Arbitrator must be appointed as per the terms and conditions of the agreement and as per the need of the dispute.
11)It is the specific case of the appellants, respondent could not have raised yet another claim, as the respondent after signing on the final bill without any protest or reservation has waived his right as per the conditions of the contract. The Court without considering that whether any dispute exists between the parties, could not have appointed an Arbitrator.
12) Therefore, the Court was not justified in appointing a Retired High Court Judge as the sole Arbitrator in the present case."
12. In case of Cauvery Coffee Traders, Mangalore v. Honor Resources (International) Company Limited reported in (2011) 10 Supreme Court Cases 420, the Supreme Court after referring to large number of judgements including in case of R.L. Kalathia and co. (supra) held and observed as under :
30. In view of the above, law on the issue stands crystallised to the effect that, in case, final settlement has Page 9 of 14 HC-NIC Page 9 of 14 Created On Thu Feb 18 00:53:36 IST 2016 O/IAAP/79/2015 ORDER been reached amicably between the parties even by making certain adjustments and without any misrepresentation or fraud or coercion, then, acceptance of money as full and final settlement/issuance of receipt or vouchers etc. would conclude the controversy and it is not open to either of the parties to lay any claim/demand against the other party.
31. The applicants have not pleaded that there has been any kind of misrepresentation or fraud or coercion on the part of the respondents. Nor it is their case that payment was sent by the respondents without any settlement/agreement with the applicants, and was a unilateral act on their part. The applicants reached the final settlement with their eyes open and instructed their banker to accept the money as proposed by the respondents. Proposal itself was on the basis of clause 5 of the Purchase Contract which provided for Price Adjustment. For a period of three months after acceptance of the money under the full and final settlement, applicants did not raise any dispute in respect of the agreement of price adjustment. In such a factsituation, the plea that instructions were given by the applicants to the banker erroneously, being, afterthought is not worth acceptance.
32. The transaction stood concluded between the parties, not on account of any unintentional error, but after extensive and exhaustive bilateral deliberations with a clear intention to bring about a quietus to the dispute.
These negotiations, therefore, are self explanatory steps of the intent and conduct of the parties to end the dispute and not to carry it further.
33. In R.N. Gosain v. Yashpal Dhir, AIR 1993 SC 352, this Court has observed as under: "10. Law does not permit a person to both approbate and reprobate. This principle is based on the doctrine of election which postulates that no party can accept and reject the same instrument and that "a person cannot say Page 10 of 14 HC-NIC Page 10 of 14 Created On Thu Feb 18 00:53:36 IST 2016 O/IAAP/79/2015 ORDER at one time that a transaction is valid and thereby obtain some advantage, to which he could only be entitled on the footing that it is valid, and then turn round and say it is void for the purpose of securing some other advantage."
34. A party cannot be permitted to "blow hot and cold", "fast and loose" or "approbate and reprobate". Where one knowingly accepts the benefits of a contract or conveyance or an order, is estopped to deny the validity or binding effect on him of such contract or conveyance or order. This rule is applied to do equity, however, it must not be applied in a manner as to violate the principles of right and good conscience. (Vide: Nagubai Ammal & Ors. v. B. Shama Rao & Ors., AIR 1956 SC 593; C.I.T. Vs. MR. P. Firm Maur, AIR 1965 SC 1216; Maharashtra State Road Transport Corporation v. Balwant Regular Motor Service, Amravati & Ors., AIR 1969 SC 329; P.R. Deshpande v. Maruti Balaram Haibatti, AIR 1998 SC 2979; Babu Ram v. Indrapal Singh, AIR 1998 SC 3021; Chairman and MD, NTPC Ltd. v. Reshmi Constructions, Builders & Contractors, AIR 2004 SC 1330; Ramesh Chandra Sankla & Ors. v. Vikram Cement & Ors., AIR 2009 SC 713; and Pradeep Oil Corporation v. Municipal Corporation of Delhi & Anr., (2011) 5 SCC 270).
35. Thus, it is evident that the doctrine of election is based on the rule of estoppel the principle that one cannot approbate and reprobate inheres in it. The doctrine of estoppel by election is one of the species of estoppels in pais (or equitable estoppel), which is a rule in equity. By that law, a person may be precluded by his actions or conduct or silence when it is his duty to speak, from asserting a right which he otherwise would have had.
36. In the facts and circumstances of the case, as the respondents resorted to clause 5 of the Purchase Agreement dated 28/6/2008, regarding price adjustment and the offer so made by the respondents has been accepted by the applicants and agreed to receive a Page 11 of 14 HC-NIC Page 11 of 14 Created On Thu Feb 18 00:53:36 IST 2016 O/IAAP/79/2015 ORDER particular sum offered by the respondents as a full and final settlement, the dispute comes to an end. The applicants cannot take a complete somersault and agitate the issue that the offer made by the respondents had erroneously been accepted."
13. We may now refer to decisions cited by the petitioner :
14. In case of R.L. Kalathia and co.(supra), the Supreme Court held as under :
"9) From the above conclusions of this Court, the following principles emerge:
(i) Merely because the contractor has issued "No Due Certificate", if there is acceptable claim, the court cannot reject the same on the ground of issuance of "No Due 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 "Noclaim Certificate".
(iii) Even after execution of full and final discharge voucher/receipt by one of the parties, if the said party able to establish that he is entitled to further amount for which he is having adequate materials, is not barred from claiming such amount merely because of acceptance of the final bill by mentioning "without prejudice" or by issuing `No Due Certificate'."
15. The facts in the present case are however, vitally different. Petitioner had made a firm and conscious declaration of accepting EMD and security bank guarantee Page 12 of 14 HC-NIC Page 12 of 14 Created On Thu Feb 18 00:53:36 IST 2016 O/IAAP/79/2015 ORDER by way of full and final claim of all claims arising out of the work order. This was pursuant to the High Court directing the Railways to consider the representation of the petitioner and the meeting between the Railway authorities and the representative of the petitioner firm. Thus the signing of full and final settlement was a conscious decision on part of the petitioner after negotiations with the Railways under which the petitioner benefited by way of return of the security deposit and the bank guarantee documents.
16. In case of A.V. M. Sales Corporation (supra), issue pertained to jurisdiction of the Court, parties having decided to exclude jurisdiction of a particular Court. It was in this context that the Supreme Court held that parties cannot contract against statute and any mutual agreement intending to restrict or extinguish right of a party for questioning a right under or in respect of contract would be void.
17. In case of Ambica Construction (supra), it was held that mere issuance of noclaim certificate would not be an absolute bar against genuine claims. In the said case, however, Supreme Court found that noclaim certificate had to be issued by the contractor after the work was finally measured up. In that case, work was still pending. Supreme court therefore, was of the opinion that issuance of no claim certificate by the contractor was indicative of coercion and duress.
18. In case of Sugam Constrcution (P) Ltd.(supra), Page 13 of 14 HC-NIC Page 13 of 14 Created On Thu Feb 18 00:53:36 IST 2016 O/IAAP/79/2015 ORDER respondent had opposed the request of the petitioner for appointment of an arbitrator on the ground that the petitioner having accepted the final bill without prejudice would be precluded from resorting to arbitration. It was in this context referring to several decisions of the Supreme Court, it was held that the petitioner had not waived the right to claim any further amount over and above the final bill. The petitioner therefore, cannot be prevented from seeking arbitration. It was held that the petitioner had not discharged the respondents from all the liabilities by merely signing the final bill or the payment receipts by endorsing that he is accepting such payment by way of full and final settlement. Important point of distinction in the said case thus was that though the petitioner had accepted the payment of final bill, had never accepted the same by way of full and final settlement.
19. Under the circumstances, arbitration petition is dismissed.
(AKIL KURESHI, J.) raghu Page 14 of 14 HC-NIC Page 14 of 14 Created On Thu Feb 18 00:53:36 IST 2016