Union of India & Ors.
Vs M/S. Master Construction Co.
R.M. Lodha, J.
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 1Pradesh High Court, as sole arbitrator to decide the disputes
between the parties.
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.
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.
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.
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.
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.
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
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.
no arbitrator was appointed by the appellants despite the request made in the letter
dated September 10, 2000, the 3contractor made an application under Section
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.
Division Bench of the High Court heard the parties and by its order dated May
20, 2004 dismissed the contractor's writ petition.
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.
was then that the Chief Justice of the Punjab and Haryana High Court decided the
application filed by the contractor under Section 11(6) of the 1996 Act and
passed the order impugned in the present appeal.
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
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 5arbitrator.
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.
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 :
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 2672 (2004) 2 SCC 6633 (2006) 13 SCC 475 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
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. 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".
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.
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 Builders 9, M/s. P.K. Ramaiah 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 Shoes 17. 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 : "
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 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
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.
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 10and 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 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.
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
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
our opinion, there is no rule of the absolute kind. In a case where the claimant
contends that a discharge voucher or 12no-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
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 13such plea is
found to be an after-thought, make-believe or lacking in credibility, the
matter must be set at rest then and there.
light of the above legal position, we now turn to the facts of the present
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)
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."
above certificates leave no manner of doubt that upon receipt of the payment, there
has been full and final settlement 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
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.
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.
are, thus, unable to sustain the order of the Chief Justice in the proceedings
under Section 11(6) of the 1996 Act. In 15view 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.
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. (R.M. Lodha)