Union Of India & Ors vs M/S. Master Construction Co

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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