Delhi High Court
Union Of India Through Sr. Divisional ... vs Shri B.S Sangwan on 24 September, 2024
Author: C. Hari Shankar
Bench: C. Hari Shankar
$~~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 12 July 2024
Pronounced on: 24 September 2024
+ O.M.P. 26/2009
UNION OF INDIA THROUGH SR. DIVISIONAL
ENGINEER-I NORTHERN RAILWAY,
FIROZPUR .....Petitioner
Through: Mr. Jivesh Kumar Tiwari, Sr.
Panel Counsel
versus
SHRI B.S SANGWAN .....Respondent
Through: Mr. S.W. Haider and Ms. Pooja
Dua, Advs.
CORAM:
HON'BLE MR. JUSTICE C. HARI SHANKAR
JUDGMENT
% 24.09.2024
1. The Senior Divisional Engineer, Northern Railway, Firozpur, entered into an agreement with the respondent on 25 September 2000 for carrying out work on the Jalandhar-Firozpur section of the Northern Railway. The original date of completion of the work was 20 December 2000. The agreement provided for resolution of disputes by arbitration.
2. Alleging that certain payments were due to him from the Railways, the respondent approached the petitioner/Railways to appoint an arbitrator. On the petitioner not agreeing, the respondent O.M.P. 26/2009 Signature Not Verified Page 1 of 52 Signature Not Verified Digitally Signed By:AJIT Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:26.09.2024 Signing Date:26.09.2024 15:16:43 15:15:55 approached this Court under Section 11(6) of the Arbitration and Conciliation Act 19961.
3. By order dated 5 October 2004, this Court appointed a former Director General of the Central Public Works Department as the arbitrator, who has come to pass the award under challenge in these proceedings.
4. After the learned arbitrator had entered on reference, the petitioner filed an application before this Court on 30 December 2004, for setting aside the order referring the disputes to arbitration, as the respondent had issued a No Claim Certificate2 in favour of the petitioner on 13 October 2003. As the respondent had thus disclaimed any amount remaining due from the petitioner, it was submitted that there was no arbitrable dispute left for decision.
5. The said application was disposed of by this Court with liberty to the petitioner to raise the issue before the learned arbitrator.
6. The dispute has finally come to be decided by the learned arbitrator by the award dated 17 October 2008 under challenge in this petition.
7. Of the fifteen claims preferred by the respondent, the learned arbitrator has awarded only four, apart from costs and interest.
1 "the 1996 Act" hereinafter
2 "NCC", hereinafter
O.M.P. 26/2009
Signature Not Verified Page 2 of 52 Signature Not Verified
Digitally Signed By:AJIT Digitally Signed
KUMAR By:CHANDRASHEKHARAN
HARI SHANKAR
Signing Date:26.09.2024 Signing Date:26.09.2024
15:16:43 15:15:55
8. Aggrieved by the award, the petitioner Railway has moved this Court under Section 34 of the 1996 Act.
9. I have heard Mr. Jivesh Tiwari, learned Counsel for the petitioner and Mr. S.W. Haider, learned Counsel for the respondent at length.
10. Learned counsel have also filed written submissions.
Rival contentions
11. Mr. Tiwari restricted his challenge to two aspects, viz., (i) the NCC issued by the respondent and its effect and (ii) the correctness of the decision of the learned arbitrator to award interest.
12. Mr. Tiwari submits that, once the respondent had signed the NCC, he was not entitled to maintain any claim against the petitioner in respect of work allegedly done but not paid. Mr. Tiwari relies on Clauses 43(a) and 51 of the GCC, which read thus:
"Clause 43(a): Signing of No Claim Certificate: The Contractor shall not be entitled to make any claim whatsoever against the Railway under or by virtue of arising out of this contract, nor shall the Railway entertain or consider any such claim, if made by the Contractor, after he shall have signed a 'No claim' certificate in favour of the Railway in such form as shall be required by the Railway, after the works are finally measured up. The contractor shall be debarred from disputing the correctness of the items covered by the 'No claim certificate or demanding a reference to arbitration in respect thereof."
"Clause 51, Final payment: "Payment (s) ... subject to contractor O.M.P. 26/2009 Signature Not Verified Page 3 of 52 Signature Not Verified Digitally Signed By:AJIT Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:26.09.2024 Signing Date:26.09.2024 15:16:43 15:15:55 having delivered to the Engineer either a full account in detail of all claims he may have on the Railways in respect of the works, or having delivered a "No Claim" Certificate."
13. He submits that, inasmuch as they are in the teeth of these clauses, the findings of the learned Arbitrator, on the implications of the NCC, are not sustainable in law.
14. On the aspect of interest, Mr. Tiwari places reliance on sub- clauses (2) and (3) of clause 16 of the GCC, which read thus:
"(2) No interest will be payable upon the earnest money or the security deposit or amounts payable to the Contractor under the Contract, but Government Securities deposited in terms of Sub-
clause (1) of this Clause will be repayable with interest accrued thereon.
15. In this context, he has also placed reliance on paras 3 and 4 of the judgment of the Division Bench of the High Court of Gauhati in UOI v Major V.P. Nijhawan (Retd)3, which read thus:
"3. It is obvious from sub clause (3) that no interest will payable under the earnest money, security deposit or the amount payable to the contractor under the contract. Thus sub clause (3) prohibits the contractor from making any claim in regard to interest on the amount of earnest money, security deposit or any amount due to the contractor under the contract. There appears to be complete prohibition of grant of interest by virtue of sub clause (3) of clause 16 of General Condition of contract. In a majority decision rendered by the constitution bench of the apex court, reported in 2001(2) SCC721 (Executive Engineer. Dhenkanani Minor Irrigation Division Orissa & Ors Vs NC Bhardwaj (Deceased) by LRs & Ors) in para 26 it has been held that the Arbitrator has jurisdiction to award interest on the sum found due and payable, for the pre reference period, In the absence of any specific stipulation has the jurisdiction to grant interest on the sums found due and payable for the pre-reference period, but it will be subject to in the absence of any specific stipulation of prohibiting 3 Order dated 19 June 2002 in Arbitration Appeal 4/2001 O.M.P. 26/2009 Signature Not Verified Page 4 of 52 Signature Not Verified Digitally Signed By:AJIT Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:26.09.2024 Signing Date:26.09.2024 15:16:43 15:15:55 to the contract to grant any such interest, If there is any such specific terms in the contract, prohibiting award of interest, the arbitrator does not have any authority to grant interest.
4. Sub Clause (3) of clause 16 of the General Conditions of the contract prescribed such prohibition and therefore, the arbitrator does not get any jurisdiction to grant interest to the contractor, where there is prohibition in the contract for grant of interest, in view of the Apex Court Judgment the arbitrator does not have the jurisdiction to grant interest and no fruitful purpose will be served by remanding the matter to the arbitrator on the question of interest. The arbitrator's jurisdiction to grant interest, in view of the terms of the contract is not available. That being the case, the directions issued by the court below remanding the matter for fresh adjudication on the question of interest is illegal and contrary to the provisions. Consequently this appeal is allowed, the order dated 16.03.2001 passed in Misc. (J) Case No. 154 of 2000 arising out of T. S. (Arb) case No. 229/1995 by the Learned Civil Judge Senior Division No.1 Guahati is set aside to that extent. However, in the facts and circumstances of the case, there will no order as to costs."
16. For the aforesaid reasons, Mr. Tiwari submits that the impugned award is completely illegal. The respondent was not entitled to be awarded any of its claims in view of the NCC submitted by the respondent voluntarily.
17. Without prejudice, he submits that the learned Arbitrator could not have awarded interest as there was a specific proscription against grant of interest engrafted into the GCC, which was binding on the parties.
18. Responding to the submissions of Mr. Tiwari, Mr. S.W. Haider relies, on the admissibility of the respondent's claims despite the NCC, on paras 8, 9, 11, 14 and 15 of the impugned order, which read thus:
O.M.P. 26/2009 Signature Not Verified Page 5 of 52 Signature Not VerifiedDigitally Signed By:AJIT Digitally Signed
KUMAR By:CHANDRASHEKHARAN
HARI SHANKAR
Signing Date:26.09.2024 Signing Date:26.09.2024
15:16:43 15:15:55
"8. According to the Respondents, the contractor completed the work on 10.10.2003. After completion of work, all the items of work were entered full and final in measurement book the very next day i.e. on 11.10.2003 and in token of acceptance, the claimants have "willfully" signed the No Claim Certificate. The final bill dated 13.10.2003 was passed for payment after scrutiny on various stages on 3.11.2003.
9. If the contractor has any reservations to the measurements or has any dispute, clause 45(A) of the General Conditions of Contract provides for 'acceptance of the bill under protest. The Clause 45(A) reads as follows:
"It shall be open to the Contractor to take specific objection to any recorded measurement or classification on any ground within seven days of the date of such measurements. Any re-measurements taken by the Engineer or the Engineer's representative in the presence of the Contractor or in his absence after due notice has been given to him in consequence of objection made by the contractor shall be final and binding on the contractor and no claim whatsoever shall thereafter be entertainment regarding the accuracy and classification of the measurements."
*****
11. Claimant-Sangwan argue that the work was actually completed around September/October 2002 except for the fan shaped turnovers, which were not taken up at all as materials required for the work were not supplied by the Railway. As a matter of fact, this item of work has not been executed even now. During the execution of the work, the Claimants were forced to execute certain extra items as they were essential for completing the scheduled items in the contract. The Claimant raised disputes regarding these extra items vide his letters dated 27.3.2001, 1.10.2002, 20.12.2002, and 10.01.2003 (copies supplied along with statement of claims). This extra work was not recorded in the measurements books. The Claimants were told that the extra items would be included in the addendum/corrigendum to be prepared later and included in the final bills. The No Objection signed in the measurement books pertained to measurements recorded till then and not disputed. Items claimed as extra work were not recorded. Hence, the question of full and final settlement in case of measurement/claims did not arise.
*****
O.M.P. 26/2009
Signature Not Verified Page 6 of 52 Signature Not Verified
Digitally Signed By:AJIT Digitally Signed
KUMAR By:CHANDRASHEKHARAN
HARI SHANKAR
Signing Date:26.09.2024 Signing Date:26.09.2024
15:16:43 15:15:55
14. Documents produced by the parties have been examined. Ledger of materials issued shows that the main item required. Rails, was last issued in April 2002, PSC Sleepers and fittings were last issued in September 2001. Last entry in the site order book, in which Inspecting officers write their instructions to the contractor, is made by the ADEN on 29.5.2002. All these lead to the conclusion that the work was practically completed well before December 2002, as the Contractor claims Date of completion recorded originally in the measurement book, the final bill, the material issue ledger etc. in 20.12.2002 This has been changed in most records to 10.10.2003 by overwriting on the earlier entry, but without any dated signature. Respondents-Railways have not given any satisfactory explanation for overwriting the date of completion. The final bill was passed on 3.11.03 and paid on 3.12.03, almost a year after the actual completion as originally recorded
15. I have gone through the documents/written statements and the oral arguments by both the parties, It is clear that disputes were raised during currency of the contract but no attempt was made by Respondents to discuss and reconcile disputes raised by the Claimants so as to arrive at an agreed amount of the final bill. There was no accord and satisfaction of the Claimant at the time of signing of the No Claim Certificate. The measurement recorded in the MB did not include the items for which claims were raised during the execution of the contract. The NCC in the final Bill was signed routinely on a printed form, it is not dated but it is obvious that it has been signed before the amount of final bill was known. There was delay of almost a year between the completion of the work, as recorded originally in the MB and final bill and payment made to the Claimants. The amount of the final bill was substantial and withholding the processing and payment of the final bill itself constitutes pressure or coercion on the Claimant for forcing them to sign the No Claim Certificate."
19. Mr. Haider submits that there is no error in the awarding of interest by the learned Arbitrator either. Pre award, he submits that the learned Arbitrator was competent to award interest. Clause 16, he submits, pertains only to interest on earnest money deposit4 and security deposit.
4 "EMD", hereinafter
O.M.P. 26/2009
Signature Not Verified Page 7 of 52 Signature Not Verified
Digitally Signed By:AJIT Digitally Signed
KUMAR By:CHANDRASHEKHARAN
HARI SHANKAR
Signing Date:26.09.2024 Signing Date:26.09.2024
15:16:43 15:15:55
20. The words "any other amount payable to the contractor" in Clause 16, he submits, have to be read ejusdem generis with the words "earnest money deposit" and "security deposit". The clause cannot be interpreted as containing a complete bar on the grant of pre award interest to the claimant. Moreover, he submits that Clause 16 applies to a defaulting contractor, and his client was not one. The power to grant post award interest, he submits, is available with the learned Arbitrator under Section 31(7)5 of the 1996 Act.
Analysis Re. the NCC and its implications - The law in that regard
21. It is not in dispute that the NCC was signed by the respondent on 11 October 2003, whereas the final bill was raised on 13 October 2003 and passed for payment after scrutiny on 3 November 2003. On the aspect of accord and satisfaction by signing the NCC, the respondent contended before the learned Arbitrator, that the NCC was printed on the final bill at the insistence of the petitioner, and was signed even prior to finalising the bill. It was submitted that accord and satisfaction by way of full and final settlement of the amount payable to the respondent could be provided only at the time of 5 (7)(a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.
(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of two per cent higher than the current rate of interest prevalent on the date of award, from the date of award to the date of payment.
Explanation.--The expression "current rate of interest" shall have the same meaning as assigned to it under clause (b) of Section 2 of the Interest Act, 1978 (14 of 1978).
O.M.P. 26/2009 Signature Not Verified Page 8 of 52 Signature Not VerifiedDigitally Signed By:AJIT Digitally Signed
KUMAR By:CHANDRASHEKHARAN
HARI SHANKAR
Signing Date:26.09.2024 Signing Date:26.09.2024
15:16:43 15:15:55
receiving payment. In the present case, the NCC was signed before the final bill was even prepared. As such, it was submitted that the signing and issuance of the NCC did not estop the respondent from claiming payment, from the petitioner, for work executed by the respondent and not paid.
22. The learned Arbitrator, apart from placing reliance on the judgment of the Supreme Court in Chairman & MD, NTPC v Reshmi Constructions6, rejected petitioner's plea that the claims of the respondent stood discharged by accord and satisfaction by reasoning thus, in paras 15 and 17 thereof:
"15. I have gone through the documents/ written statements and the oral arguments by both the parties. It is clear that disputes were raised during currency of the contract but no attempt was made by Respondents to discuss and reconcile disputes raised by Claimants, so as to arrive at an agreed amount of the final bill. There was no accord and satisfaction of the Claimant at the time of signing of the No Claim Certificate. The measurement recorded in the MB did not include the items for which claims were raised during the execution of the contract. The NCC in the final bill was signed routinely on a printed form, it is not dated but it is obvious that it has been signed before the amount of final bill was known. There was delay of almost a year between the completion of the work, as recorded originally in the MB and final bill and payment made to the Claimants The amount of the final bill was substantial and withholding the processing and payment of the final bill itself constitutes pressure or coercion on the Claimant for forcing them to sign the No Claim Certificate.
*****
17. I do not consider that the No Claim Certificate has been signed with full accord and satisfaction of Claimant-Sangwan and without pressure/coercion by Respondent- Railways. The disputes between the Claimants and the Respondents are, therefore, arbitrable. I shall accordingly continue with the arbitration, and consider pleadings and arguments of both sides regarding claims / counterclaims."
6 (2004) 2 SCC 663 O.M.P. 26/2009 Signature Not Verified Page 9 of 52 Signature Not Verified Digitally Signed By:AJIT Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:26.09.2024 Signing Date:26.09.2024 15:16:43 15:15:55
23. The aspect of whether the entitlement to recover money against a contract stands extinguished on the tendering of a discharge voucher or NCC has formed subject matter of debate before the Supreme Court on a number of occasions, and the legal position in that regard may be treated as settled. A chronological excursion through the decisions would be instructive.
United India Insurance v Ajmer Singh Cotton & General Mills7
24. The Supreme Court, in the opening para of this decision, identified three issues as arising for consideration before it. Of these, the first issue is alone of relevance to us, and may be reproduced thus:
"Whether the insured is estopped from making any further claim from the insurer after accepting the insurance claim amount in full and final settlement of all the claims by executing the discharge voucher willingly and voluntarily without any protest or objections?"
25. The respondent Ajmer Singh Cotton & General Mills8 took two policies from the appellant United India Insurance9. ASCGM suffered loss on account of fire. Fire loss was covered by the insurance policy. United appointed surveyors, and consequent on their reports, payments were made by United to ASCGM. ASCGM accepted the payments with a declaration, on the receipt, which read "sum in full and final discharge of claims upon them".
7 (1999) 6 SCC 400
8 "ASCGM", hereinafter
9 "United", hereinafter
O.M.P. 26/2009
Signature Not Verified Page 10 of 52 Signature Not Verified
Digitally Signed By:AJIT Digitally Signed
KUMAR By:CHANDRASHEKHARAN
HARI SHANKAR
Signing Date:26.09.2024 Signing Date:26.09.2024
15:16:43 15:15:55
26. Thereafter, ASCGM filed a complaint petition before the State Consumer Dispute Redressal Commission, Chandigarh10. The claims were dismissed by the SCDRC. ASCGM appealed to the National Consumer Disputes Redressal Commission11, which allowed the appeal and directed United to pay interest to ASCGM @ 18%.
27. Dealing with the aspect of whether ASCGM's claims were rightly allowed by the NCDRC, the Supreme Court held, in paras 4 and 5 of the report, thus:
"4. We have heard learned counsel for the parties and perused the record. It is true that the award of interest is not specifically authorised under the Consumer Protection Act, 1986 (hereinafter called "the Act") but in view of our judgment in Sovintorg (India) Ltd v State Bank of India12 we are of the opinion that in appropriate cases the forum and the commissions under the Act are authorised to grant reasonable interest under the facts and circumstances of each case. The mere execution of the discharge voucher would not always deprive the consumer from preferring claim with respect to the deficiency in service or consequential benefits arising out of the amount paid in default of the service rendered. Despite execution of the discharge voucher, the consumer may be in a position to satisfy the Tribunal or the Commission under the Act that such discharge voucher or receipt had been obtained from him under the circumstances which can be termed as fraudulent or exercise of undue influence or by misrepresentation or the like. If in a given case the consumer satisfies the authority under the Act that the discharge voucher was obtained by fraud, misrepresentation, undue influence or the like, coercive bargaining compelled by circumstances, the authority before whom the complaint is made would be justified in granting appropriate relief. However (sic so), where such discharge voucher is proved to have been obtained under any of the suspicious circumstances noted hereinabove, the Tribunal or the commission would be justified in granting the appropriate relief under the circumstances of each case. The mere execution of the discharge voucher and acceptance of the insurance claim would not estop the insured from making further claim from the insurer but only under 10 "SCDRC", hereinafter 11 "NCDRC", hereinafter 12 (1999) 6 SCC 406 O.M.P. 26/2009 Signature Not Verified Page 11 of 52 Signature Not Verified Digitally Signed By:AJIT Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:26.09.2024 Signing Date:26.09.2024 15:16:43 15:15:55 the circumstances as noticed earlier. The Consumer Disputes Redressal Forums and Commissions constituted under the Act shall also have the power to fasten liability against the insurance companies notwithstanding the issuance of the discharge voucher. Such a claim cannot be termed to be fastening the liability against the insurance companies over and above the liabilities payable under the contract of insurance envisaged in the policy of insurance. The claim preferred regarding the deficiency of service shall be deemed to be based upon the insurance policy, being covered by the provisions of Section 14 of the Act.
5. In the instant cases the discharge vouchers were admittedly executed voluntarily and the complainants had not alleged their execution under fraud, undue influence, misrepresentation or the like. In the absence of pleadings and evidence the State Commission was justified in dismissing their complaints. The National Commission however granted relief solely on the ground of delay in the settlement of claim under the policies. The mere delay of a couple of months would not have authorised the National Commission to grant relief particularly when the insurer had not complained of such a delay at the time of acceptance of the insurance amount under the policy. We are not satisfied with the reasoning of the National Commission and are of the view that the State Commission was justified in dismissing the complaints though on different reasonings."
28. Thus, in ASCGM, the Supreme Court held that:
(i) mere execution of the discharge voucher did not ipso jure disentitle a consumer from preferring a claim for deficiencies in service and consequential benefits, and
(ii) it was always open to the consumer to satisfy the Commission that the discharge voucher or receipt had been obtained from him in circumstances which reflected fraud, exercise of undue influence, mis-representation, or the like.
If, in a given case, the consumer satisfied the authority that the discharge voucher was obtained by fraud, mis-representation, undue influence or "coercive bargaining compelled by circumstances", the authority could grant relief despite the discharge vouchers. However, O.M.P. 26/2009 Signature Not Verified Page 12 of 52 Signature Not Verified Digitally Signed By:AJIT Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:26.09.2024 Signing Date:26.09.2024 15:16:43 15:15:55 on the facts before it, the Supreme Court held that the discharge vouchers had been voluntarily executed by ASCGM, which had not alleged the execution to be under fraud, undue influence, mis- representation, or the like. In the absence of any pleadings and evidence to the said effect, the Supreme Court held that the SCDRC rightly rejected ASCGM's complaints, and that the NCDRC was, therefore, not justified in reversing the said decision. The Supreme Court, therefore, allowed the appeal, set aside the decision of the NCDRC, and restored the decision of the SCDRC.
Reshmi Constructions
29. Unlike ASCGM, Reshmi Constructions - as well as the cases which follow hereinafter - was a case which dealt with arbitration. The Supreme Court framed the issue arising for consideration, in the opening paragraph of the decision as "whether an arbitration clause in a contract agreement survives despite purported satisfaction thereof". This, therefore, is a case - like all others which follow, but one, in which the controversy arose at the stage of reference of the dispute to arbitration.
30. In this case, Reshmi Constructions13 was contracted by NTPC to carry out certain works. The final bill of Reshmi was not accepted by NTPC, which prepared its own final bill and forwarded it to 13 "Reshmi", hereinafter O.M.P. 26/2009 Signature Not Verified Page 13 of 52 Signature Not Verified Digitally Signed By:AJIT Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:26.09.2024 Signing Date:26.09.2024 15:16:43 15:15:55 Reshmi with a No-Demand Certificate14 in a printed format. The NDC was signed by Reshmi, and read thus:
"1. This is to certify that we have received all payments in full and final settlement of the supplies and services rendered and/or all work performed by us in respect of the above-referred LOA/contract and we have no other claims whatsoever, final or otherwise, outstanding against NTPC. We further confirm that we shall have no claims/demands in future in respect of this contract of whatsoever nature, final or otherwise."
31. However, on the same day, Reshmi addressed a communication to NTPC, stating that, as NTPC was not releasing its dues, and as Reshmi had to make onward payments to banks and other authorities, it had signed the NDC under duress, coercion and undue influence. It was specifically alleged, therefore, thus:
"Under such coercive circumstances the alleged final bill cannot be construed as final bill. We are signing the alleged final bill under coercion, under undue influence and under protest only without prejudice to our rights and claims whatsoever. There is no accord and satisfaction between the contracting parties."
Reshmi, therefore, requested NTPC to clear the final bill which it had forwarded to NTPC, ignoring the NDC. On NTPC not doing so, Reshmi invoked arbitration. The request for referring the dispute to arbitration was not outrightly rejected by NTPC. The dispute was sought to be referred to arbitration by NTPC. Reshmi, thereupon, filed an application before the subordinate judge under Section 20 of the erstwhile Arbitration Act, 194015. The learned judge dismissed the application. Reshmi appealed to the High Court of Kerala, which allowed the appeal. NTPC appealed to the Supreme Court.
14 "NDC", hereinafter
O.M.P. 26/2009
Signature Not Verified Page 14 of 52 Signature Not Verified
Digitally Signed By:AJIT Digitally Signed
KUMAR By:CHANDRASHEKHARAN
HARI SHANKAR
Signing Date:26.09.2024 Signing Date:26.09.2024
15:16:43 15:15:55
32. Para 13 of the report of the Supreme Court delineates the issues which arose for consideration. Issue (ii) was worded thus:
"(ii) Whether in view of letter dated 20-12-1990 sent by the respondent contractor the arbitration clause contained in the agreement can be invoked?"
33. The position of law was set out, in paras 16, 18 and 26 to 28 of the report, thus:
"16. The issues are required to be determined having regard to the facts which arise for consideration -- whether by reason of the act of the parties the old contract was substituted by a new contract. Only in the event a new contract came into being, the arbitration agreement cannot be invoked.
*****
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 v Kishorilal Gupta16 and Naihati Jute Mills Ltd. v Khyaliram Jagannath17.) *****
26. The appellant herein did not raise a question that there has been a novation of contract. The conduct of the parties as evidenced in their letters, as noticed hereinbefore, clearly goes to show that not only the final bill 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.
15 "the 1940 Act", hereinafter
16 AIR 1959 SC 1362
17 AIR 1968 SC 522
O.M.P. 26/2009
Signature Not Verified Page 15 of 52 Signature Not Verified
Digitally Signed By:AJIT Digitally Signed
KUMAR By:CHANDRASHEKHARAN
HARI SHANKAR
Signing Date:26.09.2024 Signing Date:26.09.2024
15:16:43 15:15:55
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."
34. In the paragraphs from the decisions extracted supra, the Supreme Court held thus:
(i) The issue in consideration was whether, by act of party, a new contract had come into being in place of the earlier contract, in which situation alone the request for referring the dispute to arbitration could be refused.
(ii) Normally, accord and satisfaction would not affect the arbitration clause; however, if, on account of accord and satisfaction, the contract itself did not subsist, the question of invoking the arbitration clause may not arise.
(iii) In the case before it, the final bill submitted by Reshmi was rejected by NTPC, which prepared another final bill with O.M.P. 26/2009 Signature Not Verified Page 16 of 52 Signature Not Verified Digitally Signed By:AJIT Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:26.09.2024 Signing Date:26.09.2024 15:16:43 15:15:55 the NDC annexed in a printed format, failure to execute which would result in the final bill not being paid.
(iv) Reshmi, in its letter to the NTPC, had clearly set out the circumstances in which it was compelled to sign the letter.
(v) The assertion that the signing of the no demand certificate was under undue influence or coercion was not, therefore, an afterthought.
(vi) Even where rights and obligations of the parties stand worked out, the contract does not come to an end, inter alia, for the purpose of determination of the disputes which arise thereunder and, thus, the arbitration agreement remained invokable.
(vii) It was a ground reality that, in a case in which the contractor makes huge investments, the public sector undertakings with whom he contracts have a bargaining upper hand, which empowered them not to release money unless the no demand certificate was signed by the contractor.O.M.P. 26/2009 Signature Not Verified Page 17 of 52 Signature Not Verified
Digitally Signed By:AJIT Digitally Signed
KUMAR By:CHANDRASHEKHARAN
HARI SHANKAR
Signing Date:26.09.2024 Signing Date:26.09.2024
15:16:43 15:15:55
(viii)In such a case, the principle necessitas non habet legem18 applied, so that a person at times had to succumb to the other party, who was in a stronger bargaining position.
35. Applying these principles to the facts before it, the Supreme Court held, in para 39 of the report, that
(i) the arbitration agreement in the contract between NTPC and Reshmi subsisted because, inter alia, the dispute regarding the final bill had arisen prior to its acceptance, as NTPC had refused to accept the final bill as raised by Reshmi,
(ii) it was not NTPC's case that any settlement had taken place, as a result of which the final bill, as prepared by NTPC, was unconditionally accepted by Reshmi without demur,
(iii) immediately after receiving payment of the final bill, Reshmi had lodged its protest and reiterated its claims,
(iv) NTPC never made out a claim of novation of the original contract agreement and its substitution by a new contract.
Thus, the Supreme Court held that the disputes raised by Reshmi continued to be arbitrable, despite the NDC signed by it.
Ambica Constructions v UOI19
18 Necessity knows no law
19 (2006) 13 SCC 475
O.M.P. 26/2009
Signature Not Verified Page 18 of 52 Signature Not Verified
Digitally Signed By:AJIT Digitally Signed
KUMAR By:CHANDRASHEKHARAN
HARI SHANKAR
Signing Date:26.09.2024 Signing Date:26.09.2024
15:16:43 15:15:55
36. This, perhaps, is the case which is most proximate to the case at hand, both on facts and in law. It is, in fact, the only case in which the applicability of the accord and satisfaction principle where a NCC that had been issued was examined after the award had been rendered, in a Section 34 challenge.
37. The UOI contracted with Ambica Construction20 to carry out work in the Mancheswar Complex. Ambica could not complete the work within time. It accordingly applied for extension of time, but was not communicated any decision on the application. As a result, Ambica contended that it had suffered huge losses on account of idling of labour and surplus staff. Ambica's request in this regard was turned down and certain deductions were made by the UOI from the running bills submitted by Ambica. The UOI also defaulted in payment of certain works done by Ambica. According to Ambica, the UOI refused to refund Ambica's security deposit unless Ambica submitted a NCC in terms of Clause 43(2) of the GCC. Having no other alternative, and having suffered huge losses on account of idling of labour and surplus staff and establishment expenses, Ambica submitted a NCC, so that it could at least obtain a refund of its security deposit.
38. On 17 January 1996, Ambica called upon the UOI to pay the amounts which, according to Ambica, were due to it, failing which it was requested that the disputes be referred to arbitration. On neither 20 "Ambica", hereinafter O.M.P. 26/2009 Signature Not Verified Page 19 of 52 Signature Not Verified Digitally Signed By:AJIT Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:26.09.2024 Signing Date:26.09.2024 15:16:43 15:15:55 request being acceded to, Ambica filed an application before the High Court of Calcutta under Section 11 of the 1996 Act.
39. The matter was placed before the Chief Justice of the High Court, who appointed an arbitrator to arbitrate on the disputes. The arbitrator came to a finding that the NCC had been signed by Ambica under duress and coercion. Even so, the arbitrator disallowed Ambica's claim but allowed Ambica costs of ₹ 1.03 lakhs.
40. Both parties were aggrieved by this award, and challenged it. The High Court of Calcutta set aside the award and appointed another arbitrator to arbitrate on the disputes, by consent of parties. This second arbitrator, by award dated 25 May 2001, allowed Ambica's claim.
41. The UOI challenged the award before the High Court of Calcutta under Section 34 of the 1996 Act. Among the contentions advanced by the UOI was the submission that the arbitrator had not considered, inter alia, Clauses 43(2) and 16(2) of the GCC.
42. The learned Single Judge of the High Court of Calcutta dismissed the Section 34 application of the UOI.
43. The matter was carried by the UOI in appeal to the Division Bench. The Division Bench took note of the NCC submitted by Ambica and found that, apart from a mere statement, there was no proof of Ambica having being compelled to sign the certificate under O.M.P. 26/2009 Signature Not Verified Page 20 of 52 Signature Not Verified Digitally Signed By:AJIT Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:26.09.2024 Signing Date:26.09.2024 15:16:43 15:15:55 coercion or duress. No such finding, it was noted, had been arrived at by the arbitrator either. The appeal of the UOI was, therefore, allowed and the award of the arbitrator was set aside.
44. Ambica appealed to the Supreme Court.
45. Paras 16 to 20 of the report of the Supreme Court read thus:
"16. Since we are called upon to consider the efficacy of Clause 43(2) of the General Conditions of Contract with reference to the subject-matter of the present appeals, the same is set out hereinbelow:
"43. (2) Signing of 'no-claim' certificate.--The contractor shall not be entitled to make any claim whatsoever against the Railways under or by virtue of or arising out of this contract, nor shall the Railways entertain or consider any such claim, if made by the contractor, after he shall have signed a 'no-claim' certificate in favour of the Railways, in such form as shall be required by the Railways, after the works are finally measured up. The contractor shall be debarred from disputing the correctness of the items covered by 'no-claim certificate' or demanding a reference to arbitration in respect thereof."
17. A glance at the said clause will immediately indicate that a no-claim certificate is required to be submitted by a contractor once the works are finally measured up. In the instant case the work was yet to be completed and there is nothing to indicate that the works, as undertaken by the contractor, had been finally measured and on the basis of the same a no-claim certificate had been issued by the appellant. On the other hand, even the first arbitrator, who had been appointed, had come to a finding that no- claim certificate had been given under coercion and duress. It is the Division Bench of the Calcutta High Court which, for the first time, came to a conclusion that such no-claim certificate had not been submitted under coercion and duress.
18. From the submissions made on behalf of the respective parties and in particular from the submissions made on behalf of the appellant, it is apparent that unless a discharge certificate is given in advance, payment of bills are generally delayed. Although, Clause 43(2) has been included in the General Conditions of O.M.P. 26/2009 Signature Not Verified Page 21 of 52 Signature Not Verified Digitally Signed By:AJIT Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:26.09.2024 Signing Date:26.09.2024 15:16:43 15:15:55 Contract, the same is meant to be a safeguard as against frivolous claims after final measurement. Having regard to the decision in Reshmi Constructions it can no longer be said that such a clause in the contract would be an absolute bar to a contractor raising claims which are genuine, even after the submission of such no-claim certificate.
19. We are convinced from the materials on record that in the instant case the appellant also has a genuine claim which was considered in great detail by the arbitrator who was none other than the counsel of the respondent Railways.
20. In such circumstances we are inclined to hold that notwithstanding Clause 43(2) of the General Conditions of Contract and the submission of a no-claim certificate by the appellant, the appellant was entitled to claim a reference under the contract and the Division Bench of the Calcutta High Court was wrong in holding otherwise."
(Emphasis supplied)
46. Thus, the Supreme Court held, in Ambica Construction, that
(i) Clause 43(2) envisaged submission of the NCC after the work was measured up,
(ii) there was nothing to indicate that, on the date when Ambica tendered the NCC, the work had been finally measured,
(iii) even the first arbitrator who had been appointed had come to a finding that the NCC was given under duress and coercion,
(iv) it was apparent that, unless a discharge certificate was given in advance, payment of bills was generally delayed, and
(v) Clause 43(2) was included as a safeguard against frivolous claims after final measurement.
O.M.P. 26/2009 Signature Not Verified Page 22 of 52 Signature Not VerifiedDigitally Signed By:AJIT Digitally Signed
KUMAR By:CHANDRASHEKHARAN
HARI SHANKAR
Signing Date:26.09.2024 Signing Date:26.09.2024
15:16:43 15:15:55
47. The Supreme Court, therefore, held that Ambica had a genuine claim which had been considered correctly by the arbitrator.
National Insurance Co Ltd v Boghara Polyfab21
48. In para 1 of this decision, the Supreme Court identifies the question involved for it as being "whether the dispute raised by an insured, after giving a full and final discharge voucher to the insurer, can be referred to arbitration". Thus, here, too, the Court was concerned with referability of the issue to arbitration, rather than the correctness of the decision of the arbitrator on the issue.
49. The respondent Boghara Polyfab22 was insured with the appellant National Insurance Co Ltd23. On 5 August 2004, Boghara reported loss of its stocks on account of heavy rain and flooding. A surveyor was appointed, who submitted a report. Boghara disputed the report. Ultimately, according to Boghara, NIC refused to compensate Boghara unless Boghara issued an undated "discharge voucher-in - advance", in a prescribed form, acknowledging receipt of an amount of ₹ 2,33,94,964/- in full and final settlement of its claims. NIC sent the format of the discharge voucher to Boghara which, owing to the dire financial condition in which it was placed, it had no option but to sign it and send it back. Payment was released to Boghara by NIC only after the signed undated discharge voucher was received back by NIC. According to the voucher, Boghara had received ₹ 2,33,94,964/-
21 2008 SCC OnLine SC 1422
22 "Boghara" hereinafter
23 "NIC" hereinafter
O.M.P. 26/2009
Signature Not Verified Page 23 of 52 Signature Not Verified
Digitally Signed By:AJIT Digitally Signed
KUMAR By:CHANDRASHEKHARAN
HARI SHANKAR
Signing Date:26.09.2024 Signing Date:26.09.2024
15:16:43 15:15:55
in full and final settlement of all its claims in respect of the property lost/damaged, and NIC stood absolved from all liability present or future, arising out of the said loss or damage, under the policy.
50. Simultaneously, with receipt of the payment from NIC, however, Boghara lodged a complaint with the Insurance Regulatory and Development Authority24, complaining of having been coerced into signing the discharge voucher, as NIC refused to release its payment unless Boghara did so. This was followed by a legal notice, in which Boghara alleged that the amount due to it was actually ₹ 3,18,26,025/-, and that it had accepted the lower amount of ₹ 2,33,94,964/- and tendered the undated discharge voucher under duress and implicit coercion. In the event that NIC did not pay the claimed amount to Boghara, Boghara sought reference of the dispute to arbitration.
51. As against this, NIC alleged that Boghara had unconditionally accepted the claim settlement amount fully and finally, without any protest and that the settlement had taken place after amicable discussions. As such, NIC contested the existence of any arbitrable dispute.
52. In such circumstances, Boghara petitioned the High Court of Bombay under Section 11 of the 1996 Act. The learned Chief Justice of the High Court, who heard the matter, held that there was a serious difference between the parties as to whether the discharge voucher had 24 "IRDA" hereinafter O.M.P. 26/2009 Signature Not Verified Page 24 of 52 Signature Not Verified Digitally Signed By:AJIT Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:26.09.2024 Signing Date:26.09.2024 15:16:43 15:15:55 been given voluntarily or under pressure and coercion, which was referrable to arbitration. He, therefore, appointed a learned retired Judge of the Supreme Court as the arbitrator.
53. NIC appealed against the said decision to the Supreme Court.
54. Before the Supreme Court, NIC contended that, in view of the execution of the discharge voucher by Boghara, there was discharge of the contract by accord and satisfaction and that, therefore, neither contract, nor claim, survived.
55. The Supreme Court framed the following question as arising for consideration:
15. "In what circumstances, a court will refuse to refer a dispute relating to quantum to arbitration, when the contract specifically provides for reference of disputes and differences relating to the quantum to arbitration? In particular, what is the position when a respondent in an application under Section 11 of the Act, resists reference to arbitration on the ground that the petitioner has issued a full and final settlement discharge voucher and the petitioner contends that he was constrained to issue it due to coercion, undue influence and economic compulsion?"
56. The Supreme Court went on, thereafter, to refer to its earlier decisions in UOI v Kishorilal Gupta & Bros, Damodar Valley Corporation v K.K. Kar25 and SBP & Co v Patel Engineering Ltd26 and proceeded to hold, in para 24 of the report, that a claim for arbitration could not be rejected merely or solely on the ground that the claimant had executed a settlement agreement or discharge 25 (1974) 1 SCC 141 26 (2005) 8 SCC 618 O.M.P. 26/2009 Signature Not Verified Page 25 of 52 Signature Not Verified Digitally Signed By:AJIT Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:26.09.2024 Signing Date:26.09.2024 15:16:43 15:15:55 voucher, if its validity was disputed by the claimant. Thereafter, the Supreme Court examined the plea of accord and satisfaction thus:
"26. When we refer to a discharge of contract by an agreement signed by both the parties or by execution of a full and final discharge voucher/receipt by one of the parties, we refer to an agreement or discharge voucher which is validly and voluntarily executed. If the party which has executed the discharge agreement or discharge voucher, alleges that the execution of such discharge agreement or voucher was on account of fraud/coercion/undue influence practised by the other party and is able to establish the same, then obviously the discharge of the contract by such agreement/voucher is rendered void and cannot be acted upon. Consequently, any dispute raised by such party would be arbitrable.
27. While discharge of contract by performance refers to fulfilment of the contract by performance of all the obligations in terms of the original contract, discharge by "accord and satisfaction" refers to the contract being discharged by reason of performance of certain substituted obligations. The agreement by which the original obligation is discharged is the accord, and the discharge of the substituted obligation is the satisfaction. A contract can be discharged by the same process which created it, that is, by mutual agreement. A contract may be discharged by the parties to the original contract either by entering into a new contract in substitution of the original contract; or by acceptance of performance of modified obligations in lieu of the obligations stipulated in the contract.
28. The classic definition of the term "accord and satisfaction"
given by the Privy Council in Payana Reena Saminathan v. Pana Lana Palaniappa27 (reiterated in Kishorilal Gupta) is as under:
"... The 'receipt' given by the appellants and accepted by the respondent, and acted on by both parties proves conclusively that all the parties agreed to a settlement of all their existing disputes by the arrangement formulated in the 'receipt'. It is a clear example of what used to be well known as common law pleading as 'accord and satisfaction by a substituted agreement'. No matter what were the respective rights of the parties inter se they are abandoned in consideration of the acceptance by all for a new agreement. The consequence is that when such an accord and satisfaction takes place the prior rights of the parties
27 (1913-14) 41 IA 142 O.M.P. 26/2009 Signature Not Verified Page 26 of 52 Signature Not Verified Digitally Signed By:AJIT Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:26.09.2024 Signing Date:26.09.2024 15:16:43 15:15:55 are extinguished. They have in fact been exchanged for the new rights; and the new agreement becomes a new departure, and the rights of all the parties are fully represented by it."
(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."
(Italics in original; underscoring supplied)
57. The Supreme Court went on, thereafter, to refer to the judgments in State of Maharashtra v Nav Bharat Builders28 and Nathani Steels Ltd v Associated Constructions29, and to distinguish the said decisions on the ground that, in those cases, the Supreme Court examined the facts and satisfied itself that the contract was fully discharged by accord and satisfaction and that there was no evidence 28 1994 Supp (3) SCC 83 29 1995 Supp (3) SCC 324 Ajmer O.M.P. 26/2009 Signature Not Verified Page 27 of 52 Signature Not Verified Digitally Signed By:AJIT Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:26.09.2024 Signing Date:26.09.2024 15:16:43 15:15:55 to support the allegation of coercion or undue influence.30 Besides, significantly observed the Supreme Court in para 45 of the report, the decisions in Nav Bharat Builders and Nathani Steels had been rendered under the 1940 Act, which was "different in perspective"
from the 1996 Act. The Supreme Court also observed that, in several cases arising under the Consumer Protection Act, 1986, it had been held that, if the complainant/claimant satisfying the consumer forum that the discharge vouchers were obtained by fraud, coercion, undue influence, etc., they should be ignored. Reliance was placed on Ajmer Singh Cotton & General Mills.
58. The Supreme Court thereafter went on to place reliance on the following classic exposition of the law in Central Inland Water Transport Corp Ltd v Brojo Nath Ganguly31, which enables courts to take into account situations in which, owing to the absence of equal bargaining choice, one of the parties to a contract is forced to sign on the dotted line:
"89. ... This principle is that the courts will not enforce and will, when called upon to do so, strike down an unfair and unreasonable contract, or an unfair and unreasonable clause in a contract, entered into between parties who are not equal in bargaining power. It is difficult to give an exhaustive list of all bargains of this type. No court can visualise the different situations which can arise in the affairs of men. One can only attempt to give some illustrations. For instance, the above principle will apply where the inequality of bargaining power is the result of the great disparity in the
30 I may note, here, that, after the recent decision of the Supreme Court in SBI General Insurance v Krish Spinning, 2024 SCC OnLine SC 1754, it is no longer open to a Court exercising jurisdiction under Section 11 of the 1996 Act to examine whether the contract stands discharged by accord and satisfaction. The referral court has now to restrict the scope of its examination to the issue of whether there exists an arbitration agreement between the parties and whether the Section 11 petition has been filed within 3 years of the Section 21 notice. To the extent that Boghara Polyfab, and other decisions, hold that the referral court could examine the aspect of discharge of the contract by accord and satisfaction, that exposition of the law may not continue to hold good.
31 (1986) 3 SCC 156
O.M.P. 26/2009
Signature Not Verified Page 28 of 52 Signature Not Verified
Digitally Signed By:AJIT Digitally Signed
KUMAR By:CHANDRASHEKHARAN
HARI SHANKAR
Signing Date:26.09.2024 Signing Date:26.09.2024
15:16:43 15:15:55
economic strength of the contracting parties. It will apply where the inequality is the result of circumstances, whether of the creation of the parties or not. It will apply to situations in which the weaker party is in a position in which it can obtain goods or services or means of livelihood only upon the terms imposed by the stronger party or go without them. It will also apply where a man has no choice, or rather no meaningful choice, but to give his assent to a contract or to sign on the dotted line in a prescribed or standard form or to accept a set of rules as part of the contract, however unfair, unreasonable and unconscionable a clause in that contract or form or rules may be. This principle, however, will not apply where the bargaining power of the contracting parties is equal or almost equal. This principle may not apply where both parties are businessmen and the contract is a commercial transaction. In today's complex world of giant corporations with their vast infrastructural organisations and with the State through its instrumentalities and agencies entering into almost every branch of industry and commerce, there can be myriad situations which result in unfair and unreasonable bargains between parties possessing wholly disproportionate and unequal bargaining power. These cases can neither be enumerated nor fully illustrated. The court must judge each case on its own facts and circumstances." (Emphasis in original)
59. Following the above discussion, the Supreme Court in Boghara Polyfab, held thus:
"49. Obtaining of undated receipts-in-advance in regard to regular/routine payments by government departments and corporate sector is an accepted practice which has come to stay due to administrative exigencies and accounting necessities. The reason for insisting upon undated voucher/receipt is that as on the date of execution of such voucher/receipt, payment is not made. The payment is made only on a future date long after obtaining the receipt. If the date of execution of the receipt is mentioned in the receipt and the payment is released long thereafter, the receipt acknowledging the amount as having been received on a much earlier date will be absurd and meaningless. Therefore, undated receipts are taken so that it can be used in respect of subsequent payments by incorporating the appropriate date. But many a time, matters are dealt with so casually that the date is not filled even when payment is made. Be that as it may. But what is of some concern is the routine insistence by some government departments, statutory corporations and government companies for issue of undated "no-dues certificates" or "full and final settlements vouchers" acknowledging receipt of a sum which is smaller than the claim in full and final settlement of all claims, as a condition precedent for releasing even the admitted dues. Such a O.M.P. 26/2009 Signature Not Verified Page 29 of 52 Signature Not Verified Digitally Signed By:AJIT Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:26.09.2024 Signing Date:26.09.2024 15:16:43 15:15:55 procedure requiring the claimant to issue an undated receipt (acknowledging receipt of a sum smaller than his claim) in full and final settlement, as a condition for releasing an admitted lesser amount, is unfair, irregular and illegal and requires to be deprecated.
50. Let us consider what a civil court would have done in a case where the defendant puts forth the defence of accord and satisfaction on the basis of a full and final discharge voucher issued by the plaintiff, and the plaintiff alleges that it was obtained by fraud/coercion/undue influence and therefore not valid. It would consider the evidence as to whether there was any fraud, coercion or undue influence. If it found that there was none, it will accept the voucher as being in discharge of the contract and reject the claim without examining the claim on merits. On the other hand, if it found that the discharge voucher had been obtained by fraud/undue influence/coercion, it will ignore the same, examine whether the plaintiff had made out the claim on merits and decide the matter accordingly. The position will be the same even when there is a provision for arbitration.
51. The Chief Justice/his designate exercising jurisdiction under Section 11 of the Act will consider whether there was really accord and satisfaction or discharge of contract by performance. If the answer is in the affirmative, he will refuse to refer the dispute to arbitration. On the other hand, if the Chief Justice/his designate comes to the conclusion that the full and final settlement receipt or discharge voucher was the result of any fraud/coercion/undue influence, he will have to hold that there was no discharge of the contract and consequently, refer the dispute to arbitration. Alternatively, where the Chief Justice/his designate is satisfied prima facie that the discharge voucher was not issued voluntarily and the claimant was under some compulsion or coercion, and that the matter deserved detailed consideration, he may instead of deciding the issue himself, refer the matter to the Arbitral Tribunal with a specific direction that the said question should be decided in the first instance.
52. Some illustrations (not exhaustive) as to when claims are arbitrable and when they are not, when discharge of contract by accord and satisfaction are disputed, to round up the discussion on this subject are:
(i) A claim is referred to a conciliation or a pre-litigation Lok Adalat. The parties negotiate and arrive at a settlement. The terms of settlement are drawn up and signed by both the parties and attested by the conciliator or the members of the Lok Adalat. After settlement by way of accord and satisfaction, there can be no reference to arbitration.O.M.P. 26/2009 Signature Not Verified Page 30 of 52 Signature Not Verified
Digitally Signed By:AJIT Digitally Signed
KUMAR By:CHANDRASHEKHARAN
HARI SHANKAR
Signing Date:26.09.2024 Signing Date:26.09.2024
15:16:43 15:15:55
(ii) A claimant makes several claims. The admitted or undisputed
claims are paid. Thereafter negotiations are held for settlement of the disputed claims resulting in an agreement in writing settling all the pending claims and disputes. On such settlement, the amount agreed is paid and the contractor also issues a discharge voucher/no-claim certificate/full and final receipt. After the contract is discharged by such accord and satisfaction, neither the contract nor any dispute survives for consideration. There cannot be any reference of any dispute to arbitration thereafter.
(iii) A contractor executes the work and claims payment of say rupees ten lakhs as due in terms of the contract. The employer admits the claim only for rupees six lakhs and informs the contractor either in writing or orally that unless the contractor gives a discharge voucher in the prescribed format acknowledging receipt of rupees six lakhs in full and final satisfaction of the contract, payment of the admitted amount will not be released. The contractor who is hard-pressed for funds and keen to get the admitted amount released, signs on the dotted line either in a printed form or otherwise, stating that the amount is received in full and final settlement. In such a case, the discharge is under economic duress on account of coercion employed by the employer. Obviously, the discharge voucher cannot be considered to be voluntary or as having resulted in discharge of the contract by accord and satisfaction. It will not be a bar to arbitration.
(iv) An insured makes a claim for loss suffered. The claim is neither admitted nor rejected. But the insured is informed during discussions that unless the claimant gives a full and final voucher for a specified amount (far lesser than the amount claimed by the insured), the entire claim will be rejected. Being in financial difficulties, the claimant agrees to the demand and issues an undated discharge voucher in full and final settlement. Only a few days thereafter, the admitted amount mentioned in the voucher is paid. The accord and satisfaction in such a case is not voluntary but under duress, compulsion and coercion. The coercion is subtle, but very much real. The "accord" is not by free consent. The arbitration agreement can thus be invoked to refer the disputes to arbitration.
(vi) A claimant makes a claim for a huge sum, by way of damages. The respondent disputes the claim. The claimant who is keen to have a settlement and avoid litigation, voluntarily reduces the claim and requests for settlement. The respondent agrees and settles the claim and obtains a full and final discharge voucher. Here even if the claimant might have agreed for settlement due to financial compulsions and commercial pressure or economic duress, the decision was his free choice. There was no threat, coercion or O.M.P. 26/2009 Signature Not Verified Page 31 of 52 Signature Not Verified Digitally Signed By:AJIT Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:26.09.2024 Signing Date:26.09.2024 15:16:43 15:15:55 compulsion by the respondent. Therefore, the accord and satisfaction is binding and valid and there cannot be any subsequent claim or reference to arbitration."
(Emphasis supplied)
60. Thus, in Boghara Polyfab, the Supreme Court recognized the reality that, oftentimes in commercial contracts, undated vouchers or receipts are obtained from the party to whom the contract was awarded, vouchsafing that complete payment had been made, at times much prior to the actual making of the payment. The Supreme Court held that, if the payment was released much after the receipt was obtained, the acknowledgement on the receipt would be absurd and meaningless. The practice of obtaining undated NDCs and full and final discharge vouchers, acknowledging discharge of liability on receipt of an amount less than the actual claim of the contractor was castigated as "unfair, irregular and illegal" and requiring to be deprecated.
61. Among the examples cited in para 52 of the report, is example
(iii) in which, on the insistence of the employer, a contractor who is hard pressed for funds and keen to get the admitted amount released, signs a certificate to the effect that the amount received was in full and final settlement of his dues. In such a case, the Supreme Court held that the certificate having been signed under economic duress on account of coercion employed by the employer was not voluntary and would not result in discharge of the liability of the employer by accord and satisfaction. Even in a situation in which the admitted amount was released, a few days after the No Dues Certificate was given by the contractor, the Supreme Court held that the coercion was subtle but O.M.P. 26/2009 Signature Not Verified Page 32 of 52 Signature Not Verified Digitally Signed By:AJIT Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:26.09.2024 Signing Date:26.09.2024 15:16:43 15:15:55 very much real and that the accord could not be treated as having been granted by free consent.
ONGC Mangalore Petrochemicals Ltd v ANS Constructions Ltd 32
62. It must be noted at this juncture itself that, this decision, as also the judgment in United India Insurance Company Ltd v Antique Art Exports Pvt Ltd33 to which allusion would follow hereinafter, cannot be said to be good law, given the recent decision of the Supreme Court in SBI General Insurance. In both these decisions, the Supreme Court held that the High Court ought to have rejected the request for referring the dispute to arbitration by properly examining whether the debt stood discharge by accord and satisfaction. Had it done so, the Supreme Court holds, in both these decisions, that the High Court would have found that the debt had indeed been discharged and that, therefore, no arbitrable dispute survived. SBI General Insurance, however, has revised the legal position regarding the scope of examination by a Section 11 Court. The position in law as it exists today is that a Section 11 Court cannot examine anything except the existence of an arbitration agreement between the parties and whether the Section 11 petition has been filed within three years of the Section 21 notice. The decisions in ONGC Mangalore Petrochemicals and Antique Art Exports, therefore, to the extent they hold that the High Court could have examined the aspect of accord 32 (2018) 3 SCC 373 33 (2019) 5 SCC 362 O.M.P. 26/2009 Signature Not Verified Page 33 of 52 Signature Not Verified Digitally Signed By:AJIT Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:26.09.2024 Signing Date:26.09.2024 15:16:43 15:15:55 and satisfaction, cannot be said to be any more applicable in view of the law as it stands today.
63. Nonetheless, these decisions reiterate the principles regarding discharge of debts by accord and satisfaction, consequent on the furnishing of a discharge voucher or a NCC and, to that extent, are relevant.
64. In ONGC Mangalore Petrochemicals, the final bill of the contractor was paid 20 days after the contractor furnished a no dues/ no claim certificate, certifying payment of all bills and in total settlement of the contractor's claims under the contract. A fortnight thereafter, however, the contractor withdrew the NCC stating that it had been submitted under duress and coercion. Thereafter, the contractor sent a notice to the employer for resolving the disputes by arbitration. On the employer refusing to do so, the contractor approached the High Court under Section 11(6) of the 1996 Act. The High Court allowed the petition. Aggrieved, the contractor approached the Supreme Court.
65. Para 11 of the report identifies the "only point for consideration" before the Supreme Court "as being whether the respondent contractee34 Company has made out a case for referring the disputes to arbitration".
34The judgment refers to the employer as the "contractor" and the contractor as the "contractee." To maintain uniformity, however, I have chosen to use the expressions "employer" and "contractor".
O.M.P. 26/2009 Signature Not Verified Page 34 of 52 Signature Not VerifiedDigitally Signed By:AJIT Digitally Signed
KUMAR By:CHANDRASHEKHARAN
HARI SHANKAR
Signing Date:26.09.2024 Signing Date:26.09.2024
15:16:43 15:15:55
66. This decision broadly reiterates the principles contained in the authorities cited in this judgment. Before the Supreme Court, the employer sought to contend that by virtue of the no dues certificate issued by the contractor, the contract had come to an end and all obligations thereunder stood discharged. No arbitral disputes therefore survived.
67. The Supreme Court after referring to earlier decisions, including Boghara Polyfab, held that the party approaching the Court under Section 11 could not content itself by raising a bald plea of fraud, duress or undue influence and was required to prima facie examine the existences of these factors by plying material before this Court. The principle that applied was thus stated in para 25 of the report:
"25. When we refer to discharge of a contract by an agreement signed by both the parties or by execution of a full and final discharge voucher/receipt by one of the parties, we refer to an agreement or discharge voucher which is validly and voluntarily executed. If the party which has executed the discharge agreement or discharge voucher, alleges that the execution of such discharge agreement or voucher was on account of fraud/coercion/undue influence practised by the other party and is able to establish the same, then obviously the discharge of the contract by such agreement/voucher is rendered void and cannot be acted upon. Consequently, any dispute raised by such party would be arbitrable. But in case the party is not able to establish such a claim or appears to be lacking in credibility, then it is not open to the courts to refer the dispute to arbitration at all."
68. On facts, the Supreme Court held thus:
"30. From the materials on record, we find that the contractee company had issued the "no-dues/no-claim certificate" on 21-9- 2012, it had received the full amount of the final bill being Rs 20.34 crores on 10-10-2012 and after 12 days thereafter i.e. only on 24-10-2012, the contractee company withdrew letter dated 21-9- O.M.P. 26/2009 Signature Not Verified Page 35 of 52 Signature Not Verified
Digitally Signed By:AJIT Digitally Signed
KUMAR By:CHANDRASHEKHARAN
HARI SHANKAR
Signing Date:26.09.2024 Signing Date:26.09.2024
15:16:43 15:15:55
2012 issuing "no-dues/no-claim certificate". Apart from it, we also find that the final bill has been mutually signed by both the parties to the contract accepting the quantum of work done, conducting final measurements as per the contract, arriving at final value of work, the payments made and the final payment that was required to be made. The contractee company accepted the final payment in full and final satisfaction of all its claims. We are of the considered opinion that in the present facts and circumstances, the raising of the final bill and mutual agreement of the parties in that regard, all claims, rights and obligation of the parties merge with the final bill and nothing further remains to be done. Further, the appellant contractor issued the completion certificate dated 19-6-2013 pursuant to which the appellant contractor has been discharged of all the liabilities. With regard to the issue that the "no-dues certificate" had been given under duress and coercion, we are of the opinion that there is nothing on record to prove that the said certificate had been given under duress or coercion and as the certificate itself provided a clearance of no dues, the contractee could not now turn around and say that any further payment was still due on account of the losses incurred during the execution of the contract. The story about duress was an afterthought in the background that the losses incurred during the execution of the contract were not visualised earlier by the contractee. As to financial duress or coercion, nothing of this kind is established prima facie. Mere allegation that no-claim certificates have been obtained under financial duress and coercion, without there being anything more to suggest that, does not lead to an arbitrable dispute. The conduct of the contractee clearly shows that "no-claim certificate" was given by it voluntarily; the contractee accepted the amount voluntarily and the contract was discharged voluntarily."
Antique Art Exports
69. This again was a case in which the appeal to the Supreme Court was directed against an order by this Court under Section 11(6) of the 1996 Act, referring the disputes between the parties to arbitration. The disputes pertained to two fire insurance policies taken by the respondent/Antique Art Exports35 from the petitioner United India 35 "Antique", hereinafter O.M.P. 26/2009 Signature Not Verified Page 36 of 52 Signature Not Verified Digitally Signed By:AJIT Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:26.09.2024 Signing Date:26.09.2024 15:16:43 15:15:55 Insurance Company Ltd.36. A fire occurred at the premises of Antique. United appointed a surveyor, who submitted a report and thereafter, addressed an email to Antique stating that it had approved Antique's claim for an amount of ₹ 2,81,44,413/-. On the same day, Antique sent a reply accepting the computation and providing the details sought by the United along with a final discharge voucher and details of the bank account into which the amount was to be credited.
70. The Supreme Court observed that Antique had accepted the amount offered by United without any demur and protest after full and final settlement and discharge of the claims. At no point was there any allegation of coercion or undue influence as having been employed by United. It was only eleven weeks after the receipt of the amount and full and final discharge that Antique alleged fraud, coercion and undue influence, as the circumstances under which Antique signed the final discharge voucher. The Supreme Court observed that no prima facie evidence was provided by Antique in support of this allegation.
71. In para 12 of the report, the Supreme Court observed that, though the existence of an arbitration agreement between the parties was not in dispute, the question did arise as to whether the discharge of the obligation of United towards Antique upon acceptance of compensation and signing of the discharge letter by the Antique was voluntarily or under coercion or under undue influence and therefore, whether Antique was justified in invoking Section 11(6). The Supreme Court noted the position of law, enunciated in Boghara 36 "United", hereinafter O.M.P. 26/2009 Signature Not Verified Page 37 of 52 Signature Not Verified Digitally Signed By:AJIT Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:26.09.2024 Signing Date:26.09.2024 15:16:43 15:15:55 Polyfab, that execution of a full and final agreement, receipt or a discharge voucher itself was not a bar to arbitration. Thereafter, the Supreme Court dealt with the facts before it thus:
"14. It is true that there cannot be a rule of thumb and each case has to be looked into on its own facts and circumstances; taking note of the broad principles, it was observed by this Court in Union of India v. Master Construction Co.37 as under:
"18. In our opinion, there is no rule of the absolute kind. In a case where the claimant contends that a discharge voucher or no-claim certificate has been obtained by fraud, coercion, duress or undue influence and the other side contests the correctness thereof, the Chief Justice/his designate must look into this aspect to find out at least, prima facie, whether or not the dispute is bona fide and genuine. Where the dispute raised by the claimant with regard to validity of the discharge voucher or no-claim certificate or settlement agreement, prima facie, appears to be lacking in credibility, there may not be a necessity to refer the dispute for arbitration at all."
15. From the proposition which has been laid down by this Court, what reveals is that a mere plea of fraud, coercion or undue influence in itself is not enough and the party who alleged is under obligation to prima facie establish the same by placing satisfactory material on record before the Chief Justice or his Designate to exercise power under Section 11(6) of the Act, which has been considered by this Court in New India Assurance Co. Ltd. v. Genus Power Infrastructure Ltd38as follows:
"9. It is therefore clear that a bald plea of fraud, coercion, duress or undue influence is not enough and the party who sets up a plea, must prima facie establish the same by placing material before the Chief Justice/his designate."
16. In the instant case, averment was made for the first time after 11 weeks of the settlement of claim and release of discharge voucher in the petition filed by the respondent seeking appointment of arbitrator of undue influence/coercion being used by the 37 (2011) 12 SCC 349 38 (2015) 2 SCC 424 O.M.P. 26/2009 Signature Not Verified Page 38 of 52 Signature Not Verified Digitally Signed By:AJIT Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:26.09.2024 Signing Date:26.09.2024 15:16:43 15:15:55 appellant in signing the papers on dotted lines is reproduced as under:
"(xiii) It is stated that the respondent occupying a bargaining position as an insurer coerced and forced the petitioner to sign on dotted lines on a pre-signed standard discharge voucher. The petitioner facing severe financial distress gave in to the pressure tactics of the respondent and was made to sign a purported discharge voucher dated 24-6-2016 for an amount of ₹ 2,20,36,840 (Rupees two crores twenty lakhs thirty-six thousand, eight hundred forty only) as against the claim of ₹ 5,12,49,241 (Rupees five crores twelve lakhs forty-nine thousand two hundred forty-one only) as a precondition for release of money.
***** (xvii) It is stated that the petitioner vide its letter dated 27-
7-2016 rescinded the purported discharge voucher as illegal and void as it was forced or coerced into signing the same in the face of extreme financial duress. The petitioner vide the said letter dated 27-7-2016 called upon the respondent to pay the balance amount of ₹ 2,92,12,401 (Rupees two crores ninety-two lakhs twelve thousand four hundred and one only) on account of loss suffered by the petitioner as result of fire. The petitioner also claimed an interest @ 18% p.a. from the date of incident as well as on the paid amount till date of payment i.e. up to 6-7-2016."
17. It is true that there cannot be a rule of its kind that mere allegation of discharge voucher or no claim certificate being obtained by fraud/coercion/undue influence practised by other party in itself is sufficient for appointment of the arbitrator unless the claimant who alleges that execution of the discharge agreement or no claim certificate was obtained on account of fraud/coercion/undue influence practised by the other party is able to produce prima facie evidence to substantiate the same, the correctness thereof may be open for the Chief Justice/his Designate to look into this aspect to find out at least prima facie whether the dispute is bona fide and genuine in taking a decision to invoke Section 11(6) of the Act.
18. In the instant case, the facts are not in dispute that for the two incidents of fire on 25-9-2013 and 25-10-2013, the appellant Company based on the Surveyor's report sent emails on 5-5-2016 and 24-6-2016 for settlement of the claims for both the fires dated 25-9-2013 and 25-10-2013 which was responded by the respondent through email on the same date itself providing all the necessary O.M.P. 26/2009 Signature Not Verified Page 39 of 52 Signature Not Verified Digitally Signed By:AJIT Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:26.09.2024 Signing Date:26.09.2024 15:16:43 15:15:55 information to the regional office of the Company and also issued the discharge voucher in full and final settlement with accord and satisfaction. Thereafter, on 12-7-2016, the respondent desired certain information with details, that too was furnished and for the first time on 27-7-2016, it took a U-turn and raised a voice of undue influence/coercion being used by the appellant stating that it being in financial distress was left with no option than to proceed to sign on the dotted lines. As observed, the phrase in itself is not sufficient unless there is a prima facie evidence to establish the allegation of coercion/undue influence, which is completely missing in the instant case.
19. In the given facts and circumstances, we are satisfied that the discharge and signing the letter of subrogation was not because of any undue influence or coercion as being claimed by the respondent and we find no difficulty to hold that upon execution of the letter of subrogation, the claim was settled with due accord and satisfaction leaving no arbitral dispute to be examined by an arbitrator to be appointed under Section 11(6) of the Act."
72. Thus, the Supreme Court, founds on facts, that the plea of coercion and duress was not established by Antique.
UOI v Parmar Construction Company39
73. The issue in Parmar Construction, rendered a day after Antique Art Exports, was the same, viz. whether the arbitration agreement between the parties stood discharged on acceptance of the amount and signing of no claim/discharge certificate. However, in this case, on facts, the Supreme Court found that an arbitrable issue had been raised by the contractor and that the circumstances justified an examination of whether the discharge voucher had been provided under duress or coercion.
39 (2019) 15 SCC 682
O.M.P. 26/2009
Signature Not Verified Page 40 of 52 Signature Not Verified
Digitally Signed By:AJIT Digitally Signed
KUMAR By:CHANDRASHEKHARAN
HARI SHANKAR
Signing Date:26.09.2024 Signing Date:26.09.2024
15:16:43 15:15:55
74. The petitioner UOI awarded a contract for construction of office space to the respondent. The measurement, by the UOI, of the work undertaken, was accepted by the respondent Parmar Construction Limited40 under protest. However, when the UOI failed to clear the final bill raised by Parmar, Parmar scored out the words "under protest" and signed a NCC.
75. Thereafter, the Parmar addressed a notice to the UOI to appoint an Arbitrator to resolve the disputes /differences which had arisen. On the UOI failing to do so, Parmar approached the High Court under Section 11(6) of the 1996 Act. The High Court observed that the mere furnishing of a NCC did not divest Parmar of the right to seek reference of the disputes to arbitration. Accordingly, the High Court referred the disputes to arbitration.
76. The Supreme Court, in appeal, set aside the decision, while ruling that the High Court had not followed the proper procedure in appointing the arbitrator - which is not an issue which concerns us.
77. The controversy before the Supreme Court was noted, in para 29 of the report, as whether, after furnishing of no claim certificate and the receipt of payment of final bills as submitted by the contractor, any arbitrable dispute still subsisted between the parties, or the contract stood discharged.
40 "Parmar", hereinafter
O.M.P. 26/2009
Signature Not Verified Page 41 of 52 Signature Not Verified
Digitally Signed By:AJIT Digitally Signed
KUMAR By:CHANDRASHEKHARAN
HARI SHANKAR
Signing Date:26.09.2024 Signing Date:26.09.2024
15:16:43 15:15:55
78. Thereafter, the Supreme Court observed thus regarding the legal position which applied :
"34. It is true that there cannot be a rule of absolute kind and each case has to be looked into on its own facts and circumstances. At the same time, we cannot be oblivious of the ground realities that where a petty/small contractor has made investments from his available resources in executing the works contract and bills have been raised for the escalation cost incurred by him and the railway establishments/appellants without any justification reduce the claim unilaterally and take a defence of the no claim certificate being furnished which as alleged by the respondents to be furnished at the time of furnishing the final bills in the prescribed format.
*****
36. The respondents are the contractors and attached with the railway establishment in the instant batch of appeals are claiming either refund of security deposits/bank guarantee, which has been forfeited or the escalation cost has been reduced from final invoices unilaterally without tendering any justification. It is manifest from the pleadings on record that the respondent contractors who entered into contract for construction works with the railway establishment cannot afford to take any displeasure from the employer, the amount under the bills for various reasons which may include discharge of his liability towards the bank, financial institutions and other persons, indeed the railway establishment has an upper hand. A rebuttable presumption could be drawn that when a no claim has been furnished in the prescribed format at the time of final bills being raised with unilateral deductions made even that acceptable amount will not be released, unless no claim certificate is being attached to the final bills. On the stated facts, para 52(iii) referred to by this Court in Boghara Polyfab (P) Ltd indeed covers the cases of the present contractors with whom no option has been left and being in financial duress to accept the amount tendered in reference to the final bills furnished and from the discharge voucher which has been taken to be a defence by the appellants prima facie cannot be said to be voluntary and has resulted in the discharge of the contract by accord and satisfaction as claimed by the appellants. In our considered view, the arbitral dispute subsists and the contract has not been discharged as being claimed by the appellants employer(s) and all the contentions in this regard are open to be examined in the arbitral proceedings."
(Emphasis supplied) O.M.P. 26/2009 Signature Not Verified Page 42 of 52 Signature Not Verified Digitally Signed By:AJIT Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:26.09.2024 Signing Date:26.09.2024 15:16:43 15:15:55
79. The rest of the decision pertains to issues which do not concern the controversy at hand.
The sequitur
80. Thus, the thread that runs through the above decisions is that submission or tendering of a final discharge voucher, or a no claim certificate, by the contractor to the employer, is not determinative of the dispute between them. It is always open to the contractor to establish that the discharge voucher or NCC was provided under duress, coercion or economic compulsion. It is only where no such factors exist and the discharge voucher, or NCC, is found to have been tendered voluntarily that the contractor would not be permitted to resile therefrom and raise a belated claim. The Court - or the arbitrator - is required to take all factors into consideration while arriving at a decision as to whether the discharge voucher or NCC had, or had not, been voluntarily tendered. While examining the aspect of economic duress, the Court, or the Arbitrator, can take into account the fact that the bills of the contractor may have remained unpaid, or that the payment, which was certified by the contractor as being in full and final settlement of his claims, was actually made after the NCC was issued. Such factors would go to indicate that the NCC was not voluntarily tendered.
Two passing observations
O.M.P. 26/2009
Signature Not Verified Page 43 of 52 Signature Not Verified
Digitally Signed By:AJIT Digitally Signed
KUMAR By:CHANDRASHEKHARAN
HARI SHANKAR
Signing Date:26.09.2024 Signing Date:26.09.2024
15:16:43 15:15:55
81. While examining the impact of the decisions cited earlier, on the issue in controversy, one distinction has to be borne in mind. Most of the decisions, except Ambica Constructions, relate to the issue of whether the dispute ought, or ought not, to have been referred to arbitration. The appeal to the Supreme Court arose out of a decision of the High Court either referring the disputes to arbitration or refusing to refer the dispute under Section 11 of the 1996 Act. Ambica Constructions is the only case in which the controversy arose out of an arbitral award in a Section 34 challenge - as in the present case. It is important to note this distinction for the simple reason that the scope of enquiry by the Court under Section 11 and under Section 34 is radically different. Even at the time of rendition of the above decisions, the Section 11 Court was only required to satisfy itself as to whether there existed an arbitration agreement and whether there existed an arbitrable dispute. With the recent decision in SBI General Insurance, the Section 11(6) Court is not entitled to enquire into the latter aspect and has to satisfy itself by examining whether there exists an arbitration agreement between the parties. Even at the time of the rendition of the decisions cited supra, which was in the pre-SBI General Insurance era, the Court was only concerned with whether an arbitrable dispute existed. The decisions hold that if there was any scope for enquiring into whether the NCC or discharge voucher had been furnished under duress or coercion, then irrespective of the merits of the challenge, the dispute had to be referred to arbitration. Where however, the challenge was found to be a complete after- thought with no supportive material whatsoever to indicate that there was any economic duress or coercion which vitiated the NCC or O.M.P. 26/2009 Signature Not Verified Page 44 of 52 Signature Not Verified Digitally Signed By:AJIT Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:26.09.2024 Signing Date:26.09.2024 15:16:43 15:15:55 discharge voucher, the Court could refuse to refer the disputes to arbitration.
82. Which brings us to the second aspect. We are, however, in the present case, not at the Section 11 stage. The disputes stand referred and an arbitral award stands rendered. The challenge before this Court is a challenge under Section 34 to the arbitral award. The limits of Section 34 jurisdiction are well known. The issue of whether the facts before the Arbitral Tribunal made out a case of economic duress, coercion or compulsion, under which the NCC was furnished by the respondent, was clearly a question of fact. The finding of the Arbitral Tribunal in that regard is also a finding of fact. The scope of interference by the Court under Section 34 of the 1996 Act, with findings of fact rendered by the Arbitral Tribunal, is all but completely foreclosed. It is only where the "finding of fact is arrived at by ignoring or excluding relevant material or by taking into consideration irrelevant material or if the finding so outrageously defies logic as to suffer from the vice of irrationality incurring the blame of being perverse", then, the finding, merits intervention under Section 34 as being "perverse".41 Applying the above principles
83. When one applies the above principles to the present case, it is obvious that no scope for interference with the decision of the learned Arbitrator on the plea of accord and satisfaction can be said to exist.
41 Associate Builders v DDA, (2015) 3 SCC 49; Konkan Railway Corporation v Chenab Bridge Project O.M.P. 26/2009 Signature Not Verified Page 45 of 52 Signature Not Verified Digitally Signed By:AJIT Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:26.09.2024 Signing Date:26.09.2024 15:16:43 15:15:55 The learned Arbitrator has held that the measurements recorded in the Measurement Books did not include the items for which the claims were raised during execution of the contract. The NCC was undated and on a routine pre-printed form. Most importantly, the final bill, regarding which the NCC had been issued, was itself raised only after the NCC was submitted. The NCC was submitted on 11 October 2003, the final bill was raised on 13 October 2003 and was paid on 3 November 2003. The amount in relation to which the NCC was issued was substantially less than the amount covered by the final bill.
84. In these circumstances, the decision of the learned Arbitrator that the submission of the NCC was under economic pressure and coercion, and necessitated because of withholding of the processing and payment of the petitioner's bills, cannot be said to suffer from any error of perception much less can it be said to be perverse or shocking to the conscience of the Court. At the very least, it is a plausible view, on the facts which were before the learned Arbitrator. By no stretch of imagination can it be characterised as perverse.
85. That being so, the finding being purely be of fact, this Court does not deem it appropriate to interfere therewith under Section 34 of the 1996 Act.
86. The first ground of challenge raised by Mr. Tiwari, therefore, fails.
Undertaking, (2023) 9 SCC 85
O.M.P. 26/2009
Signature Not Verified Page 46 of 52 Signature Not Verified
Digitally Signed By:AJIT Digitally Signed
KUMAR By:CHANDRASHEKHARAN
HARI SHANKAR
Signing Date:26.09.2024 Signing Date:26.09.2024
15:16:43 15:15:55
Re. Interest
87. On the aspect of interest, the law is, unfortunately, settled against the respondent. Clause 16(2) of the GCC specifically proscribes payment of interest on earnest money or security deposit or any amounts payable to the contractor under the contract. The Supreme Court has authoritatively laid down the law in this regard in UOI v Manraj Enterprises42. That case dealt with the very same clause 16(2) of the GCC, with which we are concerned. The sole argument raised by the respondent, to counter Mr. Tiwari's submission that the learned Arbitrator, could not have awarded interest, is that the words "or any other amounts payable to the contractor under the contract" have to be read ejusdem generis with the words "earnest money deposit" and "security deposit". Thus read, interest on damages which are awarded by the Arbitrator would not fall within the proscription of Clause 16(2).
88. Precisely this argument was raised before the Supreme Court in Manraj Enterprises and negatived. The Supreme Court held that the ejusdem generis doctrine has no application in such a case. Paras 12 and 13 of the report in Manraj Enterprises, which are dispositive of the issue, may be reproduced:
"12. The further submission made on behalf of the respondent is that Clause 16 has to be read as a whole and on doing so, it can be said that Clause 16 pertains specifically to earnest money and security deposit and that the same can in no way be read in a manner to imply a bar on pendente lite interest.
42 (2022) 2 SCC 331 O.M.P. 26/2009 Signature Not Verified Page 47 of 52 Signature Not Verified Digitally Signed By:AJIT Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:26.09.2024 Signing Date:26.09.2024 15:16:43 15:15:55
12.1. It is required to be noted that Clause 16(1) is with respect to earnest money/security deposit. However, Clause 16(2) is specifically with respect to interest payable upon the earnest money or the security deposit or amounts payable to the contractor under the contract. The words used in Clause 16(2) is "or". Therefore, the expression "amounts payable to the contractor under the contract"
cannot be read in conjunction with "earnest money deposit" or "security deposit" by applying the principle of ejusdem generis. The expression "amounts payable to the contractor under the contract" has to be read independently and disjunctively to earnest money deposit and security deposit as the word used is "or" and not "and" between "earnest money deposit", "security deposit" and "amounts payable to the contractor under the contract". Therefore, the principle of ejusdem generis is not applicable in the present case.
12.2. On the principle of ejusdem generis, this Court in Jaiprakash Associates Ltd v Tehri Hydro Development Corpn. (India) Ltd.43, in paras 22 and 23, has observed and held as under : (SCC pp. 802-
803) "22. Insofar as argument based on the principle of ejusdem generis is concerned, the Division Bench has held that that is not applicable in the present case. We find that it is rightly so held. Ejusdem generis is the rule of construction. The High Court has negated this argument in the following manner : (Jaiprakash Associates) '18. The rule of ejusdem generis guides us that where two or more words or phrases which are susceptible of analogous meaning are coupled together, a noscitur a sociis, they are to be understood to mean in their cognate sense and take colour from each other but only if there is a distinct genus or a category. Where this is lacking i.e. unless there is a category, the rule cannot apply.' As rightly held, the rule of ejusdem generis would be applied only if there is distinct genus or a category, which is lacking in the instant case. This rule is applicable when particular words pertaining to a clause, category or genus are followed by general words. In such a situation, the general words are construed as limited to things of same kind as those specified. In that sense, this rule reflects an attempt 'to reconcile incompatibility between the specific and general words in view of the other rules of interpretation that all words in a statute are given effect, if possible, that a statute is to be construed as a whole and that no words in a 43 (2019) 17 SCC 786 O.M.P. 26/2009 Signature Not Verified Page 48 of 52 Signature Not Verified Digitally Signed By:AJIT Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:26.09.2024 Signing Date:26.09.2024 15:16:43 15:15:55 statute were presumed to be superfluous'. [See Lokmat Newspapers (P) Ltd v Shankarprasad44.
23. In fact, construing the similar clause, this Court in BHEL v Globe Hi-Fabs Ltd.45 has held that rule of ejusdem generis, is not applicable inasmuch as :
'12. The rule of ejusdem generis has to be applied with care and caution. It is not an inviolable rule of law, but it is only permissible inference in the absence of an indication to the contrary, and where context and the object and mischief of the enactment do not require restricted meaning to be attached to words of general import, it becomes the duty of the courts to give those words their plain and ordinary meaning. As stated (Quazi v. Quazi46) by Lord Scarman:
"If the legislative purpose of a statute is such that a statutory series should be read ejusdem generis, so be it, the rule is helpful. But, if it is not, the rule is more likely to defeat than to fulfil the purpose of the statute. The rule like many other rules of statutory interpretation, is a useful servant but a bad master."
So a narrow construction on the basis of ejusdem generis rule may have to give way to a broader construction to give effect to the intention of Parliament by adopting a purposive construction.
*****
15. A word of caution is here necessary. The fact that the ejusdem generis rule is not applicable does not necessarily mean that the prima facie wide meaning of the word "other" or similar general words cannot be restricted if the language or the context and the policy of the Act demand a restricted construction. In the expression "defect of jurisdiction or other cause of a like nature" as they occur in Section 14(1) of the Limitation Act the generality of the words "other cause" is cut down expressly by the words "of a like nature", though the rule of ejusdem generis is strictly not applicable as mention of a single species "defect of jurisdiction"
does not constitute a genus. Another example that may here be mentioned is Section 129 of the Motor Vehicles Act which empowers any "police officer authorised in this behalf or other 44 (1999) 6 SCC 275 45 (2015) 5 SCC 718 46 (1979) 3 WLR 833 (HL) O.M.P. 26/2009 Signature Not Verified Page 49 of 52 Signature Not Verified Digitally Signed By:AJIT Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:26.09.2024 Signing Date:26.09.2024 15:16:43 15:15:55 person authorised in this behalf by the State Government" to detain and seize vehicles used without certification of registration or permit. The words "other person" in this section cannot be construed by the rule of ejusdem generis for mention of single species, namely, "police officer" does not constitute a genus but having regard to the importance of the power to detain and seize vehicles it is proper to infer that the words "other person" were restricted to the category of government officers. In the same category falls the case interpreting the words "before filing a written statement or taking any other steps in the proceedings" as they occur in Section 34 of the Arbitration Act, 1940. In the context in which the expression "any other steps" finds place it has been rightly construed to mean a step clearly and unambiguously manifesting an intention to waive the benefit of arbitration agreement, although the rule of ejusdem generis, has no application for mention of a single species viz. written statement does not constitute a genus.
16. In the present case, we noticed that the clause barring interest is very widely worded. It uses the words "any amount due to the contractor by the employer". In our opinion, these words cannot be read as ejusdem generis along with the earlier words "earnest money" or "security deposit".
13. Further, heavy reliance is placed on the decision of this Court in Union of India v. Pradeep Vinod Construction Co.47, by the learned counsel appearing on behalf of the respondent. The same shall not be applicable for the reason that the said decision is by a two-Judge Bench and the contrary view taken by this Court in Union of India v. Bright Power Projects (India) (P) Ltd.48, is by a three-Judge Bench. Also, in Pradeep Vinod Construction, this Court has not considered the binding decision of this Court in Bright Power Projects (India) (P) Ltd., which is by a Bench of three Judges. Even otherwise, the same is prior to the decision of this Court in Tehri Hydro Development Corpn., and the said subsequent decision of this Court is also a three-Judge Bench decision. Moreover, in Pradeep Vinod Construction Co., though in Clause 16(2), the expression used is "or amounts payable to the contractor under the contract", this Court has only considered the non-award of interest on earnest money and security deposit. In any case, in view of the subsequent decisions of this Court, referred to hereinabove and in view of Clause 16(2) of the GCC, the arbitrator could not have awarded the interest, pendente lite or 47 (2021) 20 SCC 650 48 2015) 9 SCC 695 O.M.P. 26/2009 Signature Not Verified Page 50 of 52 Signature Not Verified Digitally Signed By:AJIT Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:26.09.2024 Signing Date:26.09.2024 15:16:43 15:15:55 future interest on the amount due and payable to the contractor under the contract in the instant case."
89. The award of interest, by the learned Arbitrator, in the present case is, therefore, clearly unsustainable.
The Result
90. In the result, the impugned award is liable to the upheld to the extent it awards the principal amount of damages to the respondent, but cannot sustain to the extent it awards interest on the said amount, whether pre reference, pendente lite or future.
91. Though, the Supreme Court has, in NHAI v M. Hakeem49 held that a Court cannot modify an arbitral award and can only either uphold the award or set it aside, this judgment has subsequently been held, by the Division Bench of this Court in NHAI v GMR Hyderabad Vijayawada Expressways Ltd50 not to apply where an award is in severable parts. This Court has held, in the said decision, that, where parts of the award are severable, it is open to a Court to set aside one part and uphold the other. Of course, the Court cannot partly set aside or uphold any one indivisible part of the award.
92. Resultantly, in upholding the impugned award to the extent of the principal amount awarded to the respondent, even while setting 49 (2021) 9 SCC 1 50 2024 SCC OnLine Del 3344 O.M.P. 26/2009 Signature Not Verified Page 51 of 52 Signature Not Verified Digitally Signed By:AJIT Digitally Signed KUMAR By:CHANDRASHEKHARAN HARI SHANKAR Signing Date:26.09.2024 Signing Date:26.09.2024 15:16:43 15:15:55 aside the award of interest, this Court is not infracting the law laid down in M. Hakeem.
Conclusion
93. In view of the aforesaid, this Court upholds the impugned award dated 17 October 2008 except to the extent it awards interest to the respondent. To the extent of the award of interest to the respondent, the award is set aside.
94. The petition is thus partly allowed.
C. HARI SHANKAR, J.
SEPTEMBER 24, 2024
Dsn/yg/aky
O.M.P. 26/2009
Signature Not Verified Page 52 of 52 Signature Not Verified
Digitally Signed By:AJIT Digitally Signed
KUMAR By:CHANDRASHEKHARAN
HARI SHANKAR
Signing Date:26.09.2024 Signing Date:26.09.2024
15:16:43 15:15:55