REPORTABLE  

 IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3245 OF 2003

R.L. Kalathia & Co.                             ....  Appellant(s)

Versus

State of Gujarat                                  ....  Respondent(s)

     J U D G M E N T  

P. Sathasivam, J.

1)   This  appeal  is  directed  against  the  judgment  and  final  

order dated 07.10.2002 passed by the Division Bench of the  

High Court of Gujarat whereby the High Court set aside the  

judgment  and decree  dated 14.12.1982 passed by  the  Civil  

Judge, (S.D.), Jamnagar directing the State Government to pay  

a sum of Rs.2,27,758/- with costs and interest and dismissed  

the Civil Suit as well as cross objections filed by the appellant-

Firm for recovery of the aggregate amount of Rs. 3,66,538.05  

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on account of different counts as specified in the claim of the  

said suit.

2)  Brief facts:

a) The appellant-Firm, a partnership firm registered under  

The  Indian  Partnership  Act,  is  carrying  on  the  business  of  

construction  of  roads,  buildings,  dams  etc.  mostly  in  

Saurashtra and also in other parts of the State of Gujarat.  In  

response to the invitation of tender by the State Government  

for  construction of  Fulzer  Dam II  in Jamnagar  District,  the  

appellant-Firm quoted and offered to construct the same for  

the  quotation,  specifications  and  design  of  the  Dam  vide  

covering  letter  dated  05.06.1970.   In  the  said  letter,  the  

appellant-Firm  also  offered  that  they  would  give  rebate  of  

3/4% provided the final bill be paid within three months from  

the date of completion of the work.  The offer of the appellant  

being the lowest amongst other parties, it was accepted by the  

State Government with the clause that the construction work  

was to be completed within a period of 24 months from the  

works  order  dated  07.09.1970  which  was  subsequently  

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clarified that the period of 24 months was to be commenced  

from the date of commencement of work i.e., 29.11.1970.   

b) During  execution  of  the  said  work,  the  Executive  

Engineer,  who  was  in-charge  of  the  project,  made  certain  

additions, alterations and variations in respect of certain items  

of work and directed the appellant to carry out additional and  

alteration work as specified in writing from time to time.  The  

final decision as to the alteration in respect of certain items of  

work and particularly, in respect of the depth of foundation  

which is known as cut off trenches (COT) took long time with  

the  result  that  the  Firm  was  required  to  attend  the  larger  

quantity of work and thus entitled for extra payment for the  

additional work. As per the works contract, the Firm was not  

paid the running bill within the specified time and, therefore,  

suffered loss.   

c) On 16.07.1976, the Firm lodged a consolidated statement  

of their claims for the additional or altered works etc. to the  

Executive  Engineer.   As  there  was  no  response,  the  Firm  

served a statutory notice dated 04.01.1977 under Section 80  

of the Code of Civil Procedure (hereinafter referred to as ‘the  

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Code’).  Again, on 24.03.1977, after getting no reply, the Firm  

filed Civil Suit No. 30 of 1977 on the file of the Civil  Judge  

(S.D.), Jamnagar praying for a decree of the aggregate amount  

of Rs.3,66,538.05 with running interest at the rate of 9% p.a.  

from the date of final bill till the date of Suit and at the rate  

which may be awarded by the Court from the date of Suit till  

payment.   Vide  order  dated  14.12.1982,  the  Civil  Judge  

allowed  the  suit  and  passed  a  decree  for  a  sum  of  

Rs.2,27,758/- with proportionate costs together with interest  

@ 6% p.a. from the date of suit till realization.   

d)  Being aggrieved by the said judgment and decree, the State  

Government  filed  First  Appeal  No.  2038 of  1983 before  the  

High Court of Gujarat at Ahmedabad.  The Division Bench of  

the High Court, vide its order dated 07.10.2002, allowed the  

appeal of the State Government and dismissed the suit of the  

appellant-Firm  and  also  directed  that  the  decretal  amount  

deposited  by  the  State  Government  and as  permitted  to  be  

withdrawn by the Firm should be refunded within a period of  

four months from the date of the judgment.  Being aggrieved  

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by the said judgment, the appellant-Firm has filed this appeal  

by way of special leave petition before this Court.    

3)   Heard  Mr.  Altaf  Ahmed,  learned  senior  counsel  for  the  

appellant  and  Ms.  Madhavi  Divan,  learned  counsel  for  the  

respondent-State.   

4)   Though the  trial  Court  after  accepting  the  claim of  the  

plaintiff granted a decree to the extent of Rs. 2,27,758/- with  

proportionate costs and interest @ 6 per cent per annum from  

the date of suit till realization, in the appeal filed by the State  

after  finding  that  the  plaintiff  was  estopped  from  claiming  

damages  against  the  Department  as  the  final  bill  was  

accepted, the High Court allowed the appeal of the State and  

dismissed the suit of the plaintiff.  The High Court non-suited  

the plaintiff mainly on the ground of Clauses 8 and 10 of the  

agreement and of the fact that the final bill was accepted by  

the plaintiff under protest.   In view of the same, it is relevant  

to  refer  Clauses  8  and  10  of  the  agreement  which  are  as  

follows:

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“Clause  8.—No  payment  shall  be  made  for  any  work  estimated to cost less than Rs 1,000/- till after the whole of  the said work shall have been completed and a certificate of  completion given.  But in the case of work estimated to cost  more than Rs 1,000/- the contractor shall, on submitting a  monthly  bill  therefore,  be  entitled  to  receive  payment  proportionate  to  the  part  of  the  work  then  approved  and  passed by the engineer in charge whose certificate of such  approval and passing of the sum so payable shall be final  and conclusive against the contractor.  All such intermediate  payments, shall be regarded as payments by way of advance  against  the  final  payments  only  and not  as  payments  for  work actually done and completed and shall not preclude the  engineer in charge from requiring bad, unsound, imperfect  or  unskillful  work  to  be  removed  and  taken  away  and  reconstructed or re-erected, nor shall any such payment be  considered as an admission of the due performance of the  contract or any part thereof in any respect of the occurring  of any claim nor shall it conclude, determine, or effect any  way of the powers of the engineer in charge as to the final  settlement and adjustments of the accounts of otherwise, or  in any other way vary or affect the contract.  The final bills  shall be submitted by the contractor within one month of the  date  fixed  for  the  completion  of  the  work,  otherwise  the  engineer in charge’s certificate of the measurement and of  the  total  amount  payable  for  the  work  shall  be  final  and  binding on all parties.

Clause 10.  A bill shall be submitted by the contractor each  month on or before the date fixed by the engineer in charge  for  all  work  executed  in  the  previous  months  and  the  engineer  in  charge  shall  take  or  caused  to  be  taken  the  requisite measurement for the purpose of having the same  verified, and the claim, so far as it is admissible, shall be  adjusted, if possible within 10 days from the presentation of  the bill.  If the contractor does not submit the bill within the  time fixed as aforesaid, the engineer in charge may depute a  subordinate to measure up the said work in the presence of  the contractor or his duly authorized agent whose counter  signature  to  the  measurement  list  shall  be  sufficient  warrant, and the engineer in charge may prepare a bill from  such  list  which  shall  be  binding  on  the  contractor  in  all  respects.”

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It is the stand of the State and accepted by the High Court  

that the plaintiff-Firm has not fully complied with Clauses 8  

and 10 of  the  agreement.   It  is  also  their  stand that  mere  

endorsement to the effect that the plaintiff has been accepting  

the amount as per final bill “under protest” without disclosing  

real grievance on merits is not sufficient and it  amounts to  

accepting  the  final  bill  without  any  valid  objection  and  

grievance on merits by the plaintiff.  The High Court has also  

accepted the  claim of  the  State  that  by  the  conduct  of  the  

plaintiff  in  accepting  the  final  bill  and the Department  has  

made full  payment  to  the plaintiff,  sending statutory notice  

and  filing  suit  for  recovery  of  the  differential  amount  was  

barred  by  the  principle  of  estoppel.   On going  through the  

entire materials including the oral and documentary evidence  

led in by both the parties and the judgment and decree of the  

trial Judge, we are unable to accept the only reasoning of the  

High Court in non-suiting the plaintiff.

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5)   It  is  true  that  when  the  final  bill  was  submitted,  the  

plaintiff  had accepted the amount as mentioned in the final  

bill  but “under protest”.   It is also the specific  claim of the  

plaintiff  that  on  the  direction  of  the  Department,  it  had  

performed additional  work and hence  entitled  for  additional  

amount/damages  as  per  the  terms  of  agreement.  Merely  

because the plaintiff had accepted the final bill, it cannot be  

deprived  of  its  right  to  claim  damages  if  it  had  incurred  

additional amount and able to prove the same by acceptable  

materials.   

6)  Before going into the factual matrix on this aspect, it is  

useful to refer the decisions of this Court relied on by Mr. Altaf  

Ahmed.  In the case of  Chairman and MD, NTPC Ltd. vs.  

Reshmi Constructions,  Builders  & Contractors, (2004)  2  

SSC 663, which relates to termination of a contract, one of the  

questions that arose for consideration was “Whether after the  

contract comes to an end by completion of the contract work  

and acceptance of the final bill  in full  and final satisfaction  

and after issuance a ‘No Due Certificate’ by the contractor, can  

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any party to the contract raise any dispute for reference to  

arbitration?  While answering the said issue this Court held:-

“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.”

7)  In  Ambica Construction vs.  Union of India, (2006) 13  

SCC  475  which  also  deals  with  issuance  of  “No-claim  

Certificate” by the contractor.  The following conclusions are  

relevant which read as under:-

“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  

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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  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.”

8)  In  National Insurance Company Limited vs.  Boghara  

Polyfab Private Ltd., (2009) 1 SCC 267, the question involved  

was whether a dispute raised by an insured, after giving a full  

and final discharge voucher to the insurer, can be referred to  

arbitration.  The following conclusion in para 26 is relevant:-

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“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.”

9)  From the above conclusions of this Court,  the following  

principles emerge:

(i)  Merely  because  the  contractor  has  issued  “No  Due  

Certificate”,  if  there  is  acceptable  claim,  the  court  cannot  

reject  the  same  on  the  ground  of  issuance  of  “No  Due  

Certificate”.

(ii)   Inasmuch  as  it  is  common  that  unless  a  discharge  

certificate is given in advance by the contractor, payment of  

bills are generally delayed, hence such a clause in the contract  

would not be an absolute bar to a contractor raising claims  

which are  genuine at  a  later  date  even after  submission of  

such “No-claim Certificate”.

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(iii)   Even  after  execution  of  full  and  final  discharge  

voucher/receipt by one of the parties, if the said party able to  

establish that he is entitled to further amount for which he is  

having adequate materials, is not barred from claiming such  

amount  merely  because  of  acceptance  of  the  final  bill  by  

mentioning  “without  prejudice”  or  by  issuing  ‘No  Due  

Certificate’.

10)  In the light of the above principles, we are convinced from  

the  materials  on  record  that  in  the  instant  case,  the  

appellant/plaintiff  also  had  a  genuine  claim  which  was  

considered in great detail by the trial Court and supported by  

oral and documentary evidence.  Though the High Court has  

not adverted to any of the factual details/claim of the plaintiff  

except reversing the judgment and decree of the trial Court on  

the  principle  of  estoppel,  we  have  carefully  perused  and  

considered the detailed discussion and ultimate conclusion of  

the trial Judge.  Though we initially intend to remit the matter  

to the High Court for consideration in respect of merits of the  

claim  and  the  judgment  and  decree  of  the  trial  Court,  

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inasmuch as the contract  was executed on 05.06.1970 and  

work  had  been  completed  in  August,  1973,  final  bill  was  

raised  on  31.03.1974  and  additional  claim  was  raised  on  

16.07.1976, to curtail the period of litigation, we scrutinized  

all  the issues framed by the trial  Court,  its  discussion and  

ultimate conclusion based on the pleadings and supported by  

the materials.  The trial Court framed the following issues:-

“ The following issues were framed at Ex. 16:- 1. Whether Plaintiff proves that he executed extra work of  

change and entitled to claim Rs. 3,600/-? 2. Whether Plaintiff proves that he did extra work of C.O.T.  

filing and hence entitled to claim Rs. 1,800/-? 3. Whether  Plaintiff  is  entitled  to  claim Rs.  15,625/-  in  

connection with excavated stuff? 4. Whether  Plaintiff  is  entitled  to  claim  Rs.  7,585/-  for  

guide bunds? 5. Whether  Plaintiff  is  entitled  to  claim  Rs  5,640/-  for  

pitching work? 6. Whether Petitioner is entitled to claim Rs. 13,244/- for  

providing sand filter in river.? 7. Whether  Plaintiff  is  entitled  to  claim  Rs.  1,375/-  for  

waster weir back filling? 8. Whether  Plaintiff  is  entitled to claim Rs.  30,600/- for  

extra item of masonry? 9. Whether Plaintiff is entitled to claim Rs. 14,339.84 for  

breach of condition and irregular payment? 10. Whether Plaintiff  is entitled to claim Rs 12,386.64 ps.  

for providing heavy gate? 11. Whether Plaintiff is entitled to claim Rs. 1,37,478.17 ps  

for rising of prices? 12. Whether  Plaintiff  is  entitled to claim Rs.  30,000/- for  

establishment charges? 13. Whether  Plaintiff  is  entitled  to  claim  Rs.  93,049.76  

towards interest? 14. Whether  notice  under  Section  80  of  the  CPC  is  

defective?

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15. Whether Plaintiff is estopped from filing suit in view of  fact that he has signed and accepted bills prepared by  Defendant?

16. Whether suit is barred by time? 17. Whether  Court  has  jurisdiction  to  decide  the  present  

suit? 18. What order and decree?”

11)   We  have  already  considered  and  answered  the  issue  

relating to No. 15 in the earlier paragraphs and held in favour  

of the plaintiff.  In respect of other issues relating to execution  

of  extra  work,  excavation,  construction  of  guide  bunds,  

pitching work, providing sand filter in river, waste weir back  

filling,  extra  masonary,  providing  heavy  gate,  additional  

amount due to raising of prices, additional amount towards  

establishment charges, interest etc., the trial Court based on  

the  materials  placed  accepted  certain  items  in  toto  and  

rejected certain claims and ultimately granted a decree for a  

sum of Rs. 2,27,758/- with proportionate costs and interest @  

6 per cent per annum from the date of the suit till realization.  

On  going  through  the  materials  placed,  relevant  issues  

framed, ultimate discussion and conclusion arrived at by the  

trial Court, we fully agree with the same and the plaintiff is  

entitled to the said amount as granted by the trial Court.   

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12)  In the result, the impugned judgment of the High Court in  

First Appeal No. 2038 of 1983 dated 07.10.2002 is set aside  

and the judgment and decree of the trial Court in Civil Suit  

No. 30 of 1977 dated 14.12.1982 is restored.  The civil appeal  

is allowed with no order as to costs.

....…………………………………J.                   (P. SATHASIVAM)                                   

...…………………………………J.           (DR. B.S. CHAUHAN)  

NEW DELHI; JANUARY 14, 2011

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