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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