ONGC MANGALORE PETROCHEMICALS LTD. versus M/S ANS CONSTRUCTIONS LTD. & ANR. on 7 February 2018

[2018] 2 S.C.R.

A M/S ONGC MANGALORE PETROCHEMICALS LTD.

v.

M/S ANS CONSTRUCTIONS LTD. & ANR.

B

(Civil Appeal No. 1659 of 2018)

FEBRUARY 07, 2018

[R. K. AGRAWAL AND AMITAVA ROY, JJ.]

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CArbitration and Conciliation Act, 1996 – s.11 – Exercise ofpower under – When not justified – Appellant awarded contract torespondent no.1 – On 21.09.2012, respondent no.1 submitted NoDues/No Claim Certificate – On 10.10.2012, appellant madepayment of final bill to respondent no.1 – On 24.10.2012,Drespondent no.1 withdrew the No Dues Certificate stating that itwas furnished under duress and coercion – Vide letter dtd.12.01.2013 to appellant, respondent no.1 submitted claim ofRs. 96,88,48,642/- as losses incurred during execution of thecontract, denied by appellant – Respondent no.1 sent notice to theappellant for resolving the dispute through Arbitration, requestEdenied by appellant – Petition u/s.11 filed by respondent no.1 beforeHigh Court, allowed – Held: Admittedly, No-Dues Certificate wassubmitted by respondent no.1 on 21.09.2012 and on their requestCompletion Certificate was issued by appellant – There is nothingon record to prove that the said Certificate was given under duressor coercion– After a gap of one month, i.e. on 24.10.2012,Frespondent no.1 withdrew the No Dues Certificate on grounds ofcoercion and duress – Claim for losses incurred during executionof the contract was made on 12.01.2013, i.e., after a gap of 3½months, whereas the Final Bill was settled on 10.10.2012 whichwas mutually signed by both the parties – When respondent no.1Gaccepted the final payment in full and final satisfaction of all itsclaims, there was no point in raising the claim for losses incurredduring the execution of the Contract at a belated stage which createsan iota of doubt as to why such claim was not settled at the time ofsubmitting Final Bills – The story about duress was an afterthoughtin the background that the losses incurred during the execution ofH

M/S ONGC MANGALORE PETROCHEMICALS LTD. v.M/S ANS CONSTRUCTIONS LTD. & ANR.

the Contract were not visualised earlier by respondent No.1 – Mereallegation that no-claim certificate was obtained under financialduress and coercion does not lead to an arbitrable dispute – Noarbitrable dispute existed so as to exercise power u/s.11 – HighCourt was not justified in exercising power u/s.11 – Contract.

Allowing the appeal, the Court

HELD: 1.1 When one refers to discharge of a contract byan agreement signed by both the parties or by execution of a fulland final discharge voucher/receipt by one of the parties, onerefers to an agreement or discharge voucher which is validly andvoluntarily executed. If the party which has executed thedischarge agreement or discharge voucher, alleges that theexecution of such discharge agreement or voucher was onaccount of fraud/coercion/undue influence practised by the otherparty and is able to establish the same, then obviously thedischarge of the contract by such agreement/voucher is renderedvoid and cannot be acted upon. Consequently, any dispute raisedby such party would be arbitrable. But in case the party is notable to establish such a claim or appears to be lacking incredibility, then it is not open to the courts to refer the dispute toarbitration at all. [Para 19][612-E-G]

1.2 In the case at hand, the High Court allowed the appealfiled by the contractee-respondent no.1 on the assertion that theNo Dues Certificate was given on account of coercion/undueinfluence practiced by the appellant-Contractor. The contractee,while basing its claim, relied upon the letters issued to theappellant for releasing the payment of Running Accounts (RA)Bills. Whether there was duress and coercion exerted againstthe contractee-Company by the appellant has to be examinedkeeping in mind the background in which the said letters wereexchanged between the parties. [Para 22][616-E-G]

1.3 Pursuant to taking a false claim of duress and coercionwhile filing the No Dues Certificate, the contractee-Company,vide letter dated 12.01.2013 to the appellant, submitted a claimfor Rs.96,88,48,642/- for the losses incurred during execution of A

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Athe contract at Mangalore. It was claimed that the contractee-Company could not continue with the work due to various reasonslike pooja, shifting of Idols, non-availability of free encumbranceof site, obstruction in the blasting work, stoppage of hard rockblasting, issues with respect to work to be given to localcontractors, non-vacation of project displaced families, permissionBfor forest clearance, permission for shifting of wooden logs etc.and the huge expenditure as disclosed in the claim was incurredby the contractee-Company due to the factors attributable to theappellant. Clause 6.6.0 of the General Conditions of Contractdeals with “Claims by the Contractor” (contractee in the case atChand). Clause 6.6.1.0. of the Contract states that in case of aclaim of extra compensation or remuneration, the Contractee shallgive notice in writing of its claim within 10 days from the date ofissue of orders or instructions related to any works for which theContractee claims such additional payment. The notice shall givefull particulars of the nature of such claim, grounds on which it isDbased and the amount claimed. Unless and until notice is given,the Contractor shall not be liable to pay extra compensation tothe Contractee. Clause 6.6.3.0 states that any claim of theContractee in accordance with Clause 6.6.1.0 shall be separatelyincluded in the Final Bill prepared by it in the form of StatementEof Claims, giving particulars of the nature of claims, ground onwhich it is based and the amount claimed and shall be supportedby a copy of the notice and the Contractor shall not be liable inrespect of any notified claim not specifically reflected in the FinalBill in accordance with the provisions of Clause 6.6.3.0 whichshall be deemed to have been waived by the Contractee. [ParaF23][617-B-G]

1.4 From the materials on record, it is found that thecontractee-Company had issued the “No Dues/No ClaimCertificate” on 21.09.2012, it had received the full amount of theGfinal bill being Rs. 20.34 crores on 10.10.2012 and after 12 daysthereafter, i.e., only on 24.10.2012, the contractee-Companywithdrew letter dated 21.09.2012 issuing “No Dues/No ClaimCertificate”. Apart from it, the Final Bill was mutually signed byboth the parties to the Contract accepting the quantum of workdone, conducting final measurements as per the Contract, arrivingH

at final value of work, the payments made and the final paymentthat was required to be made. The contractee-Company acceptedthe final payment in full and final satisfaction of all its claims. Inthe present facts and circumstances, the raising of the Final Billand mutual agreement of the parties in that regard, all claims,rights and obligation of the parties merge with the Final Bill andnothing further remained to be done. Further, the appellant issuedthe Completion Certificate dated 19.06.2013 pursuant to whichthe appellant was discharged of all the liabilities. With regard tothe issue that the “No Dues Certificate” had been given underduress and coercion, there is nothing on record to prove that thesaid Certificate had been given under duress or coercion and asthe Certificate itself provided a clearance of no dues, thecontractee could not now turn around and say that any furtherpayment was still due on account of the losses incurred duringthe execution of the Contract. The story about duress was anafterthought in the background that the losses incurred duringthe execution of the Contract were not visualised earlier by thecontractee. As to financial duress or coercion, nothing of thiskind is established prima facie. Mere allegation that no-claimcertificates have been obtained under financial duress andcoercion, without there being anything more to suggest that, doesnot lead to an arbitrable dispute. The conduct of the contracteeclearly shows that “No Claim Certificate” was given by itvoluntarily; the contractee accepted the amount voluntarily andthe contract was discharged voluntarily. [Para 24][617-H; 618-A-F]

1.5 Admittedly, “No Dues Certificate” was submitted bythe contractee-Company on 21.09.2012 and on their requestCompletion Certificate was issued by the appellant-Contractor.The contractee, after a gap of one month, that is, on 24.10.2012,withdrew the “No Dues Certificate” on the grounds of coercionand duress and the claim for losses incurred during execution ofthe Contract site was made vide letter dated 12.01.2013, i.e.,after a gap of 3 ½ (three and a half) months whereas the Final Billwas settled on 10.10.2012. When the contractee accepted thefinal payment in full and final satisfaction of all its claims, there isno point in raising the claim for losses incurred during the AB

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Aexecution of the Contract at a belated stage which creates aniota of doubt as to why such claim was not settled at the time ofsubmitting Final Bills that too in the absence of exercising duressor coercion on the Contractee by the appellant-Contractor. Theplea raised by the contractee-Company is bereft of any detailsand particulars, and cannot be anything but a bald assertion. InBthe circumstances, there was full and final settlement of the claimand there was really accord and satisfaction and no arbitrabledispute existed so as to exercise power under Section 11 of theAct. [Para 25][618-G-H; 619-A-C]

CUnion of India and Others v. Master Construction Co.(2011) 12 SCC 349 : [2011] 5 SCR 853 ; New IndiaAssurance Co. Ltd. v. Genus Power Infrastructure Ltd.(2015) 2 SCC 424 : [2014] 12 SCR 360 ; NationalInsurance Company Limited v. Boghara Polyfab PrivateLimited (2009) 1 SCC 267 : [2008] 13 SCR 638 ;DR.L. Kalathia & Co. v. State of Gujarat (2011) 2 SCC400 : [2011] 1 SCR 391 – referred to.

Case Law Reference

FCIVIL APPELLATE JURISDICTION: Civil Appeal No. 1659of 2018.

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From the Judgment and Order dated 12.01.2015 of the High Courtof Karnataka at Bengaluru in CMP No. 35 of 2014.

P. S. Narasimha, Sr. Adv, Prabhat Kumar, Shauth Kumar Mahale,S. R. Kamalacharan, Rajesh Mahale, Krutin Joshi, Advs. for theAppellant.

P. Vinay Kumar, Ms. Sadiqua Fatma, Ms. Grusha Mehta, Advs.Hfor the Respondents.

M/S ONGC MANGALORE PETROCHEMICALS LTD. v.M/S ANS CONSTRUCTIONS LTD. & ANR.

The Judgment of the Court was delivered by

R. K. AGRAWAL, J. 1. Leave granted.

2. This appeal is directed against the final judgment and orderdated 12.01.2015 passed by the High Court of Karnataka at Bengaluruin C.M.P. No. 35 of 2014 whereby learned single Judge of the HighCourt allowed the petition filed by the respondent No. 1- Company forappointment of an arbitrator for resolution of the dispute between theappellant-Company and respondent No. 1-Company.

3. Brief facts:

(a) Respondent No. 1-the Contractee Company was awarded aContract for “Site Grading, Construction of Roads, Water Drains andCompound Wall for Aromatic Complex at Mangalore” in MangaloreSEZ by the appellant-Contractor on 17.03.2008. The total contract valueas per the Letter of Acceptance (LOA) was Rs. 163,25,68,576/- whichwas subsequently revised to Rs. 195,68,24,399.02/- vide letter dated20.09.2010 and the completion period was also extended upto 30.11.2010.

(b) On 21.09.2012, the Contractee Company submitted a No Dues/No Claim Certificate certifying the payment of all the bills and in totalsettlement of all the claims whatsoever against the Contract. Thereafter,on 10.10.2012, the appellant herein-the Contractor Company made apayment of the final bill of Rs. 20.34 crores to the Contractee Company.

(c) Subsequently, on 24.10.2012, the Contractee Companywithdrew letter dated 21.09.2012 for “No Dues/No Claim Certificate”stating that it was a pre-requisite condition for release of their long duelegitimate payment against the works executed under the Contract andthe same was furnished by the Contractee Company under duress andcoercion of the appellant-Contractor.

(d) The Contractee-Company, vide letter dated 12.01.2013 to theappellant-Contractor, submitted a claim of Rs. 96,88,48,642.00 for thelosses incurred during execution of the contract at Mangalore. On19.06.2013, the appellant-Contractor issued a Completion Certificatestating that the works awarded under the Contract have been executedand completed in all respects and no claim certificate has also beensubmitted by the Contractee-Company. After several communication inwriting, the appellant-Contractor, vide letter dated 25.07.2013, deniedthe claim of the contractee-Company.

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A(e) Vide letter dated 14.09.2013, the contractee-Company sent anotice to the appellant-Contractor for resolving the dispute between theparties through Arbitration as envisaged under Article 9.0.2.0 to theContract and appointed Mr. K. Mohandas, Former General Manager(Law)- SBI as its Arbitrator. The appellant-Contractor, vide letter dated18.10.2013 denied the request of the contractee-Company as not tenableBin law.

(f) Being aggrieved by the decision of the appellant-Contractor innot referring the dispute to Arbitration, the contractee-Company preferreda C.M.P. No. 35 of 2014 before the High Court of Karnataka at Bangalore.

C(g) Learned single Judge of the High Court, vide judgment andorder dated 12.01.2015, allowed the petition filed by the contractee-Company.

(h) Being aggrieved by the order dated 12.01.2015, the appellant-Contactor has filed this appeal by way of special leave before this Court.

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4. Heard Mr. P.S. Narasimha, learned senior counsel for theappellant-Company and Mr. P. Vinay Kumar for the Respondents.

Point for consideration:

5. The only point for consideration before this Court is whetherthe respondent-Contractee Company has made out a case for referringEthe dispute to Arbitration?

Rival Submissions:

6. Learned senior counsel for the Contractor-the appellantCompany strenuously contended that the High Court erred in holdingFthat the contractee-Company established a case to show that there wasa genuine and serious dispute regarding the claim and that the claim thatNo Dues Certificate/No Claim Certificate was issued under duress/coercion is erroneous and unsustainable. Learned senior counsel furthercontended that there was no withholding of payment and the extensionwas granted subject to the contractee-Company’s request and theGcontract does not provide for escalation of costs.

7. Learned senior counsel further contended that the delay inpayment does not arise at all because as per Clause 6.4.0.0, there wasno obligation cast upon the Contractor to pay the RA Bills in full but itwas to be done merely on the assessment of the Engineer-in charge.H

The High Court erred in referring to few letters exchanged much priorto the Final Bill. In fact, the alleged claims were never brought up at thetime of issuance of Final Bill or No Dues Certificate on 21.09.2012 andnow at this stage it is not open for the contractee-Company to raise theissue of losses incurred during the execution of the Contract.

8. Learned senior counsel finally contended that when both theparties to a contract confirm in writing that the contract has been fullyand finally discharged by performance of all obligations and there are nooutstanding claims or disputes, court will not refer the subsequent claimor dispute to arbitration. There was complete accord and satisfaction ofthe contract between the parties and nothing further was left to be doneby either parties. The High Court was not right in allowing the petitionfiled by the contractee-Company and no case is made out for referringthe dispute to Arbitration and also for the payment of the alleged amountto the contractee-Company.

9. Per contra, learned counsel for the contractee-RespondentNo. 1 herein submitted that during the execution of Contract, thecontractee Company raised Running Account Bills (RA Bills) to theContractor-Company for the expenses incurred towards carrying outthe construction work but the same were cleared with inordinate delayand even the final bill to the tune of Rs. 20.34 crores was released bythe appellant- Contractor only when the contractee Company furnished“No Dues/No Claim Certificate” dated 21.09.2012. Upon submittingthe above Certificate, the appellant-Contractor issued a CompletionCertificate approving the work carried out by the contractee under theContract.

10. Learned counsel for the contractee-Company further submittedthat since the appellant-Contractor was not clearing the legitimate andgenuine dues payable under the RA Bills and was always at the mercyof the appellant-Contractor for the release of payment from the verybeginning of the Contract, the last payment of Rs. 20.34 crores and therelease of performance bank guarantee was deliberately withheld bythe appellant-Contractor. The work got completed on 30.06.2011 and itwas only after the submission of No-Dues Certificate on 21.09.2012,the final payment was released. Due to non-payment of RA Bills ontime, the contractee-Company was under severe financial crunch andcould not have refused to issue the “No Dues Certificate” which wasissued under duress and has no meaning in the eyes of law.

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A11. Learned counsel further submitted that it is prima facie evidentthat there is a genuine and serious dispute between the parties whichrequires the appointment of an Arbitrator under the clauses of theContract to adjudicate upon the claims made by the contractee and itwill cause grave injustice to the party if the claims are not adjudicated interms of the Contract. Learned counsel further submitted that underBthese circumstances, the withdrawal of No Dues/No Claim Certificate,which was given under duress, is not an afterthought and in a number ofdecisions of this Court it has been held that if a party who has executedthe discharge agreement or discharge voucher alleges that execution ofsuch document was on account of fraud/coercion/undue influenceCpracticed by the other party then such discharge of the contract by suchagreement would be rendered void and cannot be acted upon.

12. Learned counsel further submitted that the contractee-Company could not continue with the work due to various reasons likepooja, shifting of idols, non-availability of free encumbrance of site,Dobstruction in the blasting work, stoppage of hard rock blasting, issueswith respect to work to be given to local contractors, non-vacation ofproject displaced families, permission for forest clearance, permissionfor shifting of wooden logs etc. and the huge expenditure as disclosed inthe claim was incurred by the contractee-Company due to the factorsattributable to the appellant-Contractor.E

13. Learned counsel finally contended that the “No DuesCertificate” was filed by the contractee-Company under duress owingto their huge payment pending towards the appellant-Contractor whichwas rightly withdrawn for the losses incurred due to the appellant-Contractor. Further, when there is an Arbitration clause in the agreement,Fthe contractee Company has the right to invoke the same. The HighCourt was right in allowing the petition filed by the contractee-Companyand no interference is sought for by this Court in this regard.

Discussion:

14. The appellant Contractor-ONGC Mangalore PetrochemicalsLtd. invited tender for “Award of Work for Site Grading, Constructionof Roads, Storm Water Drains & Compound Wall for Aromatic Complexat Mangalore”. The bid document was issued by M/s Toyo EngineeringIndia Limited (TEIL)-Respondent No. 2 herein on behalf of the OMPL(the contractor) being their Project Management Consultant. M/s ANS

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Constructions Limited-Respondent No. 1 herein submitted its bid on15.11.2007. Respondent No. 1 herein was awarded the Contract videLetter of Acceptance (LOA) dated 17.03.2008. The total Contract Valuewas estimated at Rs. 163,25,68,576/- which was later on revised to Rs.195,68,24,399.02, pursuant thereto, the completion period was alsoextended upto 30.11.2010.

15. During the subsistence of the contract, the contractee-Companyraised RA Bills for the expenses incurred towards carrying out theconstruction work. It is evident on record that the contractee-Companymade several requests to the appellant-Contractor to clear their legitimateand genuine dues payable under the Bills which was paid to them afterinordinate delay. It is also the claim of the contractee-Company that thecontractee was compelled to file No Dues Certificate/No ClaimCertificate dated 21.09.2012 in order to get the release of the Final Billunder the Contract. On 10.10.2012, the contractor-Company made thepayment of the final bill of Rs. 20.34 crores to the contractee-Company.After the release of the Final Bill, the contractee-Company withdrewthe “No Dues/No Claim Certificate” stating that the letter dated21.09.2012 was pre-requisite condition for release of their long duelegitimate payment against the works executed under the Contract andthe same was furnished under duress and coercion of the appellant-Contractor. Further, on 12.01.2013, the contractee-Company submitteda claim for Rs. 96,88,48,642.00 for the losses incurred during executionof the contract at Mangalore.

16. The appellant-Contractor, vide letter dated 25.07.2013, rejectedthe claim of the contractee-Company on the ground that the Contracteehas submitted No Dues/No Claim Certificate and withdrawal of thesame on the ground that it was obtained under duress and coercion iswrong, incorrect and not tenable in law. Being aggrieved by the rejectionof their claim, the contractee-Company invoked the Arbitration clauseunder the Contract and appointed its Arbitrator. The appellant-Contractor,vide letter dated 18.10.2013, declined to nominate its Arbitrator. Thecontractee-Company filed a Civil Miscellaneous Petition under Section11 of the Arbitration and Conciliation Act, 1996 (in short ‘the Act’) forthe appointment of an Arbitrator in lieu of the nominee arbitrator of theappellant-Contractor so that the said arbitrator along with the nomineearbitrator already appointed by the contractee-Company agree upon theappointment of the third/presiding arbitrator for constitution of a three

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Amember Arbitral Tribunal as per the agreed terms of the Contract foradjudicating upon the dispute arising out of execution of the Contract.

17. Learned senior counsel for the appellant-Contractor, aftertaking us through the material on record, submitted that the contract hascome to an end and the obligations therein have been discharged andBthere is no point of raising a belated claim in the form of losses incurredduring the execution of the Contract that too after submitting the FinalBills as well as the No Dues Certificate. In support of his claim, learnedsenior counsel relied upon a decision of this Court in Union of Indiaand Others vs. Master Construction Co. (2011) 12 SCC 349 whereinit was held as under:- C

“18. In our opinion, there is no rule of the absolute kind. In a casewhere the claimant contends that a discharge voucher or no-claimcertificate has been obtained by fraud, coercion, duress or undueinfluence and the other side contests the correctness thereof, theChief Justice/his designate must look into this aspect to find out atleast, prima facie, whether or not the dispute is bona fide andgenuine. Where the dispute raised by the claimant with regard tovalidity of the discharge voucher or no-claim certificate orsettlement agreement, prima facie, appears to be lacking incredibility, there may not be a necessity to refer the dispute forarbitration at all.

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19. It cannot be overlooked that the cost of arbitration is quitehuge—most of the time, it runs into six and seven figures. It maynot be proper to burden a party, who contends that the dispute isnot arbitrable on account of discharge of contract, with huge costof arbitration merely because plea of fraud, coercion, duress orundue influence has been taken by the claimant. A bald plea offraud, coercion, duress or undue influence is not enough and theparty who sets up such a plea must prima facie establish the sameby placing material before the Chief Justice/his designate. If theChief Justice/his designate finds some merit in the allegation offraud, coercion, duress or undue influence, he may decide thesame or leave it to be decided by the Arbitral Tribunal. On theother hand, if such plea is found to be an afterthought, make-believe or lacking in credibility, the matter must be set at rest thenand there.”

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18. Further, learned senior counsel relied upon a judgment of thisCourt in New India Assurance Co. Ltd. vs. Genus Power InfrastructureLtd. (2015) 2 SCC 424 wherein this Court has held as under:-

7. The question that arises is whether the discharge in the presentcase upon acceptance of compensation and signing of subrogationletter was not voluntary and whether the claimant was subjectedto compulsion or coercion and as such could validly invoke thejurisdiction under Section 11 of the Act. The law on the point isclear from following decisions of this Court. In National InsuranceCo. Ltd. v. Boghara Polyfab (P) Ltd in paras 26 and 51 it wasstated as under:

“26. When we refer to a discharge of contract by an agreementsigned by both the parties or by execution of a full and finaldischarge voucher/receipt by one of the parties, we refer to anagreement or discharge voucher which is validly and voluntarilyexecuted. If the party which has executed the dischargeagreement or discharge voucher, alleges that the execution ofsuch discharge agreement or voucher was on account of fraud/coercion/undue influence practised by the other party and isable to establish the same, then obviously the discharge of thecontract by such agreement/voucher is rendered void andcannot be acted upon. Consequently, any dispute raised bysuch party would be arbitrable.

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51. The Chief Justice/his designate exercising jurisdiction underSection 11 of the Act will consider whether there was really accordand satisfaction or discharge of contract by performance. If theanswer is in the affirmative, he will refuse to refer the dispute toarbitration. On the other hand, if the Chief Justice/his designatecomes to the conclusion that the full and final settlement receiptor discharge voucher was the result of any fraud/coercion/undueinfluence, he will have to hold that there was no discharge of thecontract and consequently, refer the dispute to arbitration.Alternatively, where the Chief Justice/his designate is satisfiedprima facie that the discharge voucher was not issued voluntarilyand the claimant was under some compulsion or coercion, andthat the matter deserved detailed consideration, he may instead

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of deciding the issue himself, refer the matter to the ArbitralTribunal with a specific direction that the said question should bedecided in the first instance.”

8. In the decision rendered in Union of India v. MasterConstruction Co this Court observed as under:

“18. In our opinion, there is no rule of the absolute kind. In acase where the claimant contends that a discharge voucher orno-claim certificate has been obtained by fraud, coercion, duressor undue influence and the other side contests the correctnessthereof, the Chief Justice/his designate must look into this aspectto find out at least, prima facie, whether or not the dispute is bonafide and genuine. Where the dispute raised by the claimant withregard to validity of the discharge voucher or no-claim certificateor settlement agreement, prima facie, appears to be lacking incredibility, there may not be a necessity to refer the dispute forarbitration at all.

19. It cannot be overlooked that the cost of arbitration is quitehuge—most of the time, it runs into six and seven figures. It maynot be proper to burden a party, who contends that the dispute isnot arbitrable on account of discharge of contract, with huge costof arbitration merely because plea of fraud, coercion, duress orundue influence has been taken by the claimant. A bald plea offraud, coercion, duress or undue influence is not enough and theparty who sets up such a plea must prima facie establish the sameby placing material before the Chief Justice/his designate. If theChief Justice/his designate finds some merit in the allegation offraud, coercion, duress or undue influence, he may decide thesame or leave it to be decided by the Arbitral Tribunal. On theother hand, if such plea is found to be an afterthought, make-believe or lacking in credibility, the matter must be set at rest thenand there.

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22. The above certificates leave no manner of doubt that uponreceipt of the payment, there has been full and final settlement ofthe contractor’s claim under the contract. That the payment offinal bill was made to the contractor on 19-6-2000 is not in dispute.After receipt of the payment on 19-6-2000, no grievance was

raised or lodged by the contractor immediately. The authorityconcerned, thereafter, released the bank guarantee in the sum ofRs 21,00,000 on 12-7-2000. It was then that on that day itself, thecontractor lodged further claims.”

9. It is therefore clear that a bald plea of fraud, coercion, duressor undue influence is not enough and the party who sets up a plea,must prima facie establish the same by placing material beforethe Chief Justice/his designate. Viewed thus, the relevantaverments in the petition filed by the respondent need to beconsidered, which were to the following effect:

“(g) That the said surveyor, in connivance with the respondentCompany, in order to make the respondent Company escapeits full liability of compensating the petitioner of such huge loss,acted in a biased manner, adopted coercion, undue influenceand duress methods of assessing the loss and forced thepetitioner to sign certain documents including the claim form.The respondent Company also denied the just claim of thepetitioner by their acts of omission and commission and byexercising coercion and undue influence and made the petitionerCompany sign certain documents, including a pre-prepareddischarge voucher for the said amount in advance, which thepetitioner Company were forced to do so in the period ofextreme financial difficulty which prevailed during the saidperiod. As stated aforesaid, the petitioner Company was forcedto sign several documents including a letter accepting the lossamounting to Rs 6,09,55,406 and settle the claim of Rs5,96,08,179 as against the actual loss amount of Rs 28,79,08,116against the interest of the petitioner Company. The said letterand the aforesaid pre-prepared discharge voucher stated thatthe petitioner had accepted the claim amount in full and finalsettlement and thus, forced the petitioner Company to unilateralacceptance of the same. The petitioner Company was forcedto sign the said document under duress and coercion by therespondent Company. The respondent Company furtherthreatened the petitioner Company to accept the said amountin full and final or the respondent Company will not pay anyamount towards the fire policy. It was under such compellingcircumstances that the petitioner Company was forced andunder duress was made to sign the acceptance letter.”

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A10. In our considered view, the plea raised by the respondent isbereft of any details and particulars, and cannot be anything but abald assertion. Given the fact that there was no protest or demurraised around the time or soon after the letter of subrogation wassigned, that the notice dated 31-3-2011 itself was nearly afterthree weeks and that the financial condition of the respondentBwas not so precarious that it was left with no alternative but toaccept the terms as suggested, we are of the firm view that thedischarge in the present case and signing of letter of subrogationwere not because of exercise of any undue influence. Suchdischarge and signing of letter of subrogation was voluntary andCfree from any coercion or undue influence. In the circumstances,we hold that upon execution of the letter of subrogation, therewas full and final settlement of the claim. Since our answer to thequestion, whether there was really accord and satisfaction, is inthe affirmative, in our view no arbitrable dispute existed so as toexercise power under Section 11 of the Act. The High Court wasDnot therefore justified in exercising power under Section 11 of theAct.”

19. When we refer to discharge of a contract by an agreementsigned by both the parties or by execution of a full and final dischargevoucher/receipt by one of the parties, we refer to an agreement orEdischarge voucher which is validly and voluntarily executed. If the partywhich has executed the discharge agreement or discharge voucher,alleges that the execution of such discharge agreement or voucher wason account of fraud/coercion/undue influence practised by the other partyand is able to establish the same, then obviously the discharge of the

Fcontract by such agreement/voucher is rendered void and cannot beacted upon. Consequently, any dispute raised by such party would bearbitrable. But in case the party is not able to establish such a claim orappears to be lacking in credibility, then it is not open to the courts torefer the dispute to arbitration at all.

G20. In support of the claim of duress and coercion while issuingthe said Certificate, learned counsel for the contractee-Company hastaken us through a decision of this Court in National Insurance CompanyLimited vs. Boghara Polyfab Private Limited (2009) 1 SCC 267wherein it was held as under:- H

“24. What is however clear is when a respondent contends thatthe dispute is not arbitrable on account of discharge of the contractunder a settlement agreement or discharge voucher or no-claimcertificate, and the claimant contends that it was obtained by fraud,coercion or undue influence, the issue will have to be decidedeither by the Chief Justice/his designate in the proceedings underSection 11 of the Act or by the Arbitral Tribunal as directed by theorder under Section 11 of the Act. A claim for arbitration cannotbe rejected merely or solely on the ground that a settlementagreement or discharge voucher had been executed by theclaimant, if its validity is disputed by the claimant.

50. Let us consider what a civil court would have done in acase where the defendant puts forth the defence of accord andsatisfaction on the basis of a full and final discharge voucher issuedby the plaintiff, and the plaintiff alleges that it was obtained byfraud/coercion/undue influence and therefore not valid. It wouldconsider the evidence as to whether there was any fraud, coercionor undue influence. If it found that there was none, it will acceptthe voucher as being in discharge of the contract and reject theclaim without examining the claim on merits. On the other hand, ifit found that the discharge voucher had been obtained by fraud/undue influence/coercion, it will ignore the same, examine whetherthe plaintiff had made out the claim on merits and decide thematter accordingly. The position will be the same even when thereis a provision for arbitration.

51. The Chief Justice/his designate exercising jurisdiction underSection 11 of the Act will consider whether there was really accordand satisfaction or discharge of contract by performance. If theanswer is in the affirmative, he will refuse to refer the dispute toarbitration. On the other hand, if the Chief Justice/his designatecomes to the conclusion that the full and final settlement receiptor discharge voucher was the result of any fraud/coercion/undueinfluence, he will have to hold that there was no discharge of thecontract and consequently, refer the dispute to arbitration.Alternatively, where the Chief Justice/his designate is satisfiedprima facie that the discharge voucher was not issued voluntarilyand the claimant was under some compulsion or coercion, andthat the matter deserved detailed consideration, he may instead AB

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of deciding the issue himself, refer the matter to the ArbitralTribunal with a specific direction that the said question should bedecided in the first instance.

52. Some illustrations (not exhaustive) as to when claims arearbitrable and when they are not, when discharge of contract byaccord and satisfaction are disputed, to round up the discussionon this subject are:

(i) A claim is referred to a conciliation or a pre-litigation LokAdalat. The parties negotiate and arrive at a settlement. Theterms of settlement are drawn up and signed by both the partiesand attested by the conciliator or the members of the LokAdalat. After settlement by way of accord and satisfaction,there can be no reference to arbitration.

(ii) A claimant makes several claims. The admitted orundisputed claims are paid. Thereafter negotiations are heldfor settlement of the disputed claims resulting in an agreementin writing settling all the pending claims and disputes. On suchsettlement, the amount agreed is paid and the contractor alsoissues a discharge voucher/no-claim certificate/full and finalreceipt. After the contract is discharged by such accord andsatisfaction, neither the contract nor any dispute survives forconsideration. There cannot be any reference of any disputeto arbitration thereafter.

(iii) A contractor executes the work and claims payment ofsay rupees ten lakhs as due in terms of the contract. Theemployer admits the claim only for rupees six lakhs and informsthe contractor either in writing or orally that unless thecontractor gives a discharge voucher in the prescribed formatacknowledging receipt of rupees six lakhs in full and finalsatisfaction of the contract, payment of the admitted amountwill not be released. The contractor who is hard-pressed forfunds and keen to get the admitted amount released, signs onthe dotted line either in a printed form or otherwise, statingthat the amount is received in full and final settlement. In sucha case, the discharge is under economic duress on account ofcoercion employed by the employer. Obviously, the dischargevoucher 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 isneither admitted nor rejected. But the insured is informed duringdiscussions that unless the claimant gives a full and final voucherfor a specified amount (far lesser than the amount claimed bythe insured), the entire claim will be rejected. Being in financialdifficulties, the claimant agrees to the demand and issues anundated discharge voucher in full and final settlement. Only afew days thereafter, the admitted amount mentioned in thevoucher is paid. The accord and satisfaction in such a case isnot voluntary but under duress, compulsion and coercion. Thecoercion is subtle, but very much real. The “accord” is not byfree consent. The arbitration agreement can thus be invokedto refer the disputes to arbitration.

(v) A claimant makes a claim for a huge sum, by way ofdamages. The respondent disputes the claim. The claimant whois keen to have a settlement and avoid litigation, voluntarilyreduces the claim and requests for settlement. The respondentagrees and settles the claim and obtains a full and finaldischarge voucher. Here even if the claimant might have agreedfor settlement due to financial compulsions and commercialpressure 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 andthere cannot be any subsequent claim or reference toarbitration.”

21. Learned counsel further relied upon a decision of this Court inR.L. Kalathia & Co. vs. State of Gujarat (2011) 2 SCC 400 wherein itwas held as under:- “10. Before going into the factual matrix on this aspect, it is usefulto refer the decisions of this Court relied on by Mr Altaf Ahmed.In NTPC Ltd. v. Reshmi Constructions, Builders &Contractors[1]which relates to termination of a contract, one ofthe questions that arose for consideration was:

“(i) Whether after the contract comes to an end by completionof the contract work and acceptance of the final bill in full and A

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Afinal satisfaction and after issuing a ‘no-demand certificate’ bythe contractor, can any party to the contract raise any dispute forreference to arbitration?”

While answering the said issue this Court held:

“27. Even when rights and obligations of the parties are workedout, the contract does not come to an end inter alia for the purposeof determination of the disputes arising thereunder, and, thus, thearbitration agreement can be invoked. Although it may not bestrictly in place but we cannot shut our eyes to the ground realitythat in a case where a contractor has made huge investment, hecannot afford not to take from the employer the amount under thebills, for various reasons which may include discharge of his liabilitytowards the banks, financial institutions and other persons. In sucha situation, the public sector undertakings would have an upperhand. They would not ordinarily release the money unless a ‘no-demand certificate’ is signed. Each case, therefore, is required tobe considered on its own facts.

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28. Further, necessitas non habet legem is an age-old maximwhich means necessity knows no law. A person may sometimeshave to succumb to the pressure of the other party to the bargainwho is in a stronger position.”

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22. In the case at hand, the High Court allowed the appeal filedby the contractee on the assertion that the No Dues Certificate wasgiven on account of coercion/undue influence practiced by the appellant-Contractor. The contractee, while basing its claim, relied upon the lettersissued to the appellant-Contractor for releasing the payment of RA Bills.Whether there has been duress and coercion exerted against thecontractee-Company by the appellant-Contractor has to be examinedkeeping in mind the background in which the said letters have beenexchanged between the parties. Learned counsel for the contractee-Company categorically submitted the relevant dates for our perusal toshow that RA Bills were raised on various dates for making payments tosuppliers and others but were advertently delayed causing grave financialcrisis to the contractee-Company to carry out the works and losses onaccount of delay in settling the claims of the contractee-Companyperiodically. However, it is contended from the side of the appellant-Contractor that the High Court was not right in considering it a genuine F

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and serious dispute regarding the claim made and the conduct of theparties as reflected in the correspondence exchanged between the partiesdisclosing that the contractee-Company encountered several financialconstraints.

23. Pursuant to taking a false claim of duress and coercion whilefiling the No Dues Certificate, the contractee-Company, vide letter dated12.01.2013 to the appellant-Contractor, submitted a claim forRs. 96,88,48,642.00 for the losses incurred during execution of the contractat Mangalore. It has been claimed that the contractee-Company couldnot continue with the work due to various reasons like pooja, shifting ofIdols, non-availability of free encumbrance of site, obstruction in theblasting work, stoppage of hard rock blasting, issues with respect towork to be given to local contractors, non-vacation of project displacedfamilies, permission for forest clearance, permission for shifting ofwooden logs etc. and the huge expenditure as disclosed in the claim wasincurred by the contractee-Company due to the factors attributable tothe appellant-Contractor. Clause 6.6.0 of the General Conditions ofContract deals with “Claims by the Contractor” (contractee in the caseat hand). Clause 6.6.1.0. of the Contract states that in case of a claimof extra compensation or remuneration, the Contractee shall give noticein writing of its claim within 10 days from the date of issue of orders orinstructions related to any works for which the Contractee claims suchadditional payment. The notice shall give full particulars of the nature ofsuch claim, grounds on which it is based and the amount claimed. Unlessand until notice is given, the Contractor shall not be liable to pay extracompensation to the Contractee. Clause 6.6.3.0 states that any claim ofthe Contractee in accordance with Clause 6.6.1.0 shall be separatelyincluded in the Final Bill prepared by it in the form of Statement ofClaims, giving particulars of the nature of claims, ground on which it isbased and the amount claimed and shall be supported by a copy of thenotice and the Contractor shall not be liable in respect of any notifiedclaim not specifically reflected in the Final Bill in accordance with theprovisions of Clause 6.6.3.0 which shall be deemed to have been waivedby the Contractee.

24. From the materials on record, we find that the contractee-Company had issued the “No Dues/No Claim Certificate” on 21.09.2012,it had received the full amount of the final bill being Rs. 20.34 crores on10.10.2012 and after 12 days thereafter, i.e., only on 24.10.2012, the

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Acontractee-Company withdrew letter dated 21.09.2012 issuing “No Dues/No Claim Certificate”. Apart from it, we also find that the Final Bill hasbeen mutually signed by both the parties to the Contract accepting thequantum of work done, conducting final measurements as per theContract, arriving at final value of work, the payments made and thefinal payment that was required to be made. The contractee-CompanyBaccepted the final payment in full and final satisfaction of all its claims.We are of the considered opinion that in the presents facts andcircumstances, the raising of the Final Bill and mutual agreement of theparties in that regard, all claims, rights and obligation of the parties mergewith the Final Bill and nothing further remains to be done. Further, theCappellant-Contractor issued the Completion Certificate dated 19.06.2013pursuant to which the appellant-Contractor has been discharged of allthe liabilities. With regard to the issue that the “No-Dues Certificate”had been given under duress and coercion, we are of the opinion thatthere is nothing on record to prove that the said Certificate had beengiven under duress or coercion and as the Certificate itself provided aDclearance of no dues, the contractee could not now turn around and saythat any further payment was still due on account of the losses incurredduring the execution of the Contract. The story about duress was anafterthought in the background that the losses incurred during theexecution of the Contract were not visualised earlier by the contractee.EAs to financial duress or coercion, nothing of this kind is establishedprima facie. Mere allegation that no-claim certificates have beenobtained under financial duress and coercion, without there being anythingmore to suggest that, does not lead to an arbitrable dispute. The conductof the contractee clearly shows that “no-claim certificate” was given byit voluntarily; the contractee accepted the amount voluntarily and theFcontract was discharged voluntarily.

Conclusion:

25. Admittedly, No-Dues Certificate was submitted by thecontractee-Company on 21.09.2012 and on their requestGCompletion Certificate was issued by the appellant-Contractor. The contractee, after a gap of one month, that is, on24.10.2012, withdrew the No Dues Certificate on the grounds of coercionand duress and the claim for losses incurred during execution of theContract site was made vide letter dated 12.01.2013, i.e., after a gap of3 ½ (three and a half) months whereas the Final Bill was settled onH

10.10.2012. When the contractee accepted the final payment in full andfinal satisfaction of all its claims, there is no point in raising the claim forlosses incurred during the execution of the Contract at a belated stagewhich creates an iota of doubt as to why such claim was not settled atthe time of submitting Final Bills that too in the absence of exercisingduress or coercion on the Contractee by the appellant-Contractor. Inour considered view, the plea raised by the contractee-Company is bereftof any details and particulars, and cannot be anything but a bald assertion.In the circumstances, there was full and final settlement of the claimand there was really accord and satisfaction and in our view no arbitrabledispute existed so as to exercise power under Section 11 of the Act. TheHigh Court was not, therefore, justified in exercising power under Section11 of the Act.

26. In view of the foregoing discussion, we set aside the judgmentand order dated 12.01.2015 passed by the High Court. The appeal isallowed.

Divya Pandey

Appeal allowed.

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