Bombay High Court
Ravindra Anant Deshmukh vs City And Industrial Development ... on 24 July, 1996
Equivalent citations: AIR1997BOM284, 1997(1)BOMCR274, 1996(2)MHLJ847, AIR 1997 BOMBAY 284, (1997) 2 ALLMR 633 (BOM), 1997 (2) ALL MR 633, 1996 (29) ARBI LR 574, (1996) 2 MAH LJ 847, (1997) 1 ICC 35, (1997) 1 CIVLJ 551, (1996) 29 ARBILR 574, (1997) 1 BOM CR 274
ORDER Dr. B. P. Saraf, J.
1. This appeal is directed against the judgment and order of the learned single Judge dated 8th June, 1993 dismissing the suit of the appellant field under Section 20 of the Arbtiration Act, 1940 ("Arbitration Act") and thereby refusing to refer the dispute arising out of a contract between appellant and the respondent to arbitration.
2. The material facts of the case, briefly stated, are as follows: The appellant, who caries on the business of building contractors and developers in the name and style of "United Precast Products", entered into an agreement with the respondent, City and Industrial Development Corporation of Maharashtra Limited CIDCO), for construction of 14 buildings comprising of 168 tenements at Nerul Road, New Bombay. The contract contained an arbitration clause which proved for reference of doubts, disputes and differences arising between the parties to arbitration. The said clause reads:
"83. Arbitration : Except where otherwise specified in the contract, decision of the Chief Engineer (CIDCO) shall be final, conclusive and binding on all parties to the contract upon all questions relating to the meaning of thes specifications, designs, drawings and instructions hereinbefore mentioned and as to the quality of workmanship; or materials used on the work in New Bombay or as to any other question, claim, right, matter or thing whatsoever in any way arising out of or relating to the contract, designs, drawings, specifications, estimates, instructions, orders or those 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. The Chief Engineer's decision taken under this clause should be considered as that of an Arbitrator and this should be considered as the decision taken under the Indian Arbitration Act".
The appellant completed the work and gave a notice of completion in terms of the contract to the respondent. A completion certificate was also issued by the respondent in favour of the appellant. On 17th June 1985, the appellant submitted his final bill under clause 74 of the contract containing, inter alia, various claims on account of balance dues including sums due on account of execution of extra items, wrongful recovery of interest, etc. The final bill was for a sum of Rs. 3,57,000/-. While the said bill was pending scrutiny, the respondent, by its letter dated 10th Dec. 1985, asked the appellant to furnish "No demand certificate" as per the format enclosed therewith which according to the respondent was a pre-condition for releasing any amount to due to the appellant including security deposit. The demand for "No demand certificate" was reiterated by the respondent by their letter dated 10th Dec. 1985. In that letter, it was mentioned that the final bill was under scrutiny and the "No demand certificate" in the enclosed format was required for that purpose. The appellant was also informed that the final bill would be settled only after the receipt of "No demand certificate" from the appellant. In such circumstances, the appellant submitted "No demand certificate" in the pro forma supplied by the respondent. Since, the said "No demand certificate" was lost by the respondent, a fresh "No demand certificate" was furnished by the appellant on 23-4-1987. In the month of May 1987, the measurement bill was prepared by the respondent which was counter signed by the appellant with the remark "under protest". Thereafter, on 11th July 1987, the respondent made payment of an amount of Rs. 33,000/- only to the appellant and rejected the balance claim of the appellant on various counts. The appellant thereupon referred the dispute in regard to its balance claim to the Managing Director of the respondent as provided in clause 58 of the general conditions of the contract on 16th Sept. 1987. On the failure of the Managing Director to consider the grievance of the appellant, the appellant by its letter dated 13th Oct. 1987 referred the dispute to the Chief Engineer (CIDCO) for arbitration under Clause 83 of the contract. The reference was opposed by the respondent on the ground that the arbitration clause contained in the principal agreement stood extinguished as a result of the no demand certificate issued by the appellant. The respondent also requested the Chief Engineer not to proceed with arbitration. The appellant explained to the Chief Engineer (CIDCO), the circumstances under which no demand certificate had been issued by him and contended that it was a certificate to the effect that there was no demand over and above what was contained in the final bill submitted by him. Having received no response from the Chief Engineer, the appellant filed a suit under Section 20 of the Arbitration Act for reference of the dispute to the Chief Engineer (CIDCO) for arbitration under clause 83 of the contract. The respondent field reply in the suit contending, inter alia, the arbitration agreement between the parties stood discharged by reason the "No demand Certificate" issued by the appellant. The appellant seriously the above contention of the respondent. The learned single Judge, on hearing the parties, came to the conclusion that the arbitration agreement between the parties was not discharged by reason of the "No demand certificate" issued by the appellant. He, therefore, held that arbitration clause did survive and the arbitration suit was maintainable. The learned single Judge, however, dismissed the arbitration petition, as in his opinion, issue of "No demand certificate" constituted "sufficient cause" for denying relief to the appellant even if all other conditions prescribed under Section 20 of the Arbitration Act were satisfied. Aggrieved by the above order of the learned single Judge, the appellant is in appeal before us.
3. We have heard the learned counsel for the appellant who submits that having arrived at a conclusion that the arbitration clause did survive despite "No demand certificate" furnished by the appellant and that the arbitration suit was maintainable, the learned single Judge committed a manifest error of law in refusing to refer the dispute between the parties to arbitration on the ground that furnishing of the said certificate amounted to "sufficient cause" for the refusing to refer the dispute to arbitration. It is contended by the learned counsel that the so-called no demand certificate was a certificate which was required to be filled in prescribed format along with the bill as a condition precedent for scrutiny of the bill. The said certificate is to be issued even before the claim is considered and the claimant informed about the fate of his claim. It is not a case of discharge of the contract by accord and on satisfaction which may debar the appellant from pursuing the claim for thes balance amount and securing reference of the dispute in respect of the same to arbitration. The learned counsel for the respondent, on the other hand, submits that the "No demand certificate" issued by the appellant amounts to unconditional acceptance of payment made by the respondent and hence no dispute can be raised thereafter by the appellant which may be referred to arbitration.
4. We have perused the impugned order of the learned single Judge in the light of the rival submissions set out above. It appears that though, in view of the decision of the Supreme Court in Union of India v. L.K. Ahuja, , the learned single Judge held that the application for reference to arbitration under Section 20 of the Arbitration Act was maintainable under the said section even though the contract or had issued "No claim declaration", he refused to make the reference as, in the his opinion, the issue of "No demand certificate" constituted sufficient cause for denying relief to the appellant. It is evident from the following observations of the learned Judge:
"The learned counsel for the petitioner has submitted that the discription should be exercised in favour of the petitioner and against the respondent as the respondent had made issue of 'no demand certificate' as a precondition before release of amount of security deposit and payment of admitted amounts due and payable by the respondent to the petitioner. The learned counsel for the petitioner has further submitted that No Demand Certificate (Exhibit-1 to the Affidavit-in-reply) should be construed to mean a commitment merely to the effect that the petitioners would not make any claim in addition to the claim set out in the final bill dated 17th June, 1985. It is not possible to accept either of these submissions. In the said No Demand Certificate it is clearly stated that the petitioner has no further claim whatsoever against the respondent in connection with or arising out of the said contract which remains unadjusted. The language of No Demand Certificate dated 23-4-1987 militates against the submissions made by the learned counsel for the petitioner. The petitioner is an experienced and educated businessman. There is nothing wrong with the practice followed by the respondent to the effect that the accounts be settled fast and the amounts be released after the contractor issues No Demand Certificate. In my opinion there is "sufficient cause" to deny relief to the petitioner even though technically the arbitration clause may survive and in an appropriate case the Court may be justified in making an order of reference even where dispute pertains to issue to accord and satisfaction. Having regard, to totality of facts emerging from the record as summarised above. I refuse to grant relief to the petitioner in exercise of my discretion under Section 20(4) of the Act and having regard to my finding that the conduct of the petitioner is unfair, unjust and inequitable as obvious from facts of this case. No one can be allowed to approbate and reprobate or blow hot and cold at same time. If the petitioner is guilty of conduct which is opposed to justice, equity and good conscience, the petitioner would be disentitled from the obtaining relief under Section 20 of the Arbitration Act, 1940. Such conduct of the petitioner would be covered by the expression "sufficient cause" within meaning of Section 20(4) of the Arbitration Act. Having regard to the facts of this case, I hold that the conduct of the petitioner in relation to subject- matter of this petition is opposed to justice, equity and good conscience and the petitioner is disentitled to obtain any relief from this Court in this petition. I have not denied relief to the clause does not survive or that the application is not maintainable but on the ground that respondent has been able to satisfy by the Court that having regard to the facts of the case, there is "sufficient cause" for denying relief to the petitioner even if all the other conditions prescribed under the said section are satisfied".
In view of the above, the learned single Judge dismissed the application for reference.
5. We have given our careful consideration to the reasoning and conclusion of the learned is single Judge. We, however, find it extremely difficult to accept the same for reasons more than one. First, a question whether there was a discharge of the contract by accord and satisfaction or not itself is a dispute arising out of the contract which as to be referred to arbitration. Second, in order to entitle the Court to refuse to refer the dispute to arbitration, there must be a voluntary and unconditional written acceptance of payment in full and final settlement of the contract. None of these conditions exists in the instant case. Obviously, there is no voluntary and unconditional written acceptance of payment by the appellant in full and final settlement of contract. By no process of the reasoning or interpretation, the "No demand certificate" furnished by the appellant as a pre-condition for the scrutiny of the bill can be construed as a voluntary and unconditional acceptance of payment in full and final settlement of the contract because such a certificate was furnished along with the bill or claim on obviously as a pre-condition for scrutiny of the bill much before the claimant could know as to which part of his claim was going to be accepted by the other side or what amount would be offered against his claim. It is clear in this case from the various letters issued by the respondent that it was a practice of the respondent to obtain a No demand certificate in the format supplied by it as a condition precedent for scrutiny of the bill itself. The format of the No demand certificate is as follows:
"I ..... certify that I have no claims from CIDCO whatsover against the Corporation in connection with or arising out of the said contract, remains unadjusted."
The above No demand certificate, in our opinion, is a certificate obtained by the respondent from the claimant before the scrutiny of the claim to ensure that the claim made in the final bill includes all claims of the contractor and no additional claim would be raised by him in future. This is the only just and reasonable interpretation of the above certificate. Any other interpretation will be contrary to the clear terms of the certificate. In any event, the above No demand certificate cannot be construed to mean discharge of the contract by accord and satisfaction, because it is required to be furnished along with the claim and even before it is scrutinised by the respondent. The question of receipt in full and final settlement can arise only after an offer is made of a specified amount by the other side in full and final settlement of the claim. It is only at that stage that one can apply his mind and accept the payment in full and final settlement if he is satisfied with the same and only in such a case, the acceptance can be termed as voluntary and unconditional. The No demand certificate issued in this case, in our view, can never be construed as accord and satisfaction and the same cannot constitute sufficient cause for refusing to refer a dispute to the arbitration.
6. We are supported in our conclusion by the decision of the Supreme Court in Union of India v. L.K. Ahuja & Co. where it was observed by Sabyasachi Mukherji, J. (as his Lordship then was) that in order to be entitled to ask for a reference under Section 20 of the Act, there must be an entitlement to money and a difference or dispute in respect of the same. On completion of the work, right to get payment would normally arise but on settlement of the final bill, the right to get further payment gets weakened but the claim subsists and whether it does subsist, is a matter which is arbitrable.
7. Reference may also made in this connection to the decision of the Supreme Court in Bharat Heavy Electricals Ltd. v. Amar Nath Bhan Prakash, where it was held that the question whether there was a discharge of the contract by the accord and satisfaction or not, is a dispute arising out of the contract and is liable to be referred to arbitration and hence the application under Section 20 of the Arbitration Act should have been allowed and the matters in dispute between the party including the question whether or not there was discharge of the contract by accord and satisfaction should have been referred to arbitration.
8. We have been also perused the decision of the Supreme Court in P.K. Ramaiah v. Chairman & Managing Director, National Thermal Power Corpn. 1994 Supp (3) SCC 126 where, in the facts and circumstances of that case, it was held by the Supreme Court that in view of the written acceptance of payment in full and final settlement of the contract, subsequent claim for further amounts in respect of the same work was not arbitrable dispute. We have carefully considered the above decision. We find that the above decision was rendered by the Supreme Court in the peculiar facts of that case. In that case the admitted position was that full and final settlement was acknowledged by a receipt in writing and the amount was received unconditionally. It was in these circumstances that the Supreme Court held that there was accord and satisfaction by final settlement of the claims and subsequent allegation of coercion is an afterthought and device to get over the settlement of the dispute, acceptance of the payment and receipt voluntarily given. The ratio of the above decision is not applicable to the facts of the present case where the No Demand Certificate was given the by the consideration of the claim itself. This is, clear from the letters addressed to the appellant by the respondent. Such a No Demand Certification cannot operate as an estoppel nor can it be regarded as a voluntary and unconditional written acceptance of the payment in full settlement of the contract.
9. We have also consideration the decision of the Supreme court in State of Maharashtra v. Nav Bharat Builders 1994 Supp (3) SCC 83. In that case, a particular figure was arrived at by the Government as the amount due to the claimant on account of labour escalation charges and the claimant was asked to consider its willingness to accept the offer. The claimant accepted the same and received the amount. It was in such circumstances, that the Supreme Court held:
"Having accepted the same and received the amount, it is no longer open to the respondent (claimant) to dispute the claim on any count or ground. The dispute was concluded and the respondent fully and finally accepted the claim and thereafter received the amount. Thus there is accord and satisfaction of the claim relating to labour escalation charges. Thereby, there is no further arbitration dispute in that behalf."
Obvious, the ratio of the above decision has no application to the facts of the instant case where neither the claimant was asked by the respondent to consider his willingness to accept the amount of Rs. 33,000/- arrived at by them as payable to him against his claim of Rs. 3,57,000/- nor the claimant accepted the same or received the amount pursuant to any such offer. That being so, there was no accord and satisfaction of the claim and there was an arbitrable dispute in that regard.
10. In view of the above, in the facts and circumstances of this case, the learned single Judge, in our opinion, was not correct in holding that the appellant was guilty of conduct which was opposed to justice, equity and good conscience, and on that account, disentitled from obtained relief under Section 20 of the Act. We do not find any justification for such a conclusion. In our view, having found that there was dispute and that the arbitration clause survived despite the "No Demand Certificate" furnished by the appellant, the learned single Judge ought to have referred the dispute to arbitration.
11. Accordingly, this appeal is allowed and the impugned judgment and order of the learned single Judge dated 8th June, 1993 is set aside. The arbitration agreement contained in clause 83 of the agreement is taken on record and the disputes arising out of the contract and are referred to the arbitration of the Chief Engineer (CIDCO) in terms of the said contract. The arbitrator shall declare the award within a period of four months from the date of entering upon the reference.
In the facts and circumstances of the case, the parties shall bear their own costs.
12. Appeal allowed.