UNION OF INDIA Vs M/S. MASTER CONSTRUCTION CO.
Bench: AFTAB ALAM,R.M. LODHA, , ,
Case number: C.A. No.-003541-003541 / 2011
Diary number: 8437 / 2007
Advocates: D. S. MAHRA Vs
JYOTI MENDIRATTA
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 3541 OF 2011 (Arising out of SLP (Civil) No. 8162 of 2007)
Union of India & Ors. …. Appellants
Versus
M/s. Master Construction Co. …. Respondent
JUDGMENT
R.M. Lodha, J.
Leave granted.
2. This appeal, by special leave, arises from the order
dated December 8, 2006 passed by the Chief Justice of the
Punjab and Haryana High Court in the proceedings under
Section 11(6) of the Arbitration and Conciliation Act, 1996 (for
short, ‘1996 Act’) whereby he held that all disputes between the
parties to the contract have to be referred to the arbitration and
appointed Mr. M.S. Liberahan, retired Chief Justice of Andhra
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Pradesh High Court, as sole arbitrator to decide the disputes
between the parties.
3. The respondent — M/s. Master Construction Company
(for short, ‘the contractor’) — was awarded a contract (CA No.
CEBTZ—14/95-96) on September 17, 1995 by the first appellant—
Union of India — for the work, ‘provisions of OTM accommodation
and certain essential technical buildings’ to be erected and installed
at Bhatinda. The first phase of the work was to be completed by July
20, 1996 and the second phase by January 20, 1997.
4. The agreement between the parties made IAFW—2249
an integral part of the contract. Condition 70 thereof provided mode
for resolution of disputes and differences between the parties
through arbitration.
5. The work is said to have been completed by the
contractor, albeit belatedly, on August 31, 1998. The completion
certificate was issued on September 9, 1999.
6. The contractor furnished no-claim certificates on April 3,
2000, April 28, 2000 and May 4, 2000 and the final bill was signed
on May 4, 2000.
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7. The payment of final bill was released to the contractor
on June 19, 2000. Thereafter, the bank guarantee amounting to
Rs. 21,00,000/- was also released on July 12, 2000. Immediately
after release of the bank guarantee, on that very day, i.e. July 12,
2000, the contractor wrote to the appellants withdrawing ‘no-claim
certificates’; it also lodged certain claims.
8. The Chief Engineer, Bhatinda Zone, Bhatinda (Appellant
No. 3 herein) vide his letter dated July 13, 2000 declined to entertain
the claims of the contractor on the ground that the final bill has been
accepted by the contractor after furnishing the ‘no-claim certificates’
and no claim under the contract remained.
9. The contractor vide its letter dated September 10, 2000
requested the Engineer-in-Chief, Army Headquarters, Kashmir
House, New Delhi (Appellant No. 2 herein) to refer the disputes
between the parties for resolution to the arbitrator. The contractor
stated in that letter that if the arbitrator was not appointed within 30
days from the date of request, it may be constrained to seek the
remedy as may be available under the law.
10. As no arbitrator was appointed by the appellants despite
the request made in the letter dated September 10, 2000, the
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contractor made an application under Section 11 of the 1996 Act
before the Civil Judge, (Senior Division), Bhatinda on January 10,
2001. The application, after contest, was dismissed by the Civil
Judge, Senior Division, Bhatinda on January 6, 2003.
11. Being not satisfied with the order dated January 6, 2003,
the contractor challenged that order by filing a writ petition before the
High Court of Punjab and Haryana.
12. The Division Bench of the High Court heard the parties
and by its order dated May 20, 2004 dismissed the contractor’s writ
petition.
13. The contractor challenged the High Court’s order by filing
a special leave petition before this Court. This Court disposed of the
special leave petition on January 3, 2006 by directing that the
application filed by the contractor under Section 11 of the 1996 Act
shall be placed before the Chief Justice of the Punjab and Haryana
High Court, for appropriate order thereon. This Court, consequently,
set aside the orders of the High Court and the lower court.
14. It was then that the Chief Justice of the Punjab and
Haryana High Court decided the application filed by the contractor
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under Section 11(6) of the 1996 Act and passed the order impugned
in the present appeal.
15. Mr. Brijender Chahar, learned senior counsel for the
appellants made two-fold submission : (i) that no arbitrable dispute
existed between the parties as full and final payment has been
received by the contractor voluntarily after submission of ‘no-claim
certificates’ and the final bill, and (ii) that, in any case, the Chief
Justice in exercise of his power under Section 11(6) ought to have
given due regard to the arbitration clause and appointed the
arbitrator in terms thereof.
16. Ms. Indu Malhotra, learned senior counsel for the
contractor, on the other hand, vehemently contended that the whole
case of the contractor from the very beginning had been that ‘no-
claim certificates’ were given by the contractor under the financial
duress and coercion as the appellants had arbitrarily withheld the
payment. She would submit that the issue whether ‘no-claim
certificates’ were given voluntarily or under financial duress, is an
issue which must be decided by the arbitrator alone and it is for this
reason that the Chief Justice, in the proceedings under Section
11(6), has referred the disputes between the parties to the
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arbitrator. In this regard, she heavily relied upon a recent decision of
this Court in the case of National Insurance Company Limited v.
Boghara Polyfab Private Limited1. She also referred to two earlier
decisions of this Court, namely, Chairman & M.D., NTPC Ltd. v.
Reshmi Constructions, Builders and Contractors2 and Ambica
Construction v. Union of India3.
17. That IAFW—2249 was made an integral part of the
contract between the parties and condition 70 thereof provided for
mode of resolution of disputes and differences between the parties
through arbitration is not in dispute. Condition 70 (arbitration clause)
reads as under :
“70. Arbitration-All disputes, between the parties to the Contract (other than those for which the decision of the C.W.E. or any other person is by the Contract expressed to be final and binding) shall, after written notice by either party to the Contract to the other of them, be referred to the sole arbitration of an Engineer Officer to be appointed by the authority mentioned in the tender documents.
Unless both parties agree in writing such reference shall not take place until after the completion or alleged completion of the works or termination or determination of the contract under Condition Nos. 55, 56 and 57 hereof.
Provided that in the event of abandonment of the works or cancellation of the Contract under Condition Nos. 52,53 or 54 hereof, such reference shall not take place until alternative arrangements have been finalized by the
1 (2009) 1 SCC 267 2 (2004) 2 SCC 663 3 (2006) 13 SCC 475
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Government to get the works completed by or through any other Contractor or Contractors or Agency or Agencies.
Provided always that commencement or continuance of any arbitration proceeding hereunder or otherwise shall not in any manner militate against the Government’s right of recovery from the contractor as provided in Condition 67 hereof.
If the Arbitrator so appointed resigns his appointment or vacates his office or is unable or unwilling to act due to any reason whatsoever, the authority appointing him may appoint a new Arbitrator to act in his place.
The arbitrator shall be deemed to have entered on the reference on the date he issues notice to both the parties, asking them to submit to him their statement of the case and pleadings in defence.
The Arbitrator may proceed with the arbitration, exparte, if either party, inspite of a notice from the Arbitrator fails to take part in the proceedings.
The Arbitrator may, form time to time with the consent of the parties, enlarge, the time upto but not exceeding one year from the date of his entering on the reference, for making and publishing the award.
The Arbitrator shall give his award within a period of six months from the date of his entering on the reference or within the extended time as the case may be on all matters, referred to him and shall indicate his findings, along with sums awarded, separately on each individual item of dispute.
The venue of Arbitrator shall be such place or places as may be fixed by the Arbitrator in his sole discretion.
The award of the Arbitrator shall be final and binding on both parties to the contract.
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If the value of the claims or counter claims in an arbitration referred exceeds Rs. 1 lakh the arbitrator shall give reasons for the award”.
18. The controversy presented before us does not concern
the existence of arbitration agreement but it relates to whether after
furnishing ‘no-claim certificates’ and the receipt of payment of final
bill, as submitted by the contractor, any arbitrable dispute between
the parties survived or the contract stood discharged. Before we
turn to the factual aspect, it is appropriate to carefully consider the
decision of this Court in Boghara Polyfab Private Limited1 at some
length as the learned senior counsel for the contractor placed
heavy reliance on it.
19. In Boghara Polyfab Private Limited1, this Court surveyed
a large number of earlier decisions of this Court, namely, The Union
of India v. Kishorilal Gupta & Bros4., The Naihati Jute Mills Ltd. v.
Khyaliram Jagannath5, Damodar Valley Corporation v. K.K. Kar6,
M/s. Bharat Heavy Electricals Limited, Ranipur v. M/s. Amar Nath
Bhan Prakash7, Union of India & Anr. v. M/s. L.K. Ahuja & Co.8,
State of Maharashtra v. Nav Bharat Builders9, M/s. P.K. Ramaiah & 4 AIR (1959) SC 1362 5 AIR (1968) SC 522 6 (1974) 1 SCC 141 7 (1982) 1 SCC 625 8 (1988) 3 SCC 76 9 1994 Supp (3) SCC 83
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Company v. Chairman & Managing Director, National Thermal
Power Corpn.10, Nathani Steels Ltd. v. Associated Constructions11,
Indian Drugs & Pharmaceuticals Ltd. v. Indo Swiss Synthetics Gem
Mfg. Co. Ltd. & Ors.12, United India Insurance v. Ajmer Singh Cotton
& General Mills & Ors. 13 , Jayesh Engineering Works v. New India
Assurance Co. Ltd.14, SBP & Co. v. Patel Engineering Ltd. & Anr. 15,
National Insurance Co. Ltd. v. Nipha Exports (P) Ltd. 16 and National
Insurance Company Limited v. Sehtia Shoes17. With regard to the
jurisdiction of the Chief Justice/his designate in the proceedings
under Section 11 of the 1996 Act, this Court culled out the legal
position in paragraph 51 (page 294) of the report as follows :
“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
10 1994 Supp (3) SCC 126 11 1995 Supp (3) SCC 324 12 (1996) 1 SCC 54 13 (1999) 6 SCC 400 14 (2000) 10 SCC 178 15 (2005) 8 SCC 618 16 (2006) 8 SCC 156 17 (2008) 5 SCC 400
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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.”
20. The Bench in Boghara Polyfab Private Limited1 in
paragraphs 42 and 43 (page 291), with reference to the cases cited
before it, inter alia, noted that there were two categories of the cited
cases; (one) where the Court after considering the facts found that
there was a full and final settlement resulting in accord and
satisfaction, and there was no substance in the allegations of
coercion/undue influence and, consequently, it was held that there
could be no reference of any dispute to arbitration and (two) where
the court found some substance in the contention of the claimants
that ‘no dues/claim certificates’ or ‘full and final settlement discharge
vouchers’ were insisted and taken (either in printed format or
otherwise) as a condition precedent for release of the admitted dues
and thereby giving rise to an arbitrable dispute.
21. In Boghara Polyfab Private Limited1, the consequences
of discharge of the contract were also considered. In para 25 (page
284), it was explained that when a contract has been fully
performed, then there is a discharge of the contract by performance
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and the contract comes to an end and in regard to such a
discharged contract, nothing remains and there cannot be any
dispute and, consequently, there cannot be reference to arbitration
of any dispute arising from a discharged contract. It was held that
the question whether the contract has been discharged by
performance or not is a mixed question of fact and law, and if there
is a dispute in regard to that question, such question is arbitrable.
The Court, however, noted an exception to this proposition. The
exception noticed is that where both the parties to a contract
confirm in writing that the contract has been fully and finally
discharged by performance of all obligations and there are no
outstanding claims or disputes, courts will not refer any subsequent
claim or dispute to arbitration. Yet another exception noted therein
is with regard to those cases where one of the parties to the contract
issues a full and final discharge voucher (or no-dues certificate, as
the case may be) confirming that he has received the payment in full
and final satisfaction of all claims, and he has no outstanding claim.
It was observed that issuance of full and final discharge voucher or
no-dues certificate of that kind amounts to discharge of the contract
by acceptance or performance and the party issuing the discharge
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voucher/certificate cannot thereafter make any fresh claim or revive
any settled claim nor can it seek reference to arbitration in respect of
any claim.
22. In paragraph 26 (pages 284-285), this Court in Boghara
Polyfab Private Limited1 held that if a party which has executed the
discharge agreement or discharge voucher, alleges that the
execution of such document was on account of
fraud/coercion/undue influence practised by the other party, and if
that party establishes the same, then such discharge voucher or
agreement is rendered void and cannot be acted upon and
consequently, any dispute raised by such party would be arbitrable.
23. In paragraph 24 (page 284) in Boghara Polyfab Private
Limited1, this Court held that a claim for arbitration cannot be
rejected merely or solely on the ground that a settlement agreement
or discharge voucher has been executed by the claimant. The Court
stated that such dispute will have to be decided by the Chief
Justice/his designate in the proceedings under Section 11 of the
1996 Act or by the Arbitral Tribunal.
24. In our opinion, there is no rule of the absolute kind. In a
case where the claimant contends that a discharge voucher or
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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 necessity to refer the dispute for arbitration at all. It
cannot be overlooked that the cost of arbitration is quite huge –
most of the time, it runs in six and seven figures. It may not be
proper to burden a party, who contends that the dispute is not
arbitrable on account of discharge of contract, with huge cost of
arbitration merely because plea of fraud, coercion, duress or undue
influence has been taken by the claimant. A bald plea of fraud,
coercion, duress or undue influence is not enough and the party who
sets up such plea must prima facie establish the same by placing
material before the Chief Justice/his designate. If the Chief
Justice/his designate finds some merit in the allegation of fraud,
coercion, duress or undue influence, he may decide the same or
leave it to be decided by the Arbitral Tribunal. On the other hand, if
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such plea is found to be an after-thought, make-believe or lacking in
credibility, the matter must be set at rest then and there.
25. In light of the above legal position, we now turn to the
facts of the present case.
26. At the time of receiving payment on account of final bill,
the contractor executed the certificate in the following terms :
“a) I/we hereby certify that I/we have performed the work under the condition of the contract agreement No. CEBTZ-14/95-96, for which payment is claimed and that I/we have no further claims under CA No. CEBTZ-14/95-96.
b) Received rupees two lakhs fifteen thousand one hundred seventy eight only. This payment is in full and final settlement of all money dues under CA No. CEBTZ-14/95-96 and I have no further claims in respect of the CA No. CEBTZ-14/95-96.”
(emphasis supplied by us)
27. The contractor also appended the following certificate:
“It is certified that I have prepared this final bill for claiming entire payment due to me from this contract agreement. The final bill includes all claims raised by me from time to time irrespective of the fact whether they are admitted/accepted by the department or not. I now categorically certify that I have no more claim in respect of this contract beyond those already included in this final bill by me and the amount so claimed by me shall be in full and final satisfaction of all my claims under this contract agreement. I shall however, receive my right to raise claim to the extent disallowed to me from this final bill.”
28. The above certificates leave no manner of doubt that
upon receipt of the payment, there has been full and final settlement
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of the contractor’s claim under the contract. That the payment of
final bill was made to the contractor on June 19, 2000 is not in
dispute. After receipt of the payment on June 19, 2000, no
grievance was raised or lodged by the contractor immediately. The
concerned authority, thereafter, released the bank guarantee in the
sum of Rs. 21,00,000/- on July 12, 2000. It was then that on that
day itself, the contractor lodged further claims.
29. The present, in our opinion, appears to be a case falling
in the category of exception noted in the case of Boghara Polyfab
Private Limited (Para 25, page 284). 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.
30. The conduct of the contractor clearly shows that ‘no
claim certificates’ were given by it voluntarily; the contractor
accepted the amount voluntarily and the contract was discharged
voluntarily.
31. We are, thus, unable to sustain the order of the Chief
Justice in the proceedings under Section 11(6) of the 1996 Act. In
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view of our finding above, it is not necessary to consider the
alternative submission made by the senior counsel for the appellants
that the Chief Justice in exercise of his power under Section 11(6)
ought to have appointed the arbitrator in terms of the arbitration
clause and the appointment of Mr. M.S. Liberahan, retired Chief
Justice of Andhra Pradesh High Court, was not in accord with the
arbitration agreement.
32. The appeal is, accordingly, allowed. The impugned order
dated December 8, 2006 passed by the Chief Justice of the High
Court of Punjab and Haryana is set aside. The parties shall bear
their own costs.
…………………….J. (Aftab Alam)
.………………….. J. (R.M. Lodha)
NEW DELHI. APRIL 25, 2011.
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