National Insurance
Co. Ltd. Vs. M/S. Boghara Polyfab Pvt. Ltd. [2008] INSC 1592 (18 September
2008)
Judgment
Reportable IN THE
SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 5733 OF
2008 (Arising out of SLP [C] No.12056 of 2007) National Insurance Co. Ltd. ...
Appellant M/s. Boghara Polyfab Pvt. Ltd. ... Respondents
R.V.RAVEENDRAN, J.
Leave granted. Heard
both counsel. The question involved in this appeal is whether a dispute raised
by an insured, after giving a full and final discharge voucher to the insurer,
can be referred to arbitration.
1.
The
brief facts :
2.
The
respondent (Insured) obtained a standard Fire and Special Perils (with a
floater) Policy from the appellant (`Insurer') to cover its goods in its
godowns situated at Surat for the period 4.8.2003 to 3.8.2004. The sum insured
was Rs. Three crores, subsequently increased to Rs. Six crores. On 27.5.2004
the respondent requested the insurer to increase the sum insured by another Rs.
six crores for a period of two months. Accordingly, the appellant issued an
additional endorsement increasing the sum insured by another Rupees six crores,
in all Rupees twelve crores. The respondent alleges that the additional endorsement
cover issued by the appellant was for 69 days, that is from 27.5.2004 to
3.8.2004. The appellant alleges that the additional endorsement cover was for a
period of 60 days from 27.5.2004 to 26.7.2004. (Note: The appellant claims that
during subsequent investigations, it came to light that its AAO (Dilip Godbole)
had delivered to the respondent, a computer generated Additional Endorsement
(unauthorisedly altered by hand) showing the period of additional cover as 69
days up to 3.8.2004, and departmental proceedings have been initiated against
the said officer).
3.
On
5.8.2004, the respondent reported loss/damage to their stocks on account of
heavy rains and flooding which took place on 2/3.8.2004 and made a claim in
that behalf. The surveyor submitted a preliminary report dated 14.8.2004
followed by a final survey report dated 6.12.2004 according to which the net
assessed loss (payable to respondent) was Rs.3,18,26,025/-. The said sum was
arrived at on the basis that the sum insured was Rs.12 crores, the actual value
of stocks in the godowns at risk was Rs.8,15,99,149/-, value of damaged goods
was Rs.5,22,81,001/-, and the recoverable salvage value was Rs.1,87,79,922/-.
The appellant informed the surveyor by letter dated 1.3.2005 that there was an
error in the net assessed loss arrived at by the surveyor as it assumed the sum
insured as Rs.12 crores up to 3.8.2004 whereas the sum insured was only Rs.6
crores after 26.7.2004 till 3.8.2004, and therefore instructed the surveyor to
prepare the final report regarding net assessed loss by taking the sum insured
as only Rupees six crores. The surveyor therefore gave an addendum to the final
survey report on 22.3.2005 reassessing the net loss by taking the sum insured
as only Rupees six crores. The value of goods at risk, the value of damaged
goods and the value of recoverable salvage remained unaltered. By modifying the
percentage 4 of insurance at 75.53%, the `Net Assessed Loss' was re-worked as
Rs.2,34,01,740/-. The respondent protested against the loss being assessed by
taking the sum insured as only Rupees six crores. The claim and the dispute
were pending consideration for a considerable time.
4.
The
respondent alleged that the appellant forced the respondent to accept a lower
settlement; that the appellant informed the respondent that unless and until
the respondent issued an undated `Discharge voucher-in-advance' (in the
prescribed form) acknowledging receipt of Rs.2,33,94,964/- in full and final
settlement, no amount would be released towards the claim; that in that behalf,
the appellant sent the format of the discharge voucher to be signed by
respondent on 21.3.2006; that on account of the non- release of the claim, it
was in a dire financial condition and it had no alternative but to yield to the
coercion and pressure applied by the appellant; that therefore the respondent
signed and gave the said discharge voucher, undated, as required by the insurer
during the last week of March, 2006. The payment was released by the appellant
only after receiving the said discharge-voucher. It is extracted below:
"NATIONAL
INSURANCE COMPANY LTD.
5 REGD. OFFICE : 3,
MIDDLETON STREET, POST BOX NO.9229, KOLKATA 700071 FORM ACL - 10(1) Loss
Voucher Non Motor & PA Received from National Insurance Company Limited
through its policy issuing office (herein after called the Company) the sum of
Rs.2,33,94,964.00 (Rupees two crore thirty three lakh ninety four thousand nine
hundred sixty four only) in full and final settlement of all my/our claims in
respect of the property lost or damaged due to others on or about 03/08/2004
under Policy No.250501/11/03/3100000145.
In consideration of
such payment I/we hereby absolve the Company from all liability present or
future arising directly or indirectly out of the said loss or damage under the
said policy.
Further I/We hereby
assign to the company my/our rights to the affected property stolen which shall
in the event of their recovery be the property of the company. I/We even agree
that the sum insured under the said policy stand reduced by the amount paid
under the next renewal."
Sd/-
5. Simultaneously,
the respondent lodged a complaint dated 24.3.2006 with the Insurance Regulatory
and Development Authority wherein, after setting out the facts, it alleged:
"We lodged a
claim with our insurers immediately and pursued the matter with them. Even
after the Surveyor Mr. Mehernosh Todiwala of M/s. Bhatawadekar & Co. had
submitted his report on 22nd March, 2005, the insurers refused to settle our
claim on various counts. We had various meetings at the Divisional, Regional
and even the Head Office of the insurers, but to no avail.
In March, 2005, the
insurer company forced us to accept a lower settlement and we were told that we
would have to agree to a lower settlement to ensure expeditious settlement of
the claim.
Accordingly on and
around the 15th of March, 2005 nearly 8 months after the loss we gave our
forced consent to the lower 6 settlement offered in the hope that the claim
amount would be received immediately.
Thereafter for the
next 1 year, the insurers failed to settle our claim and made us run from
pillar to post for the settlement.
Finally on March 21st
2006 the insurers have sent us a voucher for the sum of Rs.2,33,94,94 which
considering our dire financial condition, and the continuous failed promises
from the insurers, we have had no choice but to accept.
Sir, subsequent to
the loss, since we could not pay our international suppliers on time they
almost completely stopped all our shipments. This has resulted in tremendous
financial loss to us. We have lost our long hard earned reputation in the
market by becoming defaulters. The insurers have deliberately starved our unit
of funds to ruin us financially.
You will appreciate
that we are now faced with a situation where we have no choice but to accept
the payment being released to us unconditionally as the insurers have made it
very clear that the payment will not be released if there is any conditional
discharge of the vouchers. In order to safeguard our right to claim the
difference amount and any other claims arising out of the financial losses
incurred by us a direct result of the deliberate delay in settlement of our
claim by the insurers, we make a humble request to the I.R.D.A. to take up the
matter with the insurers to ensure that justice prevails and we are paid the
entire compensation due to us."
6. The respondent
also issued a legal notice dated 27.5.2006 wherein it was alleged that the
amount due by the insurer was Rs.3,18,26,025/-, and that under duress and
implicit coercion, it had accepted the payment of Rs.2,33,94,964/-, by signing
and handing over a `full and final discharge voucher'. By the said notice, the
respondent demanded the difference amount with interest at the rate of 12% per
annum from 6.12.2004 (date of final survey report) till the 7 date of payment.
The respondent also informed the appellant that if payment was not so made
within 15 days, the notice should be treated as notice invoking arbitration.
The appellant by its reply dated 2.8.2006, rejected the said demand. The
appellant contended that the respondent had unconditionally accepted the claim
settlement amount fully and finally; that respondent had not registered any
protest while accepting the claim cheque; that the amount payable was arrived
at amicably after discussing all aspects of the claim with the insured and at
no juncture any protest was expressed; and that therefore the question of
invoking the provision for arbitration did not arise.
7. In view of
appellant's refusal to agree for arbitration, the respondent filed an
application under section 11 of the Arbitration &
Conciliation Act,
1996 (`Act' for short) in the Bombay High Court.
The said petition was
resisted by the appellant by reiterating that the respondent had accepted the
payment of Rs.233,94,964/- in full and final settlement and therefore, the
respondent could not invoke the arbitration clause.
8. The learned Chief
Justice of the Bombay High Court exercising power under section 11 of the Act,
allowed the petition by order dated 19.4.2007. After considering the facts, he
was of the view that there was a serious dispute between the parties as to
whether `discharge voucher' was given voluntarily or under pressure or
coercion, and that required to be settled by the Arbitral Tribunal. He
therefore appointed Sri Justice S.N.Variava as the sole arbitrator. The learned
Chief Justice left open the question whether there was any coercion/undue
influence in regard to issue of full and final settlement discharge voucher by
the respondent, and permitted the parties to lead evidence before the
arbitrator on that question. The said order is challenged by the insurer in
this appeal by special leave.
The rival contentions
:
9. Learned counsel
for the appellant contended that once the insurance claim was settled and the
insured received payment and issued a full and final discharge voucher, there
was discharge of the contract by accord and satisfaction. As a result, neither
the contract nor any claim survived. It is submitted that when a discharge voucher
9 was issued by the respondent, acknowledging receipt of the amount paid by the
appellant, in full and final settlement and confirming that there are no
pending claims against the appellant, such discharge voucher should be accepted
on its face value as a discharge of contract by full and final settlement.
Consequently, it should entail ipso jure, rejection in limine of any subsequent
claim or any request for reference of any dispute regarding any claim to
arbitration. It was also contended that having received the payment under the
said discharge voucher, the respondent cannot, while retaining and enjoying the
benefit of the full and final payment, challenge the validity or correctness of
the discharge voucher. The appellant contends that the subsequent claim of the
respondent ought not to have been referred to arbitration. In support of its
contentions, reliance was placed on three decisions of this Court in State of
Maharashtra v. Nav Bharat Builders [1994 Supp (3) SCC 83], M/s.
P. K. Ramaiah &
Co. v. Chairman & Managing Director, National Thermal Power Corpn. [1994
Supp (3) SCC 126] and Nathani Steels Ltd. v. Associated Constructions [1995
Supp (3) SCC 324].
10. On the other hand
the respondent contended that the scope of proceeding under section 11 of the
Act was limited. It is submitted that once the petitioner establishes that the
contract between the parties contains an arbitration agreement, and that the
dispute raised is in respect of a claim arising out of such contract, the
dispute has to be referred to arbitration; that any contention by the appellant
that there is discharge of the contract by issue of full and final discharge
voucher is a matter for the arbitral tribunal to examine and decide, and cannot
be held out as a threshold bar to arbitration; and that the question whether
there was accord and satisfaction, or whether there was discharge of a contract
by performance, is itself a question that is clearly arbitrable. It is
alternatively submitted that when the Chief Justice or his designate is
required to consider whether the claimant has issued a full and final discharge
voucher in settlement of all claims, any objection to the validity of such
discharge voucher should also be considered. It is pointed out that where the
discharge voucher is given under threat or coercion, resulting in economic
duress and compulsion, such discharge voucher is not valid nor binding on the
claimant, and the dispute relating to the claim survives for consideration and
is arbitrable. According to 11 respondent, where the person on whom the claim
is made, withholds the admitted amount to coerce and compel the claimant to
accept a smaller payment in full and final settlement and give a discharge
voucher, there is no accord and satisfaction in the eye of law; and the
discharge voucher will not come in the way of a genuine and bona fide dispute
being raised regarding the balance of the claim and seeking reference of such
claim to arbitration. In support of the said contentions, reliance was placed
on the decisions of this Court in Damodar Valley Corporation v. K. K.Kar [1974
(1) SCC 141], M/s.
Bharat Heavy
Electricals Ltd., Ranipur v. M/s. Amar Nath Bhan Prakash [1982 (1) SCC 625],
Union of India vs. L. K. Ahuja & Co. [1988 (3) SCC 76], Jayesh Engineering
Works v. New India Assurance Co. Ltd. [2000 (10) SCC 178], Chairman &
Managing Director, NTPC Ltd. v. Reshmi Constructions, Builders &
Contractors [2004 (2) SCC 663], and Ambica Construction v. Union of India [2006
(13) SCC 475].
11. In reply, the
learned counsel for the appellant submitted that the decisions relied on by the
respondent were all rendered by two- Judge Benches of this Court, whereas the
decision in Nathani Steels relied on by the appellant, was rendered by a
three-Judge Bench; and 12 therefore the principle laid down in Nathani Steels
that there can be no reference to arbitration wherever there is a full and
final settlement, resulting in the discharge of the contract, holds the field
and will have to be followed in preference to the other decisions.
The questions for
consideration :
12. In this case
existence of an arbitration clause in the contract of insurance is not in
dispute. It provides that "if any dispute or difference shall arise as to
the quantum to be paid under this policy (liability being otherwise admitted)
such difference shall, independently to all other questions be referred to the
decision of a sole Arbitrator." The rival contentions give rise to the
following question for our consideration :
In what
circumstances, a court will refuse to refer a dispute relating to quantum to
arbitration, when the contract specifically provides for reference of disputes
and differences relating to the quantum to arbitration? In particular, what is
the position when a respondent in an application under section 11 of the Act,
resists reference to arbitration on the ground that petitioner has issued a
full and final settlement discharge voucher and the petitioner contends that he
was constrained to issue it due to coercion, undue influence and economic
compulsion? 13
13. In Union of India
v. Kishorilal Gupta & Bros. [1960 (1) SCR 493], this Court considered the
question whether the arbitration clause in the contract will cease to have
effect, when the contract stood discharged as a result of settlement. While
answering the question in the affirmative, a three Judge Bench of this Court
culled out the following general principles as to when arbitration agreements
operate and when they do not operate:
(i) An arbitration
clause is a collateral term of a contract distinguished from its substantive
terms; but none the less it is an integral part of it.
(ii) Howsoever
comprehensive the terms of an arbitration clause may be, the existence of the
contract is a necessary condition for its operation; and the arbitration clause
perishes with the contract.
(iii) A contract may
be non est in the sense that it never came legally into existence or it was
void ab initio. In that event, as the original contract has no legal existence,
the arbitration clause also cannot operate, for along with the original
contract, it is also void.
(iv) Though the
contract was validly executed, the parties may put an end to it as if it had
never existed and substitute a new contract for it, solely governing their
rights and liabilities. In such an event, as the original contract is
extinguished by the substituted one, the arbitration clause of the original
contract perishes with it.
(v) Between the two
extremes referred to in paras (c) and (d), are the cases where the contract may
come to an end, on account of repudiation, frustration, breach etc. In these
cases, it is the performance of the contract that has come to an end, but the
contract is still in existence for certain limited purposes, in respect of
disputes arising under it or in connection with it. When the contracts subsist
14 for certain purposes, the arbitration clauses in those contracts operate in
respect of those purposes.
The principle stated
in para (i) is now given statutory recognition in section 16(1)(a) of the Act.
The principle in para (iii) has to be now read subject to section 16(1)(b) of
the Act. The principles in paras (iv) and (v) are clear and continue to be
applicable. The principle stated in para (ii) requires further elucidation with
reference to contracts discharged by performance or accord and satisfaction.
14. The decision in
Kishorilal Gupta was followed and reiterated in several decisions including
Naithani Jute Mills Ltd. vs. Khyaliram Jagannath (AIR 1968 SC 522), Damodar
Valley Corporation vs. K.
K. Kar [1974 (1) SCC
141] and Indian Drugs & Pharmaceuticals Ltd. vs. Indo Swiss Synthetic Gem
Manufacturing Co. Ltd. (1996 (1) SCC 54). In Damodar Valley Corporation, this
Court observed :
"A contract is
the creature of an agreement between the parties and where the parties under
the terms of the contract agree to incorporate an arbitration clause, that
clause stands apart from the rights and obligations under that contract, as it
has been incorporated with the object of providing a machinery for the settlement
of disputes arising in relation to or in connection with that contract. The
questions of unilateral repudiation of the rights and obligations under the
contract or of a full and final settlement of the contract relate to the
performance or discharge of the contract. Far from putting an end to the
arbitration clause, they fall within the purview of it. A repudiation by one
party alone does not 15 terminate the contract. It takes two to end it, and
hence it follows that as the contract subsists for the determination of the
rights and obligations of the parties, the arbitration clause also survives.
This is not a case where the plea is that the contract is void, illegal or
fraudulent etc., in which case, the entire contract along with the arbitration clause
is non est, or voidable. As the contract is an outcome of the agreement between
the parties it is equally open to the parties thereto to agree to bring it to
an end or to treat it us if it never existed. It may also be open to the
parties to terminate the previous contract and substitute in its place a new
contract or alter the original contract in such a way that it cannot subsist.
In all these cases, since the entire contract is put an end to the arbitration
clause, which is a part of it, also perishes along with it."
15. Section 16 of the
Act bestows upon the arbitral tribunal, the competence to rule on its own
jurisdiction. Sub-section (1) of the section reads thus :
"16. Competence
of arbitral tribunal to rule on its jurisdiction. - (1) The arbitral tribunal
may rule on its own jurisdiction, including ruling on any objections with
respect to the existence or validity of the arbitration agreement, and for that
purpose, - (a) an arbitration clause which forms part of a contract shall be
treated as an agreement independent of the other terms of the contract; and (b)
a decision by the arbitral tribunal that the contract is null and void shall
not entail ipso jure the invalidity of the arbitration clause.
In SBP & Co. vs.
Patel Engineering Ltd. - 2005 (8) SCC 618, a seven Judge Bench of this Court
considered the scope of section 11 of the Act and held that the scheme of
section 11 of the Act required the Chief Justice or his designate to decide
whether there is an arbitration 16 agreement in terms of Section 7 of the Act
before exercising his power under Section 11(6) of the Act and its
implications. It was of the view that sub-sections (4), (5) and (6) of section
11 of the new Act, combined the power vested in the court under sections 8 and
20 of the old Act (Arbitration Act, 1940). This Court held :
"It is necessary
to define what exactly the Chief Justice, approached with an application under
Section 11 of the Act, is to decide at that stage. Obviously, he has to decide
his own jurisdiction in the sense, whether the party making the motion has
approached the right High Court. He has to decide whether there is an
arbitration agreement, as defined in the Act and whether the person who has
made the request before him, is a party to such an agreement. It is necessary
to indicate that he can also decide the question whether the claim was a dead
one; or a long barred claim that was sought to be resurrected and whether the
parties have concluded the transaction by recording satisfaction of their
mutual rights and obligations or by receiving the final payment without
objection. It may not be possible at that stage, to decide whether a live claim
made, is one which comes within the purview of the arbitration clause. It will
be appropriate to leave that question to be decided by the arbitral tribunal on
taking evidence, along with the merits of the claims involved in the
arbitration. The Chief Justice has to decide whether the applicant has
satisfied the conditions for appointing an arbitrator under Section 11(6) of
the Act. For the purpose of taking a decision on these aspects, the Chief
Justice can either proceed on the basis of affidavits and the documents
produced or take such evidence or get such evidence recorded, as may be
necessary. We think that adoption of this procedure in the context of the Act
would best serve the purpose sought to be achieved by the Act of expediting the
process of arbitration, without too many approaches to the court at various
stages of the proceedings before the Arbitral tribunal."
"47.(iv) The
Chief Justice or the designated judge will have the right to decide the
preliminary aspects as indicated in the earlier part of this judgment. These
will be, his own jurisdiction, to entertain the request, the existence of a
valid arbitration agreement, the existence or otherwise of a live claim, the
existence of the condition for the exercise of his power and on the
qualifications of the arbitrator or arbitrators."
17 (emphasis
supplied) This Court also examined the `competence' of the arbitral tribunal to
rule upon its own jurisdiction and about the existence of the arbitration
clause, when the Chief Justice or his designate had appointed the Arbitral
Tribunal under section 11 of the Act, after deciding upon such jurisdictional
issue. This Court held:
"We are inclined
to the view that the decision of the Chief Justice on the issue of jurisdiction
and the existence of a valid arbitration agreement would be binding on the
parties when the matter goes to the arbitral tribunal".
"Section 16 is
said to be the recognition of the principle of Kompetenz - Kompetenz. The fact
that the arbitral tribunal has the competence to rule on its own jurisdiction
and to define the contours of its jurisdiction, only means that when such issues
arise before it, the Tribunal can and possibly, ought to decide them. This can
happen when the parties have gone to the arbitral tribunal without recourse to
Section 8 or 11 of the Act. But where the jurisdictional issues are decided
under these Sections, before a reference is made, Section 16 cannot be held to
empower the arbitral tribunal to ignore the decision given by the judicial
authority or the Chief Justice before the reference to it was made.
The competence to
decide does not enable the arbitral tribunal to get over the finality conferred
on an order passed prior to its entering upon the reference by the very statute
that creates it. That is the position arising out of Section 11(7) of the Act
read with Section 16 thereof. The finality given to the order of the Chief
Justice on the matters within his competence under Section 11 of the Act, are
incapable of being reopened before the arbitral tribunal."
16. It is thus clear
that when a contract contains an arbitration clause and any dispute in respect
of the said contract is referred to 18 arbitration without the intervention of
the court, the Arbitral Tribunal can decide the following questions affecting
its jurisdiction: (a) whether there is an arbitration agreement; (b) whether
the arbitration agreement is valid; (c) whether the contract in which the
arbitration clause is found is null and void and if so whether the invalidity
extends to the Arbitration clause also. It follows therefore that if the
respondent before the Arbitral Tribunal contends that the contract has been
discharged by reason of the claimant accepting payment made by the respondent
in full and final settlement, and if the claimant counters it by contending
that the discharge voucher was extracted from him by practicing fraud, undue influence,
or coercion, the arbitral tribunal will have to decide whether the discharge of
contract was vitiated by any circumstance which rendered the discharge voidable
at the instance of the claimant. If the arbitral tribunal comes to the
conclusion that there was a valid discharge by voluntary execution of a
discharge voucher, it will refuse to examine the claim on merits, and reject
the claim as not maintainable. On the other hand, if the arbitral tribunal
comes to the conclusion that such discharge of contract was vitiated by any
circumstance which rendered it void, it will ignore the same and proceed to
decide the claim on merits.
17. Where the
intervention of the court is sought for appointment of an Arbitral Tribunal
under section 11, the duty of the Chief Justice or his designate is defined in
SBP & Co. This Court identified and segregated the preliminary issues that
may arise for consideration in an application under section 11 of the Act into
three categories, that is (i) issues which the Chief Justice or his Designate
is bound to decide;
(ii) issues which he
can also decide, that is issues which he may choose to decide; and (iii) issues
which should be left to the Arbitral Tribunal to decide.
17.1) The issues
(first category) which Chief Justice/his designate will have to decide are:
(a) Whether the party
making the application has approached the appropriate High Court.
(b) Whether there is
an arbitration agreement and whether the party who has applied under section 11
of the Act, is a party to such an agreement.
17.2) The issues
(second category) which the Chief Justice/his designate may choose to decide
(or leave them to the decision of the arbitral tribunal) are:
20 (a) Whether the
claim is a dead (long barred) claim or a live claim.
(b) Whether the
parties have concluded the contract/ transaction by recording satisfaction of
their mutual rights and obligation or by receiving the final payment without
objection.
17.3) The issues
(third category) which the Chief Justice/his designate should leave exclusively
to the arbitral tribunal are :
(i) Whether a claim
made falls within the arbitration clause (as for example, a matter which is
reserved for final decision of a departmental authority and excepted or
excluded from arbitration).
(ii) Merits or any
claim involved in the arbitration.
It is clear from the
scheme of the Act as explained by this Court in SBP & Co., that in regard
to issues falling under the second category, if raised in any application under
section 11 of the Act, the Chief Justice/his designate may decide them, if
necessary by taking evidence. Alternatively, he may leave those issues open
with a direction to the Arbitral Tribunal to decide the same. If the Chief
Justice of his Designate chooses to examine the issue and decides it, the
Arbitral Tribunal cannot re-examine the same issue. The Chief Justice/his
designate will, in choosing whether he will decide such 21 issue or leave it
to the Arbitral Tribunal, be guided by the object of the Act (that is
expediting the arbitration process with minimum judicial intervention). Where
allegations of forgery/fabrication are made in regard to the document recording
discharge of contract by full and final settlement, it would be appropriate if
the Chief Justice/his designate decides the issue.
18. What is however
clear is when a respondent contends that the dispute is not arbitrable on
account of discharge of the contract under a settlement agreement or discharge
voucher or no-claim certificate, and the claimant contends that it was obtained
by fraud, coercion or under influence, the issue will have to be decided either
by the Chief Justice/his designate in the proceedings under section 11 of the
Act or by the arbitral Tribunal as directed by the order under section 11 of
the Act. A claim for arbitration cannot be rejected merely or solely on the
ground that a settlement agreement or discharge voucher had been executed by
the claimant, if its validity is disputed by the claimant.
19. We may next
examine some related and incidental issues.
Firstly, we may refer
to the consequences of discharge of a contract.
22 When a contract
has been fully performed, there is a discharge of the contract by performance,
and the contract comes to an end. In regard to such a discharged contract,
nothing remains - neither any right to seek performance nor any obligation to
perform. In short, there cannot be any dispute. Consequently, there cannot
obviously be reference to arbitration of any dispute arising from a discharged
contract. 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, that is arbitrable. But there is an exception.
Where both 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.
Similarly, where one
of the parties to the contract issues a full and final discharge voucher (or no
due 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,
that amounts to discharge of the contract by acceptance of performance and the
party issuing the discharge voucher/certificate cannot thereafter make any
fresh claim or revive any settled claim. Nor can 23 he seek reference to
arbitration in respect of any claim. When we refer to a discharge of contract
by an agreement signed by both parties or by execution of a full and final
discharge voucher/receipt by one of the parties, we refer to an agreement or
discharge voucher which is validly and voluntarily executed. If the party who
has executed the discharge agreement or discharge voucher, alleges that the
execution of such discharge agreement or voucher was on account of
fraud/coercion/undue influence practiced by the other party and is able to
establish the same, then obviously the discharge of the contract by such agreement/voucher
is rendered void and cannot be acted upon. Consequently, any dispute raised by
such party would be arbitrable.
20. While discharge
of contract by performance refers to fulfillment of the contract by performance
of all the obligations in terms of the original contract, discharge by `accord
and satisfaction' refers to the contract being discharged by reason of
performance of certain substituted obligations. The agreement by which the
original obligation is discharged is the accord, and the discharge of the
substituted obligation is the satisfaction. A contract can be 24 discharged by
the same process which created it, that is by mutual agreement. A contract may
be discharged by the parties to the original contract either by entering into a
new contract in substitution of the original contract; or by acceptance of
performance of modified obligations in lieu of the obligations stipulated in
the contract. The classic definition of the term `accord and satisfaction'
given by the Privy Council in Payana Reena Saminathan vs. Pana Lana Palaniappa
- 41 IA 142 (reiterated in Kishorilal Gupta) is as under:
"The `receipt'
given by the appellants and accepted by the respondent, and acted on by both
parties proves conclusively that all the parties agreed to a settlement of all
their existing disputes by the arrangement formulated in the `receipt'. It is a
clear example of what used to be well known as common law pleading as `accord
and satisfaction by a substituted agreement'. No matter what were the respective
rights of the parties inter se they are abandoned in consideration of the
acceptance by all of a new agreement. The consequence is that when such an
accord and satisfaction takes place the prior rights of the parties are
extinguished. They have in fact been exchanged for the new rights; and the new
agreement becomes a new departure, and the rights of all the parties are fully
represented by it."
[Emphasis supplied]
21. It is thus clear
that the arbitration agreement contained in a contract cannot be invoked to
seek reference of any dispute to arbitration, in the following circumstances,
when the contract is discharged on account of performance, or accord and
satisfaction, or 25 mutual agreement, and the same is reduced to writing (and
signed by both parties or by the party seeking arbitration) :
(a) Where the
obligations under a contract are fully performed and discharge of the contract
by performance is acknowledged by a full and final discharge voucher/receipt.
Nothing survives in regard to such discharged contract.
(b) Where the parties
to the contract, by mutual agreement, accept performance of altered, modified
and substituted obligations and confirm in writing the discharge of contract by
performance of the altered, modified or substituted obligations.
(c) Where the parties
to a contract, by mutual agreement, absolve each other from performance of
their respective obligations (either on account of frustration or otherwise)
and consequently cancel the agreement and confirm that there is no outstanding
claims or disputes.
22. We may next
consider whether the decisions relied on by the appellant and the decisions
relied on by the respondent express divergent views, as contended by the
learned counsel for the appellant. We will first consider the three cases
relied on by the appellant.
26 22.1) In P.K.
Ramaiah, the appellant contractor made certain claims in regard to a
construction contract. The employer rejected the claims, as also the request
for reference to arbitration. On an application by the contractor, under the
Arbitration Act, 1940 for appointment of an Arbitrator, the Civil Court
appointed an Arbitrator. The said order of appointment was challenged by the
employer. The High Court found that the contractor had unconditionally
acknowledged the final measurement and accepted the payment in full and final
settlement of the contract on 19.5.1981; that thereafter he had made a fresh
claim on 1.6.1981 which was rejected on 12.8.1981; and that the contractor did
not take action and sought reference to arbitration only several years
thereafter. The High Court therefore held that there was no subsisting contract
to enable reference to arbitration and consequently, set aside the reference to
arbitration. On appeal by the contractor, this Court held that in view of the
finding recorded by the High Court that the contractor had accepted the
measurements and payment and had unconditionally acknowledged full and final
settlement and satisfaction by issuing a receipt in writing, no arbitrable
dispute arose for being referred to Arbitration. This Court further held that
there was accord and satisfaction by final settlement 27 of the claims and the
subsequent allegation of coercion was an afterthought and only a ploy to get
over the settlement of the dispute.
22.2) In Nav Bharat
Builders, a dispute arose in regard to labour escalation charges. As the
employer did not agree for escalation, the contractor made an application under
section 20 of the Arbitration Act, 1940 for filing the agreement and for
reference of the dispute to arbitration. Pending the said application, the
contractor made a representation to the employer for settlement of the claim.
The government constituted a Committee to examine the labour escalation. The
said Committee suggested acceptance of the claim subject to certain terms. The
contractor by his letter dated 3.3.1989 agreed to receive the price escalation
on account of the labour component, as worked out by the Committee. Thereafter,
the recommended amount was paid to the contractor, who accepted the payment and
agreed to withdraw the application under section 20 in regard to the claim for
labour escalation. He subsequently contended that the said letter was obtained
by coercion and he was not bound by it. The trial court and the High Court held
that there was an arbitrable dispute which was challenged before this Court. It
is in this background this Court following P. K. Ramaiah held :
28
"............the respondent contended that the appellant had accepted the
principle on which the escalation charges are to be paid but in its working the
amount was not calculated correctly and he expressly referred the same in his
letter of acceptance and that, therefore, it is open to the respondent to
contend before the arbitrator that in working the principle on which the amount
offered by the Government the arbitrator has to decide as to what amount had
been arrived at and if the working in principle is not acceptable any
alternative principle would be applicable. If the arbitrator finds that the
respondent is entitled to any claim, it is still an arbitrable dispute. We find
no substance in the contention.
Whatever be the
principle or method or manner of working it out, a particular figure was
arrived at by the Government. The respondent was then asked to consider its
willingness to accept the offer and having accepted the same and received the
amount, it is no longer open to the respondent to dispute the claim on any
count or ground. The dispute was concluded and the respondent fully and finally
accepted the (settlement of the) claim and thereafter received the amount. Thus
there is accord and satisfaction of the claim relating to labour escalation
charges. Thereby there is no further arbitrable dispute in that behalf."
[emphasis supplied]
22.3) Nathani Steels related to a dispute on account of non- completion of the
contract. The Court found that the said dispute was settled by and between the
parties as per deed dated 20.12.1980 signed by both parties. The deed referred
to the prior discussions between the parties and recorded the amicable
settlement of the disputes and differences between the parties in the presence
of the Architect on the terms and conditions set out in clauses 1 to 8 thereof.
In view of it, the
Court rejected the contention of the contractor that the settlement was liable
to be set aside on the ground of mistake. A 29 three-Judge Bench of this
Court, after referring to the decisions in P. K. Ramaiah and Nav Bharat
Builders, held thus :
"....that once
the parties have arrived at a settlement in respect of any dispute or
difference arising under a contract and that dispute or the difference is
amicable settled by way of a final settlement by and between the parties,
unless that settlement is set aside in proper proceedings, it cannot lie in the
mouth of one of the parties to the settlement to spurn it on the ground that it
was a mistake and proceed to invoke the Arbitration clause. If this is
permitted the sanctity of contract, the settlement also being a contract, would
be wholly lost and it would be open to one party to take the benefit under the
settlement and then to question the same on the ground of mistake without
having the settlement set aside. In the circumstances, we think that in the
instant case since the dispute or difference was finally settled and payments
were made as per the settlement, it was not open to the respondent unilaterally
to treat the settlement as non est and proceed to invoke the Arbitration
clause."
[emphasis supplied]
22.4) What requires to be noticed is that in Nav Bharat Builders and Nathani
Steels, this court on examination of facts, was satisfied that there were
negotiations and voluntary settlement of all pending disputes, and the contract
was discharged by accord and satisfaction.
In P. K. Ramaiah, the
Court was satisfied that there was a voluntary acceptance of the measurements
and full and final payment of the amount found due, resulting in discharge of
the contract, leaving no outstanding claim or pending dispute. In those
circumstances, this Court held that after such voluntary accord and
satisfaction or discharge of the contract, there could be no arbitrable
disputes.
30 23. We may next
refer to the decisions relied on by the respondent:
23.1) In Damodar
Valley Corporation, the question that arose for consideration of this Court was
as follows:
"where one of
the parties refers a dispute or disputes to arbitration and the other party
takes a plea that there was a final settlement of all claims, is the Court, on
an application under Sections 9(b) and 33 of the Act, entitled to enquire into
the truth and validity of the averment as to whether there was or was not a
final settlement on the ground that if that was proved it would bar a reference
to the arbitration inasmuch as the arbitration clause itself would
perish."
In that case the
question arose with reference to a claim by the supplier. The purchaser
required the supplier to furnish a full and final receipt. But the supplier did
not give such a receipt. Even though there was no discharge voucher, the
purchaser contended that the payments made by it were in full and final
settlement of the bills. This Court rejected that contention and held that the
question whether there has been a settlement of all the claims arising in
connection with the contract also postulates the existence of the contract
which would mean that the arbitration clause operates. This Court held that the
question whether there has been a full and final settlement of a claim under
the contract is itself a dispute arising `upon' or `in 31 relation to' or `in
connection with' the contract; and where there is an arbitration clause in a
contract, notwithstanding the plea that there was a full and final settlement
between the parties, that dispute can be referred to arbitration. It was also
observed that mere claim of accord and satisfaction may not put an end to the
arbitration clause. It is significant that neither P.K. Ramaiah nor Nathani
Steels disagreed with the decision in Damodar Valley Corporation but only
distinguished it on the ground that there was no full and final discharge
voucher showing accord and satisfaction in that case.
23.2) In Bharat Heavy
Electricals Ltd., this Court observed that the question whether there was
discharge of the contract by accord and satisfaction or not, is a dispute
arising out of the contract, which requires to be referred to arbitration. It
was held that the Arbitrator shall first determine whether there was accord and
satisfaction between parties and/or whether the contract was discharged; that
if the decision was in favour of the employer, the Arbitrator will not proceed
further in the matter but dismiss the claim of the contractor;
and that if he finds
that the contract was not discharged by accord and satisfaction or otherwise,
he should proceed to determine the claim of 32 the contractor on merits. In
this case also, there was no acknowledgment of full and final settlement not
any discharge voucher.
23.3) In Union of
India vs. L.K. Ahuja & Co. - 1988 (3) SCC 76, this Court observed :
"In order to be
entitled to ask for a reference under section 20 of the Act, there must be an
entitlement to money and a difference or dispute in respect of the same. It is
true that on completion of the work, right to get payment would normally arise
and it is also true that on settlement of the final bill, the right to get
further payment gets weakened but the claim subsists and whether it does
subsist, is a matter which is arbitrable."
There was no full and
final discharge or accord and satisfaction in that case. In Jayesh Engineering
Works, There was an acknowledgment by the contractor that he had received the
amount in full and final settlement and he has no further claim. This Court
following L. K. Ahuja held that whether the contract has been fully worked out
and whether the payments have been made in full and final settlement are
questions to be considered by the arbitrator when there is a dispute regarding
the validity of such acknowledgement and that the arbitrator will consider
whether any amount is due to be paid and how far the claim made by the
contractor is tenable. Jayesh 33 Engineering Works did not refer to Kishorilal
Gupta, Nav Bharat Builders, P.K. Ramaiah or Nathani Steels..
23.4) In Reshmi
Constructions, the employer prepared a final bill and forwarded the same along
with a `No-Demand Certificate' in printed format confirming that it had no
claims. The contractor signed the no-demand certificate and submitted it. But
on the same day, the contractor also wrote a letter to the employer stating
that it had issued the said certificate in view of a threat that until the said
document was executed, payment of the bill will not be released. In those
circumstances, after considering P. K. Ramaiah and Nathani Steels, this Court
held :
"26. ... The
conduct of the parties as evidenced in their letters, as noticed hereinbefore,
clearly goes to show that not only the final bill submitted by the respondent
was rejected but another final bill was prepared with a printed format that a
"No-Demand Certificate"
has been executed as
otherwise the final bill would not be paid.
The respondent
herein, as noticed hereinbefore, categorically stated in its letter dated
20.12.1990 as to under what circumstances they were compelled to sign the said
printed letter. It appears from the appendix appended to the judgment of the
learned trial Judge that the said letter was filed even before the trial court.
It is, therefore, not a case whether the respondent's assertion of "under
influence or coercion" can be said to have been taken by way of an
afterthought.
27. Even when rights
and obligations of the parties are worked out, the contract does not come to an
end inter alia for the purpose of determination of the disputes arising
thereunder, and, thus, the arbitration agreement can be invoked. Although it
may not be strictly in place but we cannot shut our eyes to the ground reality
that in a case where a contractor has made huge investments, he 34 cannot
afford not to take from the employer the amount under the bills, for various
reasons which may include discharge of his liability towards the banks,
financial institutions and other persons.
In such a situation,
the public sector undertakings would have an upper hand. They would not
ordinarily release the money unless a "No-Demand Certificate" is
signed. Each case, therefore, is required to be considered on its own facts.
28. Further,
necessitas non habet legem is an age-old maxim which means necessity knows no
law. A person may sometimes have to succumb to the pressure of the other party
to the bargain who is in a stronger position.
29. We may, however,
hasten to add that such a case has to be made out and proved before the
arbitrator for obtaining an award."
This decision dealt
with a case where there was some justification for the contention of the
contractor that the `No-demand Certificate' was not given voluntarily but under
coercion, and on facts, this Court felt that the question required to be
examined.
23.5) In Ambica
Constructions (supra) this Court considered a clause in the contract which
required the contractor to give a no claim certificate in the form required by
Railways after the final measurement is taken and provided that 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.
There was some material to show that the certificate was given under coercion
and duress. This Court following Reshmi 35 Constructions, observed that such a
clause in contract would not be an absolute bar to a contractor raising claims
which were genuine, even after submission of a no-claim certificate.
24. We thus find that
the cases referred fall under two categories.
The cases relied on
by the appellant are of one category 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.
Consequently, this
Court held that there could be no reference of any dispute to arbitration. The
decisions in Nav Bharat and Nathani Steels are cases falling under this
category where there were bilateral negotiated settlements of pending disputes,
such settlements having been reduced to writing either in the presence of
witnesses or otherwise. P.K. Ramaiah is a case where the contract was performed
and there was a full and final settlement and satisfaction resulting in
discharge of the contract. It also falls under this category. The cases relied
on by the respondent fall under a different category where the court found some
substance in the contention of the claimants that `no due/claim certificates',
or `full and final settlement Discharge Vouchers' were insisted and taken
(either in a printed format or 36 otherwise) as a condition precedent for
release of the admitted dues.
Alternatively, they
were cases where full and final discharge was alleged, but there were no
documents confirming such discharge.
Consequently, this
Court held that the disputes were arbitrable. None of the three cases relied on
by the appellant lay down a proposition that mere execution of a full and final
settlement receipt or a discharge voucher is a bar to arbitration, even when
the validity thereof is challenged by the claimant on the ground of fraud,
coercion or undue influence. Nor do they lay down a proposition that even if
the discharge of contract is not genuine or legal, the claims cannot be referred
to arbitration. In all the three cases, the court examined the facts and
satisfied itself that there was accord and satisfaction or complete discharge
of the contract and that there was no evidence to support the allegation of
coercion/undue influence. It is true that in Nathani Steels, there is an
observation that "unless that settlement is set aside in proper
proceedings, it cannot lie in the mouth of one of the parties to the settlement
to spurn it on the ground that it was a mistake and proceed to invoke the
arbitration clause". But that was an observation made with reference to a
plea of `mistake' and not with reference to allegation of fraud, undue
influence or coercion. It is also 37 true that the observations in Damodar
Valley Corporation and Jayesh Engineering Works, that whether contract has been
fully worked out and whether payment has been made in full and final settlement
are questions to be considered by the Arbitrator when there is a dispute
regarding the same, even if there is a full and final settlement discharge
voucher, seem to reflect a view at the other end of the spectrum. Though it is
possible to read them harmoniously, such an exercise may not be necessary. All
those decisions were rendered in the context of the provisions of the Arbitration
Act, 1940. The perspective of the new Act is different from the old Act. The
issue is not covered by the decision in SBP & Co.
25. In several
insurance claim cases arising under Consumer Protection Act, 1986, this Court
has held that if a complainant/ claimant satisfies the consumer forum that
discharge vouchers were obtained by fraud, coercion, undue influence etc., they
should be ignored, but if they were found to be voluntary, the claimant will be
bound by it resulting in rejection of complaint. In United India Insurance Co.
Ltd., vs.
Ajmer Singh Cotton
& General Mills - 1999 (6) SCC 400, this Court held :
38 "The mere
execution of the discharge voucher would not always deprive the consumer from
preferring claim with respect to the deficiency in service or consequential
benefits arising out of the amount paid in default of the service rendered.
Despite execution of the discharge voucher, the consumer may be in a position
to satisfy the Tribunal or the Commission under the Act that such discharge
voucher or receipt had been obtained from him under the circumstances which can
be termed as fraudulent or exercise of undue influence or by misrepresentation
or the like. If in a given case the consumer satisfies the authority under the
Act that the discharge voucher was obtained by fraud, misrepresentation, undue
influence or the like, coercive bargaining compelled by circumstances, the
authority before whom the complaint is made would be justified in granting
appropriate relief.
In the instant cases the
discharge vouchers were admittedly executed voluntarily and the complainants
had not alleged their execution under fraud, undue influence, misrepresentation
or the like. In the absence of pleadings and evidence the State Commission was
justified in dismissing their complaints."
The above principle
was followed and reiterated in National Insurance Co. Ltd. vs. Nipha Exports
(P) Ltd. - 2006 (8) SCC 156 and National Insurance Co. Ltd., vs. Sehtia Shoes -
2008 (5) SCC 400. It will also not be out of place to refer to what this Court
had said in Central Inland Water Transport Corporation Ltd. vs. Brojo Nath
Ganguly - 1986 (3) SCC 156 in a different context (not intended to apply to
commercial transactions) :
"(This)
principle is that the courts will not enforce and will, when called upon to do
so, strike down an unfair and unreasonable contract, or an unfair and
unreasonable clause in a contract, entered into between parties who are not
equal in bargaining power. It is difficult to give an exhaustive list of all
bargains of this type. No court can visualize the different situations which
can arise in the affairs of men. One can only attempt to give some
illustrations. For 39 instance, the above principle will apply where the
inequality of bargaining power is the result of the great disparity in the
economic strength of the contracting parties. It will apply where the
inequality is the result of circumstances, whether of the creation of the
parties or not. It will apply to situations in which the weaker party is in a
position in which he can obtain goods or services or means of livelihood only
upon the terms imposed by the stronger party or go without them. It will also
apply where a man has no choice, or rather no meaningful choice, but to give
his assent to a contract or to sign on the dotted line in a prescribed or
standard form or to accept a set of rules as part of the contract, however
unfair, unreasonable and unconscionable a clause in that contract or form or
rules may be. This principle, however, will not apply where the bargaining
power of the contracting parties is equal or almost equal. This principle may
not apply where both parties are businessmen and the contract is a commercial
transaction. In today's complex world of giant corporations with their vast
infra- structural organizations and with the State through its
instrumentalities and agencies entering into almost every branch of industry
and commerce, there can be myriad situations which result in unfair and
unreasonable bargains between parties possessing wholly disproportionate and
unequal bargaining power. These cases can neither be enumerated nor fully
illustrated. The court must judge each case on its own facts and
circumstances."
[emphasis supplied]
26. Obtaining of
undated receipts-in-advance in regard to regular/routine payments by government
departments and corporate sector is an accepted practice which has come to stay
due to administrative exigencies and accounting necessities. The reason for
insisting upon undated voucher/receipt is that as on the date of execution of
such voucher/receipt, payment is not made. The payment is made only on a future
date long after obtaining the receipt. If the date of execution of the receipt
is mentioned in the receipt and the 40 payment is released long thereafter,
the receipt acknowledging the amount as having been received on a much earlier
date will be absurd and meaningless. Therefore, undated receipts are taken so
that it can be used in respect of subsequent payments by incorporating the
appropriate date. But many a time, matters are dealt with so casually, that the
date is not filled even when payment is made. Be that as it may. But what is of
some concern is the routine insistence by some government Departments,
statutory Corporations and government Companies for issue of undated `no due
certificates' or a `full and final settlements vouchers' acknowledging receipt
of a sum which is smaller than the claim in full and final settlement of all
claims, as a condition precedent for releasing even the admitted dues. Such a
procedure requiring the claimant to issue an undated receipt (acknowledging
receipt of a sum smaller than his claim) in full and final settlement, as a
condition for releasing an admitted lesser amount, is unfair, irregular and
illegal and requires to be deprecated.
27. Let us consider
what a civil court would have done in a case where the defendant puts forth the
defence of accord and satisfaction on the basis of a full and final discharge
voucher issued by plaintiff, 41 and the plaintiff alleges that it was obtained
by fraud/coercion/undue influence and therefore not valid. It would consider
the evidence as to whether there was any fraud, coercion or undue influence. If
it found that there was none, it will accept the voucher as being in discharge
of the contract and reject the claim without examining the claim on merits. On
the other hand, if it found that the discharge voucher had been obtained by
fraud/undue influence/coercion, it will ignore the same, examine whether
plaintiff had made out the claim on merits and decide the matter accordingly.
The position will be the same even when there is a provision for arbitration.
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 42 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 instance.
28. Some
illustrations (not exhaustive) as to when claims are arbitrable and when they
are not, when discharge of contract by accord and satisfaction are disputed, to
round up the discussion on this subject :
(i) A claim is
referred to a conciliation or a pre-litigation Lok Adalat. The parties
negotiate and arrive at a settlement. The terms of settlement are drawn up and
signed by both the parties and attested by the Conciliator or the members of
the Lok Adalat. After settlement by way of accord and satisfaction, there can
be no reference to arbitration.
(ii) A claimant makes
several claims. The admitted or undisputed claims are paid. Thereafter
negotiations are held for settlement of the disputed claims resulting in an
agreement in writing settling all the pending claims and disputes. On such
settlement, the amount agreed is paid and the contractor also issues a
discharge voucher/no claim certificate/full and final receipt. After the
contract is discharged by 43 such accord and satisfaction, neither the
contract nor any dispute survives for consideration. There cannot be any
reference of any dispute to arbitration thereafter.
(iii) A contractor
executes the work and claims payment of say Rupees Ten Lakhs as due in terms of
the contract. The employer admits the claim only for Rupees six lakhs and
informs the contractor either in writing or orally that unless the contractor
gives a discharge voucher in the prescribed format acknowledging receipt of
Rupees Six Lakhs in full and final satisfaction of the contract, payment of the
admitted amount will not be released. The contractor who is hard pressed for
funds and keen to get the admitted amount released, signs on the dotted line
either in a printed form or otherwise, stating that the amount is received in
full and final settlement. In such a case, the discharge is under economic
duress on account of coercion employed by the employer. Obviously, the
discharge voucher cannot be considered to be voluntary or as having resulted in
discharge of the contract by accord and satisfaction. It will not be a bar to
arbitration.
(iv) An insured makes
a claim for loss suffered. The claim is neither admitted nor rejected. But the
insured is informed during discussions that unless the claimant gives a full
and final voucher for a specified amount (far lesser than the amount claimed by
the insured), the entire claim will be rejected. Being in financial
difficulties, the claimant agrees to the demand and issues an undated discharge
voucher in full and final settlement. Only a few days thereafter, the admitted
amount mentioned in the voucher is paid. The 44 accord and satisfaction in
such a case is not voluntary but under duress, compulsion and coercion. The
coercion is subtle, but very much real. The `accord' is not by free consent.
The arbitration agreement can thus be invoked to refer the disputes to
arbitration.
(v) A claimant makes
a claim for a huge sum, by way of damages.
The respondent
disputes the claim. The claimant who is keen to have a settlement and avoid
litigation, voluntarily reduces the claim and requests for settlement. The
respondent agrees and settles the claim and obtains a full and final discharge
voucher. Here even if the claimant might have agreed for settlement due to
financial compulsions and commercial pressure or economic duress, the decision
was his free choice. There was no threat, coercion or compulsion by the
respondent. Therefore, the accord and satisfaction is binding and valid and
there cannot be any subsequent claim or reference to arbitration.
29. Let us now
examine the receipt that has been taken in this case.
It is undated and is
in a pro forma furnished by the appellant containing irrelevant and
inappropriate statements. It states : "I/we hereby assign to the company,
my/our right to the affected property stolen which shall, in the event of their
recovery, be the property of the company". The claim was not in regard to
theft of any property nor was the claim being settled in respect of a theft
claim. We are 45 referring to this aspect only to show how claimants are
required to sign on the dotted line, and how such vouchers are insisted and
taken mechanically without application of mind.
30. The discharge
voucher form was handed over to the respondent on 21.3.2006. It was signed and
delivered to the appellant immediately thereafter acknowledging that a sum of
Rs.2,33,94,964/- had been received from the insurer (appellant) in full and
final settlement, and that in consideration of such payment, the respondent
absolved the appellant from all liabilities, present and future, arising
directly or indirectly, out of said loss or damage under the policy.
Admittedly, on the
date when such discharge voucher was signed and given by the respondent, the
payment of Rs.233,94,964/- had not been made. It was made after receiving the
voucher. Therefore, at the time of signing the voucher by the respondent and at
the time of delivery of voucher by the respondent to the appellant, the
contents of the voucher that the said amount had been received, that such
amount had been received in full and final settlement of all claims, and that
in consideration of such payment, the company was absolved from any further
liability, are all false and not supported by consideration.
31. In this case the
High Court examined the issue and found that prima facie there was no accord
and satisfaction or discharge of the contract. It held that the appellant is
still entitled to raise this issue before an arbitrator and the arbitrator has
to decide it. On the facts and circumstances and the settled position of law
referred by us above, we are also prima facie of the view that there is no
accord and satisfaction in this case and the dispute is arbitrable. But it is
still open to the appellant to lead evidence before the arbitrator, to
establish that there is a valid and binding discharge of the contract by way of
accord and satisfaction.
32. We therefore find
no reason to interfere with the order of the High court. The appeal is
accordingly dismissed. We make it clear nothing stated by the High Court or by
us shall be construed as expression of any final opinion on the issue whether
there was accord and satisfaction nor as expression of any views on merits of
any claim or contentions of the parties.
...............................J.
(R V Raveendran)
.............................J.
New
Delhi;
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