Construction Vs. Union of India  Insc 827 (20 November 2006)
Ar. Lakshmanan & Altamas Kabir
out of SLP) No.2753/2005) WITH CIVIL APPEAL NO. 5097 OF 2006 (Arising out of
SLP) No.19237 of 2005) M/s.Ambica Construction ... Appellant Versus Union of
India ... Respondent ALTAMAS KABIR, J.
condoned in S.L.P.(c) No.19237/2005.
granted in both the Special Leave Petitions which have been taken up together
for disposal, since SLP (c) No.19237 of 2005 is directed against the main
judgment and Order dated 16th March, 2004, passed by the Calcutta High Court
allowing the appeal of the Union of India and SLP (C) No.2753 of 2005 arises
out of the order dated 23rd September, 2004 passed by the said High Court on a
Review Petition in respect of the main judgment.
to a Tender Notice, issued by the respondent for certain new works, additions,
alterations, repair and maintenance works in the Mancheswar Complex, the
appellant submitted its tender on 2nd September, 1992. The appellant's tender was duly accepted by a letter dated
14th September, 1992 with the stipulation that the work
was to be completed in all respects by 30th June, 1993. It was also indicated that the
work orders were to be issued within 7 days from the date of receipt of the
acceptance letter. A formal contract was executed between the parties on 4th March, 1993 and the said agreement provided
that the General Conditions of Contract and Standard Specifications of the
South Eastern Railways shall be applicable to the contract. Clause 63 of the
General Conditions of Contract provides for settlement of disputes by
would appear from the materials on record, the appellant herein was unable to
complete the work within the stipulated time frame and accordingly it applied
for extension of time by three months upto 30th September, 1993. It is the appellant's case that
since it was not informed about the decision on the said application, the
appellant suffered huge losses on account of idle labour and surplus staff. It
appears that ultimately the appellant's request was turned down and certain
deductions were made from the Running Bills submitted by the appellant and in
fact payment was not even made for the works already done by the appellant.
According to the appellant, the respondent refused to refund even the
appellant's security deposit unless the appellant submitted a No-Claim
Certificate in terms of Clause 43(2) of the General Conditions of Contract.
Having no other alternative and having incurred huge losses on account of idle labour
and surplus staff and the establishment expenses, the appellant submitted a No
Claim Certificate in order to at least get refund of its security deposit.
letter dated 17th January, 1996, the appellant called upon the respondent to
make payment of a sum of Rs.8,73,168/- and Rs.1,31,642/- which, according to
the appellant, was due from the respondent to the appellant under the contract,
failing which the respondent was requested to appoint an Arbitrator for
adjudication of the disputes which had arisen between the parties. In view of
the failure of the respondent either to pay the dues, as demanded, or to
appoint an Arbitrator, the appellant filed an application under Section 11 of
the Arbitration and Conciliation Act, 1996 (hereinafter called "the 1996
Act") before the Calcutta High Court for reference of its claims in terms
of its letter dated 17th January, 1996 to arbitration and for appointment of an
Arbitrator. No reply was filed by the respondent to the said application but
during the pendency thereof, the respondent refunded to the appellant, the
security deposit of Rs.79,000/-. The same was received by the appellant under
objection was taken by the respondent to the appellant's application under Section
11 of the 1996 Act or with regard to the submission of the No Claim Certificate
by the appellant at the time of receiving the security deposit, the learned
Single Judge of the Calcutta High Court, by his order dated 20th February,
1998, directed the matter to be placed before Hon'ble the Chief Justice for
naming an Arbitrator for adjudication of the disputes. On 12th March, 1998, the Chief Justice appointed one Shri
Subrata Bagchi as Sole Arbitrator to go into the disputes between the parties.
The Arbitrator came to a finding that the No Claim Certificate had been signed
by the appellant under duress and coercion but disallowed the various claims of
the appellant amounting to Rs.10 lakhs. However, the Arbitrator awarded a sum
of Rs.1,03,000/- as costs to the appellant.
parties were aggrieved by the aforesaid Award and filed separate applications
for setting aside the same.
by consent of parties, the learned Single Judge of the Calcutta High Court by
his order dated 31st
January, 2000 set
aside the Award made by Shri Subrata Bagchi and by consent appointed Shri G.C
Law, Counsel appearing for the Union of India in the case, as Sole Arbitrator.
On 25th May, 2001, Shri Law published his Award
allowing the claims made by the appellant. The said Award was challenged by the
respondent herein- Union of India under Section 34 of the 1996 Act, being A.P.
No.193 of 2001, before the learned Single Judge of the Calcutta High Court.
behalf of the Union of India it was urged that the Arbitrator had not
considered the General Conditions of Contract and in particular Rules 43(2) and
16(2) thereof. The learned Single Judge appears to have been of the view that
by participating in the proceedings under Section 11 of the 1996 Act and no
objection having been made to the appointment of an Arbitrator despite the
submission of a No Claim Certificate by the appellant, the Award did not
warrant any interference.
to the learned Single Judge the matters had been adjudicated upon by the
Arbitrator and since the court was not sitting in appeal over the Award, it
could not enter into the reasonableness of the reasons given by the Arbitrator.
The learned Single Judge dismissed the application for setting aside the Award
with the aforesaid observations.
matter was taken in appeal by the Union of India in APO No.212 of 2004 under
Section 37 of the 1996 Act. Taking note of the No Claim Certificate, submitted
by the appellant, in the light of Clause 43(2) of the General Conditions of
Contract, the Division Bench came to a finding that apart from a mere
statement, there was no proof of the allegation that the appellant herein had
been compelled to sign such a certificate under coercion or duress. The
Division Bench observed that no such finding had been arrived at by the
Arbitrator. On such finding, the Division Bench allowed the appeal and also the
application under Section 34 of the 1996 Act.
the impugned order of the learned Single Judge and the Award passed by the
learned Arbitrator were both set aside.
indicated hereinbefore, SLP (C) No.19237 of 2005 is directed against the said
judgment and order of the Division Bench of the Calcutta High Court.
Union of India filed a Review Petition, being GA No.1265 of 2005, for review of
the aforesaid judgment dated 16th March, 2004
but the same was also dismissed on 23rd September, 2004. SLP (C) No.2753 of 2005 is
directed against the order passed on the Review Petition.
in support of the two appeals, Mr.Raj Kumar Mehta, Advocate, urged that the
Division Bench of the Calcutta High Court had been persuaded to allow the
appeal filed by the Union of India on the sole ground that by furnishing the No
Claim Certificate the appellant herein was no longer entitled to raise any
claim having regard to Clause 43(2) of the General Conditions of Contract. Mr.Mehta
also submitted that the Division Bench had wrongly held that there was no proof
in support of the allegations that such No Objection Certificate had been
furnished by the appellant under coercion and duress. It was urged that there
were sufficient materials on record to indicate that the authorities of the
respondent were bent upon denying the appellant its just dues, and, on the
other hand, they had deducted certain amounts which were due and payable on
account of Running Bills submitted by the appellant. It was also submitted that
a case had been made out before the learned Arbitrator as also the learned
Single Judge that the appellant had been compelled by circumstances to submit the
No Objection Certificate without which no payment even of lawful dues are made
by the Railways. It was sought to be urged that it is common practice for
discharge receipts to be given before any payment is made and the appellant
had, under compelling circumstances, merely followed such practice in order to
recover even its security deposit which was not being paid to it.
also urged that wrong reliance had been placed by the Division Bench on the
decision of this Court in the case of P.K. Ramaiah and Co. vs. Chairman &
MD, National Thermal Power Corpn., [1994 Supp (3) SCC 126]. According to Mr.Mehta
the Division Bench should have, on the other hand, taken into consideration the
age old maxim Necessitas non habet legem which means that necessity knows no
to Mr.Mehta it was out of necessity, namely, to recover its security deposit,
that a No Claim Certificate had been submitted by the appellant and the same
ought not to be held as a bar against the appellant for raising claims in respect
of its lawful duties.
support of the aforesaid submissions, Mr.Mehta referred to and relied upon the
decision of this Court in Chairman and MD, NTPC Ltd. vs. Reshmi Constructions,
Builders & Contractors [2004 (2) SCC 663] wherein the aforesaid maxim had
been explained and applied to a similar situation where a question had arisen
for decision as to whether an arbitration clause in a contract agreement
continues to survive despite the purported satisfaction thereof.
Court while adverting to various decisions on the subject, including the
decision in P.K. Ramaiah's case (supra), came to the conclusion that
notwithstanding the submission of a No Demand Certificate, the arbitration
agreement continued to subsist because of the several reasons indicated in the
judgment. Having regard to the views expressed in the aforesaid judgment, Mr.Mehta
submitted that the Division Bench of the Calcutta High Court had erred in
relying solely on Clause 43(2) of the General Conditions of Contract and the No
Claim Certificate submitted by the appellant in arriving at a conclusion that
no further dispute existed for determination in arbitration and the judgment
and orders under appeal were liable to be set aside.
learned Senior Advocate, appearing for the Union of India, supported the
judgment of the Division Bench of the Calcutta High Court with particular
reference to Clause 43(2) of the General Conditions of Contract. He reiterated
the findings of the Division Bench to the effect that having submitted a No
Claims Certificate, the appellant was precluded from raising any further claims
and the learned Arbitrator had committed a gross error in allowing such claim
notwithstanding the prohibition contained in the said clause.
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:
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." 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 Objection 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.
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
regard to the decision in the case of Reshmi Constructions's (supra), 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.
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.
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
appeals are accordingly allowed. The impugned judgments in the two appeals are
both set aside.
will, however, be no order as to costs.