UNION OF INDIA & ORS. versus M/S. BHARAT ENTERPRISE on 23 March 2023

[2023] 8 S.C.R. 803

UNION OF INDIA & ORS.

v.

M/S. BHARAT ENTERPRISE

(Civil Appeal Nos. 3441-3442 of 2015)

MARCH 23, 2023

[K. M. JOSEPH, KRISHNA MURARI ANDB. V. NAGARATHNA, JJ.]

Arbitration and Conciliation Act, 1996 – Arbitrator passedan award allowing claims which were submitted after the submissionof the final bill (containing No Claims Certificate) by theRespondent-Contractor – During the arbitration, the appellant filedan application u/s.16 invoking clauses 65 and 65A of the Contractwhich interdicted the submission of a new claim after the submissionof the final bill – Application rejected – Petition filed by theappellant u/s.34 challenging the award, allowed – Order set asideby High Court in appeal u/s.37 – Held: When a contractor seeks towriggle out of a final bill or a ‘no claims due certificate’ which hehas submitted, he must establish a case that a final bill or acertificate of no further claims was the result of any of the vitiatingfactors under the law – Sans such finding, the final bill would stand– If the final bill cannot be overridden by any factors known to lawthen the clauses relied upon by the appellants in this case wouldoperate – There was no finding by the Arbitrator that the final billand the no claims certificate were vitiated – The clauses in thecontract were binding not only on the parties but also on theArbitrator – Going against the terms of clauses 65 and 65A wouldindeed render the Award illegal being contrary to the contract and,therefore, without jurisdiction – If the clauses operate, the inevitableresult is the arbitrator could not have traveled outside of thecontractual prohibition and passed an award allowing claimssubmitted after the submission of the final bill – While, the reasoningadopted by the High Court cannot be subscribed to, it cannot alsobe lost sight of that the amounts in question are fairly meagre andthe final bill was settled only after long delay of over an year – Itwas apparently the long delay in the payment of the final bill amountwhich led to the raising of the new claims – Perhaps, if the final billitself was not kept pending for such a long time, the entire dispute

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Amay not have arisen at all – Impugned order set aside – Appellantsto pay Rs.3 lakhs to the respondent in full and final settlement of itsclaims – Constitution of India – Art. 136.

Arbitration and Conciliation Act, 1996 – ss.16(2), (3), 34, 37– Plea of the respondent that the order dtd. 04.03.2009 passed byBthe Arbitrator u/s.16 had attained finality as the same was notimpugned u/s.37 – Held: Under s.37(2)(a), an appeal lies to theCourt from an order of the Arbitral Tribunal accepting the pleareferred to in sub-sections (2) and (3) of s.16 – This means that anappeal can be preferred against the order of the Arbitral Tribunalallowing the plea that the Arbitral Tribunal does not have jurisdictionC– Similar is the case with reference to an order which is renderedappealable u/s.16(3) – Thereunder also, it is the plea that the ArbitralTribunal is exceeding the scope of its authority which is allowedwhich is rendered appealable – In the present case, by orderdtd.04.03.2009, the Arbitral Tribunal did not allow the plea be it u/Ds.16(2) or u/s.16(3) – On the other hand, the Tribunal rejected theplea of the appellants – Therefore, no appeal could have been filedu/s.37 against the order dtd.04.03.2009 – An order passed by theArbitral Tribunal rejecting the plea u/s.16(2) or 16(3) being part ofthe Award itself, it is open to the parties to challenge the same whena petition is filed u/s.34 challenging the Award.E

Arbitration – Arbitrator is a creature of the parties and thecontract – As Arbitrator he cannot stray outside the contours of thecontract – He is bound to act within its confines – A disregard ofthe specific provisions of the contract would incur the wrath of theAward being imperiled.F

Allowing the appeals, the Court

Conclusion

HELD: 1.1 The clauses which have been relied upon bythe appellants are clear and unambiguous. What they interdict isthe submission of a new claim after the submission of the finalGbill. If there are any claims left after the submission of the finalbill, the parties have agreed that they shall stand waived. Theseare the clauses which are binding not only on the parties but alsoon the Arbitrator. Going against the terms of clauses 65 and 65Awould indeed render the Award vulnerable on the basis that it isillegal being contrary to the contract and, therefore, withoutHjurisdiction. There may be cases where a final bill may be submitted and the contention is taken that the final bill was submitted underduress. In such a case, it may be open to the claimants to urgeand the Arbitrator to find that the final bill was itself vitiated onaccount of the fact that it was brought about by duress or anyother vitiating factors under law. If such an event had taken placethen that may have been sufficient to non-suit the appellants. Inother words, if under the terms of the agreement, there is anembargo against the Arbitrator embarking upon and attemptingto find merit in any claim which is not part of the final bill, anaward so countenancing a claim would be illegal. However, onthe other hand, if the case is that the final bill itself should not begiven life as it was born out of coercion or any other vitiatingfactor and the Arbitrator renders a finding on material as issufficient in law then the Award of the Arbitrator may not beattacked on the ground that he travels beyond the contractualprovisions. [Paras 17, 18][822-G-H; 823-A-D]

1.2 On 13.02.2002, the respondent has indeed submitted afinal bill. It is a year thereafter on 25.02.2003, that the respondentsent a letter inter alia urging that the final bill dated 13.02.2002was not paid and is signed under protest. Subsequently, it wouldappear that the respondent has filed an affidavit on 24.05.2003.It is ignoring all this that notice was sent for referring the matterto arbitration. By order dated 12.11.2007, the High Courtproceeding under Section 11 of the Act appointed an Arbitrator.During the course of the arbitration, on 03.08.2008, the appellantsfiled an application under Section 16 of the Act invoking clauses65 and 65A of the Contract. The said application came to berejected on 04.03.2009. The Arbitrator has proceeded to rejectthe application filed by the appellants under Section 16 on thebasis of the order dated 12.11.2007 passed by the High Court.The Arbitrator further draws inspiration from the fact that theapplication seeking modification of the order dated 12.11.2007was dismissed on 04.12.2007. The Arbitrator further found thatthe agreement entered into between the parties subsequent tothe order dated 12.11.2007 would indicate that disputes indeedexist. What is, however, conspicuous by its absence is any findingby the Arbitrator, that the final bill dated 13.02.2002 was the resultof duress or any other vitiating factors. [Paras 19, 20][823-E-H]

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A1.3 An appeal lies to the Court from an order of the ArbitralTribunal accepting the plea referred to in sub-sections (2) and(3) of Section 16. This means that an appeal can be preferredagainst the order of the Arbitral Tribunal allowing the plea thatthe Arbitral Tribunal does not have jurisdiction. Similar is thecase with reference to an order which is rendered appealableBunder Section 16(3) of the Act. Thereunder also, it is the pleathat the Arbitral Tribunal is exceeding the scope of its authoritywhich is allowed which is rendered appealable. In this case, byorder dated 04.03.2009, the Arbitral Tribunal has not allowedthe plea be it under section 16(2) or under Section 16(3). On theCother hand, the Tribunal has rejected admittedly the plea of theappellants. Therefore, no appeal could have been filed underSection 37 against the order dated 04.03.2009. An order passedby the Arbitral Tribunal rejecting the plea under Section 16(2) or16(3) being part of the Award itself, it is open to the parties tochallenge the same when a petition is filed under Section 34 ofDthe Act challenging the Award. This is the scheme of the Act.This is apparently to confine a right to appeal to those cases whereaccepting a plea of a party would bring the arbitration to a halt. Infact, the order dated 04.03.2009 has been referred to in the Awardand it has been treated as part of the Award. It is thereafter thatEin a proceeding that the District Court has allowed the petitionfiled under Section 34 by the appellants. It is no doubt true thatthe salutary principle which has been enunciated by this Court inCentral Inland Water Transport Corporation being in accord withconstitutional principles must receive due consideration.However, it cannot be torn out of context. More importantly, asFalready noticed when a contractor seeks to wriggle out of a finalbill or a ‘no claims due certificate’ which he has submitted, as ina civil Court so before the Arbitrator, he must establish a casethat a final bill or a certificate of no further claims was the resultof any of the vitiating factors under the law. Sans such finding, theGfinal bill would stand. If the final bill cannot be overridden by anyfactors known to law then the clauses relied upon by theappellants in this case would operate. There is no finding by theArbitrator that the final bill and the no claims certificate werevitiated. The clauses in the contract were binding on the H

respondent. It cannot be departed from invoking the principle inCentral Inland Water Transport Corporation. It is not the case ofthe contractor that when the contract was entered into, it was incircumstances which attracted the principles laid down therein.If the clauses operate, the inevitable result is the arbitrator couldnot have traveled outside of the contractual prohibition and passedan award allowing claims which were submitted after thesubmission of the final bill. [Paras 22, 23, 25 and 26][824-F-H;825-A-B; 826-A-D]

Central Inland Water Transport Corporation & Anr. v.Brojo Nath Ganguly AIR 1986 SC 1571 : [1986] 2 SCR278 – referred to.

1.4 While this Court cannot subscribe to the reasoningadopted by the High Court, it cannot also be lost sight of that theamounts in question are fairly meagre and the final bill remainedunpaid for long period of time. It was apparently the long delay inthe payment of the final bill amount which led to the raising of thenew claims. Perhaps, if the final bill itself was not kept pendingfor such a long time, the entire dispute may not have arisen at all.Having regard to all the facts and circumstances, while this Courtis inclined to set aside the impugned order, the interests of justicewould require that the respondent is paid a lumpsum amount infull and final satisfaction of all his claims. The impugned judgmentis set aside. However, the appellants will pay a sum of Rs.3 lakhs(Rupees Three Lakhs only) to the respondent which will be infull and final settlement of the claims of the respondent. [Paras28, 29][826-G-H; 827-E]

Bharat Coking Coal Ltd. v. Annapurna Construction(2003) 8 SCC 154 : [2003] 3 Suppl. SCR 122; Unionof India and Others v. Master Construction Company(2011) 12 SCC 349 : [2011] 5 SCR 853; Union of Indiav. Parmar Construction Company (2019) 15 SCC 682 :[2019] 5 SCR 1009; PSA SI CAL Terminate (P) Ltd. v.Board of Trustees of V.O. Chidambranar Port TrustTuticorin 2021 SCC Online SC 508; Union of Indiaand Others v. Master Construction Company (2011) 12SCC 349 : [2011] 5 SCR 853; National Insurance AB

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ACompany Limited v. Boghara Polyfab Private Limited(2009) 1 SCC 267 : [2008] 13 SCR 638; SBP & Co. v.Patel Engineering Ltd. and Another (2005) 8 SCC 618: [2005] 4 Suppl. SCR 688; Tahera Khatoon (D)By LRs.v. Salambin Mohammad (1999) 2 SCC 635 : [1999] 1SCR 901 – referred to.B

Case Law Reference

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CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 3441-3442 of 2015.

From the Judgment and Order dated 11.02.2014 and 23.04.2014Fof the High Court of Punjab & Haryana at Chandigarh in FAO No. 4290of 2013 and RA No. 66-CII of 2014 in FAO No. 4290 of 2013.

K. M. Nataraj, ASG, R. Bala, Sr. Adv., Ms. Vishakha,Mrs. Swarupama Chaturvedi, Sharath Nambiar, Shlok Chandra, ArvindKumar Sharma, Advs. for the Appellants.G

Ms. Praveena Gautam, Pawan Shukla, Ms. Indira Goswami, AmanSharma, Ms. Akanksha Tyagi, Advs. for the Respondents.

The Judgment of the Court was delivered by

K. M. JOSEPH, J.

1. A contract was entered into between the parties for the repairof bathrooms and other allied works on 02.07.2001. It would appear thattime was extended up to 19.01.2002. The respondent-Contractorsubmitted final bill on 13.02.2002. It contained a No Claims Certificate.The said amount claimed by the respondent apparently was not paidimmediately. The respondent it would appear made several remindersregarding the non-payment of the final bill for a period of one year.Following many reminders by the respondent regarding the non paymentof the final bill, according to the respondent, it sent a list of additionalclaims on 25.02.2003 and in the said letter, claimed that the letter and theFinal bill should be considered as under protest. The respondent signedaffidavit dated 24.05.2003 which according to the respondent wasprepared by the appellant and which provided for the withdrawal of theletter dated 25.02.2003. An undertaking was also got signed from therespondent on 12.09.2003. Thereafter, respondent on 14.11.2003 revokedthe affidavit and undertaking on account of non payment of the bill andpurported to give the final notice invoking the arbitration clause containedin the contract for the non payment of claims due. It is, thereafter, on25.11.2003, that the appellant made payment of Rs.100358/-. This wasfollowed by letter dated 08.09.2004 by which the respondent sought toinvoke the arbitration clause and appointment of arbitrator. Later, on12.11.2007, a petition was moved under Section 11(6) of the Arbitrationand Conciliation Act, 1996 (hereinafter referred to as ‘Act’ for brevity)for appointment of an arbitrator. The same was allowed. A freshagreement for arbitration was entered into on 22.11.2007 providing forappointment of a new Arbitrator. Suffice it to notice that a former Districtand Sessions Judge came to be appointed as sole arbitrator. The appellantfiled an application under Section 16 for dismissal of the claims. Theappellant invoked clauses 65 and 65A of the contract. This application,no doubt, was rejected on 04.03.2009 by the Arbitrator. Thereafter, theArbitrator entered upon the merits of the matter and passed Award dated16.07.2009. There were a total of 10 claims. The Arbitrator disallowedseven out of the ten claims while it allowed three claims. The claimswere allowed with rate of interest which we need not notice at thisstage. The petition filed by the appellant under Section 34 of the Actcame to be allowed by the District Judge. It is this order passed by the BCDEFG

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ADistrict Judge under Section 34 which stands overturned by the impugnedorder in an appeal under Section 37 of the Act.

2. We have heard Col. R. Balasubramanium, learned seniorcounsel for the appellants, and Ms. Praveena Gautam, learned counselfor the respondent.

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3. The only controversy which we are called upon to resolve iswhether the impugned order is sustainable having regard to clauses 65and 65A of the Contract.

4. The contention of the learned senior counsel for the appellantsis that the impugned order is in the teeth of law laid down by this CourtCin Bharat Coking Coal Ltd. vs. Annapurna Construction (2003) 8SCC 154. He also points out that the said view has been followed inPSA SI CAL Terminate (P) Ltd. v. Board of Trustees of V.O.Chidambranar Port Trust Tuticorin 2021 SCC Online SC 508. In anutshell, the argument is as follows:

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5. He contends that the Arbitrator cannot travel outside theboundaries of the contact. In fact, he is fully bound by the terms of thecontract. In the terms of the contract which are apposite in the contextof the dispute before us, there is a prohibition against the Contractorsupplementing the claims in the final bill by including claims which areEnot found in the final bill. In the facts of this case, he would submit thatthis is precisely what has happened by pointing out the final bill whichwas submitted on 13.02.2002 and the claims allowed are later raised.He would submit that the High Court was clearly in error in tiding overthis insuperable barrier in law and granting relief. The reasoning whichhas weighed with the High court is sought to be brought under a cloud asFbeing unsustainable in the teeth of the judgments rendered by this Courtreferred to hereinbefore.

6. Per contra, Ms. Praveena Gautam, learned counsel for therespondent, lays store by the law laid down by this Court in Union ofIndia and Others v. Master Construction Company (2011) 12 SCCG349 and the judgment in Union of India v. Parmar ConstructionCompany (2019) 15 SCC 682. She would point out that there was along delay in signing the final bill and the Arbitrator has only awarded theamounts which were found due. It is further contended that an attemptmade under Section 16(2) of the Act to shake the premise of theArbitrator’s jurisdiction failed. It is pointed out that the said decision hasH

not been challenged under Section 37 of the Act. It is also pointed outthat in the facts of this case, at any rate, the Court may not exercise itsjurisdiction based on an appeal generated by the State filed under Article136 of the Constitution.

ANALYSIS

7. Clauses 65 and 65A of the Contract read as follows:

“CONDITION NO.”65.

Final Bill (Applicable only to Measurement and LumpSumContracts).- The Final Bills shall be submitted by the Contractoron I.A.F.W.-2262 in duplicate within three months of physicalcompletion of the Works to the satisfaction of the Engineer-in-Charge.

It shall be accompanied by all abstracts, vouchers,etc.,supporting it and shall be prepared in the manner prescribedby the G.E.

No further claims shall be made by Contractor aftersubmission of the Final Bill and these shall be deemed to havebeen waived and extinguished.

The Contractor shall be entitled to be paid the final sumless the value of payments already made on account, subjectto the certification of the final bill by the G.E.

No charges shall be allowed to the Contractor onaccount of the preparation of the final bill.”

CONDITION NO.”65-A.

Final Bill (Applicable only to Term Contracts). - TheFinal Bill shall be submitted by the Contractor on I.A.F.W.2262in duplicate, accompanied by all supporting abstracts, vouchers,etc., except I.A.F.W.- 2158 and 1833 prepared in the mannerprescribed by the G.E. within three months of physicalcompletion of the Works to the satisfaction of the Engineer-in-Charge. In respect of works orders arising out of unitrequisitions or M.E.S. inspections for maintenance and repairs,any portion of such an order which remains uncompleted atthe date of the next subsequent requisition or inspection may,purely to facilitate payment of completed Work and without A

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prejudice to any other right or remedy of Government in respectof any such delay, be deleted and the Works Order, as soamended forthwith, billed for final payment.

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No further claims shall be made by the Contractor aftersubmission of a Final Bill and these shall be deemed to havebeen waived and extinguished. The Contractor shall be entitledto be paid the full measured value of the Works Order, less thevalue of payments made on account and of any chargesproperly preferred under the Conditions of Contracts forGovernment Stores, etc. supplied on repayment, subject to thecertification of the final bill by the G.E.

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When fractions of a rupee occur in the totals of bills,fractions less than half a rupee shall be disregarded and half arupee and over taken as a rupee.

No charges shall be allowed to the Contractor onaccount of the preparation of a final bill.”

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8. The Arbitrator comes on the scene as a result of the agreementbetween the parties. Not unnaturally, the fundamental and primaryfoundation for the Arbitrator to settle the dispute is the contract betweenthe parties. An Arbitrator is a creature, in other words, of the parties andEthe contract. It is elementary that as Arbitrator he cannot stray outsidethe contours of the contract. He is bound to act within its confines. Adisregard of the specific provisions of the contract would incur the wrathof the Award being imperiled. This position cannot be in the region ofdispute.

9. There is another scenario. This relates to a claim that there isFaccord and satisfaction. On the one hand, it is sought to be rebuffed bythe case of the contractor that the accord and satisfaction was broughtabout by vitiating factors which are contemplated essentially in sections15 to 18 of the Indian Contract Act, 1872. In other words, where thecase of the contractor that a No Claim Certificate is given under duressGor coercion, this may be the subject matter of inquiry by the Arbitrator. Itmay be open to the Arbitrator to find merit in the complaint of thecontractor and to reject the case of accord and satisfaction and to proceedto examine the merits of the claim of the contractor and to awardcompensation in accordance with law in a given case. These distinctstreams of cases and therefore differences in the judicial approach isHwhat essentially arise for our consideration.

10. In Bharat Coking Coal Ltd. v. Annapurna Construction(2003) 8 SCC 154, this Court considered inter alia the effect of anArbitrator failing to consider the relevant clauses of the contract. It is onthe said premise that the Court proceeded to hold inter alia as follows:

“Findings

9. Only because the respondent has accepted the final bill, thesame would not mean that it was not entitled to raise any claim. Itis not the case of the appellant that while accepting the final bill,the respondent had unequivocally stated that he would not raiseany further claim. In absence of such a declaration, the respondentcannot be held to be estopped or precluded from raising any claim.We, therefore, do not find any merit in the said submission of MrSinha.

40. However, as noticed hereinbefore, this case stands on adifferent footing, namely, that the arbitrator while passing the awardin relation to some items failed and/or neglected to take intoconsideration the relevant clauses of the contract, nor did he takeinto consideration the relevant materials for the purpose of arrivingat a correct fact. Such an order would amount to misdirection inlaw.”

In the same vein is the judgment of this Court reported in PSASICAL Terminate (P) Ltd.[1]

11. On the other hand, is the decision reported in MasterConstruction Company[2].

12. We must notice the following facts:

Firstly, the case arose under Section 11 of the Act.

Upon completion of the work in question, the completion certificatewas issued and this was followed by the contractor furnishing a NoClaim Certificate. The final bill was signed. Thereafter, the payment ofthe final bill was made within a period of little over a month. Thereafter,it would appear that the contractor wrote to the appellant withdrawingthe No Claim Certificate. The employer (the appellant) declined toentertain the claims on the ground that the final bill was accepted by the 1 PSA SI CAL Terminate (P) Ltd. v. Board of Trustees of V.O. Chidambranar Port TrustTuticorin 2021 SCC Online SC 508.

2 Union of India and Others v. Master Construction Company (2011) 12 SCC 349.

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Acontractor after furnishing the No Claim Certificate. It was in the contextof the said facts that this Court after an exhaustive review of earliercase law which we must notice included the judgment of this Courtreported in National Insurance Company Limited v. Boghara PolyfabPrivate Limited (2009) 1 SCC 267 went on to hold as follows:

B“23. The present, in our opinion, appears to be a case falling in thecategory of exception noted in Boghara Polyfab (P) Ltd. [(2009)1 SCC 267 : (2009) 1 SCC (Civ) 177] (p. 284, para 25). As tofinancial 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 beingCanything more to suggest that, does not lead to an arbitrable dispute.The conduct of the contractor clearly shows that “no-claimcertificates” were given by it voluntarily; the contractor acceptedthe amount voluntarily and the contract was discharged voluntarily.”

13. In National Insurance Company Limited[3]this Court interDalia held as follows:

“The questions for consideration

15. In this case existence of an arbitration clause in the contractof insurance is not in dispute. It provides that “if any dispute ordifference 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 ofa sole arbitrator”. The rival contentions give rise to the followingquestion for our consideration:

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FIn what circumstances, a court will refuse to refer a disputerelating to quantum to arbitration, when the contract specificallyprovides for reference of disputes and differences relating to thequantum to arbitration? In particular, what is the position when arespondent in an application under Section 11 of the Act, resistsreference to arbitration on the ground that the petitioner has issuedGa full and final settlement discharge voucher and the petitionercontends that he was constrained to issue it due to coercion, undueinfluence and economic compulsion?

17. The decision in Kishorilal Gupta [AIR 1959 SC 1362 : (1960)1 SCR 493] was followed and reiterated in several decisionsHincluding Naihati Jute Mills Ltd. v. Khyaliram Jagannath [AIR

1968 SC 522] , Damodar Valley Corpn. v. K.K. Kar [(1974) 1SCC 141] and Indian Drugs & Pharmaceuticals Ltd. v. IndoSwiss Synthetics Gem Mfg. Co. Ltd. [(1996) 1 SCC 54] InDamodar Valley Corpn. [(1974) 1 SCC 141] this Court observed: (SCC p. 145, para 7)

“7. … A contract is the creature of an agreement between theparties and where the parties under the terms of the contractagree to incorporate an arbitration clause, that clause stands apartfrom the rights and obligations under that contract, as it has beenincorporated with the object of providing a machinery for thesettlement of disputes arising in relation to or in connection withthat contract. The questions of unilateral repudiation of the rightsand obligations under the contract or of a full and final settlementof the contract relate to the performance or discharge of thecontract. Far from putting an end to the arbitration clause, theyfall within the purview of it. A repudiation by one party alone doesnot terminate the contract. It takes two to end it, and hence itfollows that as the contract subsists for the determination of therights and obligations of the parties, the arbitration clause alsosurvives. This is not a case where the plea is that the contract isvoid, illegal or fraudulent, etc. in which case, the entire contractalong with the arbitration clause is non est, or voidable. As thecontract is an outcome of the agreement between the parties it isequally open to the parties thereto to agree to bring it to an end orto treat it as if it never existed. It may also be open to the partiesto terminate the previous contract and substitute in its place anew contract or alter the original contract in such a way that itcannot subsist. In all these cases, since the entire contract is putan end to, the arbitration clause, which is a part of it, also perishesalong with it.”

18. Section 16 of the Act bestows upon the Arbitral Tribunal, thecompetence to rule on its own jurisdiction. Sub-section (1) of thesection reads thus:

“16. Competence of Arbitral Tribunal to rule on itsjurisdiction.—(1) The Arbitral Tribunal may rule on its ownjurisdiction, including ruling on any objections with respect to theexistence or validity of the arbitration agreement, and for thatpurpose,—

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SUPREME COURT REPORTS

(a) an arbitration clause which forms part of a contract shall betreated as an agreement independent of the other terms of thecontract; and A

(b) a decision by the Arbitral Tribunal that the contract is null andvoid shall not entail ipso jure the invalidity of the arbitration clause.”

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22. Where the intervention of the court is sought for appointmentof an Arbitral Tribunal under Section 11, the duty of the ChiefJustice or his designate is defined in SBP & Co. [(2005) 8 SCC618] This Court identified and segregated the preliminary issuesthat may arise for consideration in an application under Section 11of the Act into three categories, that is, (i) issues which the ChiefJustice or his designate is bound to decide; (ii) issues which hecan also decide, that is, issues which he may choose to decide;and (iii) issues which should be left to the Arbitral Tribunal todecide.

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D22.1. The issues (first category) which the Chief Justice/hisdesignate will have to decide are:

(a) Whether the party making the application has approached theappropriate High Court.

(b) Whether there is an arbitration agreement and whether theEparty who has applied under Section 11 of the Act, is a party tosuch an agreement.

22.2. The issues (second category) which the Chief Justice/hisdesignate may choose to decide (or leave them to the decision ofthe Arbitral Tribunal) are:

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(a) Whether the claim is a dead (long-barred) claim or a liveclaim.

(b) Whether the parties have concluded the contract/transactionby recording satisfaction of their mutual rights and obligation orby receiving the final payment without objection.

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22.3. The issues (third category) which the Chief Justice/hisdesignate should leave exclusively to the Arbitral Tribunal are:

(i) Whether a claim made falls within the arbitration clause (asfor example, a matter which is reserved for final decision of adepartmental authority and excepted or excluded from arbitration).

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(ii) Merits or any claim involved in the arbitration.”

14. We may notice that this is a judgment which was rendered inthe regime which was put in place by the larger Bench decision of thisCourt reported in SBP & Co. v. Patel Engineering Ltd. and Another(2005) 8 SCC 618. In fact, it is also a case arising under Section 11 ofthe Act. The Court went on to deal with the question of non-arbitrabilityof disputes. It categorises the cases broadly into three categories, ascan be seen from paragraphs 22.1 to 22.3. We must notice that followingthe insertion of Section 11(6A) by the Arbitration and Conciliation(Amendment) Act, 2016, with effect from 2015, there has been a changein law but we need not be detained by the said aspect as that may not befully apposite for the purposes of the case. We may notice the followingstatements as well in National Insurance (supra):

49. Obtaining of undated receipts-in-advance in regard to regular/routine payments by government departments and corporate sectoris an accepted practice which has come to stay due to administrativeexigencies and accounting necessities. The reason for insistingupon undated voucher/receipt is that as on the date of executionof such voucher/receipt, payment is not made. The payment ismade only on a future date long after obtaining the receipt. If thedate of execution of the receipt is mentioned in the receipt andthe payment is released long thereafter, the receipt acknowledgingthe amount as having been received on a much earlier date willbe absurd and meaningless. Therefore, undated receipts are takenso that it can be used in respect of subsequent payments byincorporating the appropriate date. But many a time, matters aredealt with so casually that the date is not filled even when paymentis made. Be that as it may. But what is of some concern is theroutine insistence by some government departments, statutorycorporations and government companies for issue of undated “no-dues certificates” or “full and final settlements vouchers”acknowledging receipt of a sum which is smaller than the claim infull and final settlement of all claims, as a condition precedent forreleasing even the admitted dues. Such a procedure requiring theclaimant to issue an undated receipt (acknowledging receipt of asum smaller than his claim) in full and final settlement, as acondition for releasing an admitted lesser amount, is unfair, irregularand illegal and requires to be deprecated.

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SUPREME COURT REPORTS

A50. Let us consider what a civil court would have done in a casewhere 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, coercionBor 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 whetherCthe 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.”

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15. Before we proceed to finally rule on the issues which havebeen raised, we must notice the rationale of the High Court in theDimpugned judgment. We deem it appropriate to set down the followingreasoning in this regard. After referring to the clauses which we havealready extracted viz., clauses 65 and 65A, we find the following:

“The contract terms and conditions require submission of the finalbill within three months of physical completion of the works to theEsatisfaction of the Engineer-in-Charge. There is no dispute thatthe final bill was presented within the time prescribed. Clauses 65and 65-A, though set a boundary on the Contractor to submit itsbill, but does not speak of the time within which the final bill is tobe discharged by the employer. Admittedly, when the dispute wasreferred to Arbitration, the Contractor made further claims beforeFthe arbitrator which were adjudicated in arbitral proceedings afterhearing the employer and the claims were by and large allowed.If the final bill was presented on 13.2.2002, and payment of thesame was made belatedly on 25.11.2003 to the pecuniarydisadvantage of the Contractor, then it would appear not to lie inGthe mouth of the Engineer-in-Charge/employer to invoke anexclusionary clause as is found embedded in Clause 65-A. If sucha clause were to operate, then it would even take away theArbitrator’s discretion and jurisdiction to award interest pendentelite and future interest etc. which the law permits and such aclaim would also constitute a valid claim which can be awarded.HIn any case, such a clause I am inclined to think would be opposed to public policy and operate unfairly, and should be understood inthe light of what the Supreme Court enunciated in Central InlandWater Transport Corporation & Anr. vs. Brojo Nath Ganguly, AIR1986 SC 1571, thus expanding the sphere of the law of contractsand subjecting it to the test of reasonableness or fairness of aclause in a contract where there is inequality of bargaining power.Extracts from the judgment can be profitably quoted:- “Article 14 of the Constitution guarantees to all persons equalitybefore the law and the equal protection of the laws. Thisprinciple is that the Courts will not enforce and will, when calledupon to do so, strike down an unfair and unreasonable contract,or an unfair and unreasonable clause in a contract entered intobetween parties who are not equal in bargaining power. Theabove principle will apply where the inequality of bargainingpower is the result of the great disparity in the economicstrength of the contracting parties. It will apply where theinequality is the result of circumstances, whether of the creatingof the parties or not. It will apply to situations in which theweaker party is in a position in which he can obtain goods orservices or means of livelihood only upon the terms imposedby the stronger party or go without them. It will also applywhere a man has no choice, or rather no meaningful choice,but to give his assent to a contract or to sign on the dotted linein a prescribed or standard form or to accept a set of rules aspart of the contract, however, unfair unreasonable orunconsionable a clause in that contract or form or rules maybe. This principle will not apply when the bargaining power ofthe contracting parties is equal or almost equal. mis principlemay not apply where both parties are businessmen and thecontract is a commercial transaction. In today’s complex worldof giant corporations with their vast infrastructural organisationsand with the State through its instrumentalities and agenciesentering into almost every branch of industry and commerce,there can be myriad situations which result in unfair andunreasonable bargains between parties possessing whollydisproportionate and unequal bargaining power. The Court mustjudge each case on its own facts and circumstances whencalled upon to do so by a party under section 31(1) of theSpecific Relief Act, 1963.”

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Then further;

“In the vast majority of cases, however, such contracts withunconscionable term are entered into by the weaker party underpressure of circumstances, generally economic, which resultsin inequality of bargaining power, Such contracts will not fallwithin the four corners of the definition of “undue influence”as defined by section 16(1) of the Indian Contract Act. Themajority of such contracts are in a standard or prescribed formor consist of a set of rules. They are not contracts betweenindividuals containing terms meant for those individuals alone.Contracts in prescribed or standard forms or which embody aset of rules as part of the contract are entered into by the partywith superior bargaining power with a large number of personswho have far less bargaining power or no bargaining power atall. Such contracts which affect a large number of persons ora group or groups of persons, if they are unconscionable, unfairand unreasonable are injurious to the public interest. To saysuch a contract is only voidable would be to compel each personwith whom the party with superior bargaining power hadcontracted to go to Court to have the contract adjudged voidable.This would only result in multiplicity of litigation which no Courtshould encourage and also would not be in public interest. Sucha contract or such a clause in a contract ought, therefore, to beadjudged void under section 23 of the Indian Contract Act, asopposed to public policy,”

And still further;

“The Indian Contract Act does not define the expression “publicpolicy” or “opposed to public policy”. From the very nature ofthings, such expressions are incapable of precise definition.Public policy, however, is not the policy of a particulargovernment. It connotes some matter which concerns the publicgood and the public interest. The concept of what is for thepublic good or in the public interest or what would be injuriousor harmful to the public good or the public interest has variedfrom time to time. As new concepts take the place of old,transactions which were once considered against public policyare now being upheld by the courts and similarly where therehas been a well-recognized head of public policy, the courts have not shirked from extending it to new transactions andchanged circumstances and have at times not even flinchedfrom inventing a new head of public policy. The principlesgoverning public policy must be and are capable on properoccasion, of expansion or modification. Practices which wereconsidered perfectly normal at one time have today becomeabnoxious and oppressive to public conscience. If there is nohead of public policy which covers a case, then the court mustin consonance with public conscience and in keeping with publicgood and public interest declares such practice to be opposedto public policy. Above all, in deciding any case which may notbe covered by authority Indian Courts have before them thebeacon light of the Preamble to the Constitution. Lackingprecedent, the Court can always be guided by that light andthe principles underlying the Fundamental Rights and theDirective Principles enshrined in our Constitution.”

It is not the case that the payment of the final bill was madepromptly and delay in payment alone should constitute a separateground for submission of the bills by the Contractor on closerscrutiny of his claims to make fresh claims which may have escapedcontractor’s notice at the time of presentation of the final bill. Inhuman affairs, such situations can and do arise and the courts canand should make an allowance for them to be accommodated foradjudication on the merits of such claims. Therefore, I find myselfunable to subscribe to the reasoning adopted by the learned DistrictJudge, Chandigarh in non-suiting the petitioner and shutting outhis case for examination of the ‘further claims’ beyond thosepressed in the original claim petition on the materials on recordand that too only by virtue of oppressive exclusion in Clause 65-A. Delay in payment of dues would itself give rise to an actionableclaim for interest accruing by virtue of default in payment of finalbills, keeping money beyond reasonable time in the pocket of theemployer.”

16. Thereafter, the High Court also proceeds to refer to thesubsequent agreement, the order by which the Arbitrator was appointed,the agreement which is entered into and finally, it is found as follows:

“Mr. Manohar Lall, learned counsel appearing for the appellantpoints out that the Arbitrator in the present case was appointed A

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under Section 11 of the Act by the Chief Justice of this Courtexercising jurisdiction under the Act by order dated 12.11.2007after recognizing and identifying the dispute and difference whichhad arisen between the parties that demanded resolution througharbitration process in terms of the arbitration clause signed by theparties. This jurisdictional issue was pressed before the Arbitratorby the employer itself and a preliminary issue was accordinglyframed and answered in favour of the appellant and Clause 65-Awas duly noticed and interpreted in a manner which appeals tothis court as a correct exposition of the law. Besides, the Arbitratorin his award dated 4.3.2009 (Annexure A-3) found from theagreement dated 22.11.2007 that dispute still exists between theparties, which is evident from the recitals in the agreement, whichreads as follows:

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“The new arbitrator shall decide all the disputes between theparties”

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The award ought not to have been tinkered with by theLearned District Judge, Chandigarh for the reason thatjurisdiction stood denuded by operation of the offending partof Clause 65 and 65-A cannot be read as waiver orextinguishment of right of a contractor, much less by deemingfiction as Clause 65-A does, to lay further claims after thepresentation of the final bill if money or interest is demonstrablyowed by the offer or of the contract to the contractor. Thus,these two clauses justly deserve to be read against the offer orof the works contract in the light of the well established doctrineof contra proferentum applicable to the law of contracts.

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For the foregoing reason, this appeal is allowed and theimpugned judgment dated 10.7.2013 passed by the learnedDistrict Judge, Chandigarh is set aside.”

17. The clauses which have been relied upon by the appellantsGare clear and unambiguous. What they interdict is the submission of anew claim after the submission of the final bill. If there are any claimsleft after the submission of the final bill, the parties have agreed thatthey shall stand waived. These are the clauses which are binding notonly on the parties but also on the Arbitrator. Going against the terms ofclauses 65 and 65A would indeed render the Award vulnerable on the H

basis that it is illegal being contrary to the contract and, therefore, withoutjurisdiction.

18. There may be cases where a final bill may be submitted andthe contention is taken that the final bill was submitted under duress. Insuch a case, it may be open to the claimants to urge and the Arbitrator tofind that the final bill was itself vitiated on account of the fact that it wasbrought about by duress or any other vitiating factors under law. If suchan event had taken place then that may have been sufficient to non-suitthe appellants. In other words, if under the terms of the agreement,there is an embargo against the Arbitrator embarking upon and attemptingto find merit in any claim which is not part of the final bill, an award socountenancing a claim would be illegal. However, on the other hand, ifthe case is that the final bill itself should not be given life as it was bornout of coercion or any other vitiating factor and the Arbitrator renders afinding on material as is sufficient in law then the Award of the Arbitratormay not be attacked on the ground that he travels beyond the contractualprovisions. Bearing in mind these principles, we will examine the matterwith reference to the facts which are not in dispute in this case.

19. On 13.02.2002, the respondent has indeed submitted a finalbill. It is a year thereafter on 25.02.2003, that the respondent sent aletter inter alia urging that the final bill dated 13.02.2002 was not paidand is signed under protest. Subsequently, it would appear that therespondent has filed an affidavit on 24.05.2003. It is ignoring all this thatnotice was sent for referring the matter to arbitration. By order dated12.11.2007, the High Court proceeding under Section 11 of the Actappointed an Arbitrator. During the course of the arbitration, on03.08.2008, the appellants filed an application under Section 16 of theAct invoking clauses 65 and 65A of the Contract. The said applicationcame to be rejected on 04.03.2009.

20. We have scanned the contents of the said order. The Arbitratorhas proceeded to reject the application filed by the appellants underSection 16 on the basis of the order dated 12.11.2007 passed by theHigh Court. The Arbitrator further draws inspiration from the fact thatthe application seeking modification of the order dated 12.11.2007 wasdismissed on 04.12.2007. The Arbitrator further found that the agreemententered into between the parties subsequent to the order dated 12.11.2007would indicate that disputes indeed exist. What is, however, conspicuousby its absence is any finding by the Arbitrator, that the final bill dated13.02.2002 was the result of duress or any other vitiating factors.

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A21. Learned counsel for the respondent would point out that theorder dated 04.03.2009 passed by the Arbitrator under Section 16 hadattained finality as the same was not impugned under Section 37 of theAct. Section 37 of the Act reads as follows:

“37.Appealable orders.—(1) An appeal shall lie from the followingBorders (and from no others) to the Court authorised by law tohear appeals from original decrees of the Court passing the order,namely:—

(a) refusing to refer the parties to arbitration under section 8; (b) granting or refusing to grant any measure under section 9; C(c) setting aside or refusing to set aside an arbitral award undersection 34.]

(2) Appeal shall also lie to a court from an order of the arbitraltribunal—

D(a) accepting the plea referred to in sub-section (2) or sub-section(3) of section 16; or (b) granting or refusing to grant an interim measure under section17.

(3) No second appeal shall lie from an order passed in appealEunder this section, but nothing in this section shall affect ortakeaway any right to appeal to the Supreme Court.”

22. An appeal lies to the Court from an order of the Arbitral Tribunalaccepting the plea referred to in sub-sections (2) and (3) of Section 16.This means that an appeal can be preferred against the order of theFArbitral Tribunal allowing the plea that the Arbitral Tribunal does nothave jurisdiction. Similar is the case with reference to an order which isrendered appealable under Section 16(3) of the Act. Thereunder also, itis the plea that the Arbitral Tribunal is exceeding the scope of its authoritywhich is allowed which is rendered appealable. In this case, by orderGdated 04.03.2009, the Arbitral Tribunal has not allowed the plea be itunder section 16(2) or under Section 16(3). On the other hand, the Tribunalhas rejected admittedly the plea of the appellants. Therefore, no appealcould have been filed under Section 37 against the order dated 04.03.2009.An order passed by the Arbitral Tribunal rejecting the plea under Section16(2) or 16(3) being part of the Award itself, it is open to the parties toHchallenge the same when a petition is filed under Section 34 of the Act challenging the Award. This is the scheme of the Act. This is apparentlyto confine a right to appeal to those cases where accepting a plea of aparty would bring the arbitration to a halt. In fact, we notice that theorder dated 04.03.2009 has been referred to in the Award and it hasbeen treated as part of the Award.

23. It is thereafter that in a proceeding that the District Court hasallowed the petition filed under Section 34 by the appellants. We maynotice that the High Court, in the impugned order, while dealing with theplea under clauses in question has, inter alia, held as follows:

“The contract terms and conditions require submission of the finalbill within three months of physical completion of the works to thesatisfaction of the Engineer-in-Charge. There is no dispute thatthe final bill was presented within the time prescribed. Clauses 65and 65A, though set a boundary on the Contractor to submit itsbill, but does not speak of the time within which the final bill is tobe discharged by the employer. Admittedly, when the dispute wasreferred to Arbitration, the Contractor made further claims beforethe arbitrator which wereadjudicated in arbitral proceedings afterhearing the employer and the claims were by and allowed. If thefinal bill was presented on 13.02.2002, and payment of the samewas made belatedly on 25.11.2003 to the pecuniary disadvantageof the Contractor, then it would appear not the lie in the mouth ofthe Engineer-in-Charge/employer to invoke an exclusionary clauseas is found embedded in Clause 65-A.If such a clause were tooperate, then it would even take away the Arbitrator’s discretionand jurisdiction to award interest pendente lite and future interestetc. which the law permits and such a claim would also constitutea valid claim which can be awarded. In any case, such a clause Iam inclined to think would be opposed to public policy and operateunfairly, and should be understood in the light of what the SupremeCourt enunciated in Central Inland Water Transport Corporation& Anr. vs. Brojo Nath Ganguly & A1R1986 SC 1571, thusexpanding the sphere of the law of contracts and subjecting it tothe test of reasonableness or fairness of a clause in a contractwhere there is inequality of bargaining power.”

24. It is thereafter that the High Court has referred to the judgmentof this Court in Central Inland Water Transport Corporation & Anr.v. Brojo Nath Ganguly AIR 1986 SC 1571 as noticed by us.

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A25. It is no doubt true that the salutary principle which has beenenunciated by this Court in Central Inland Water TransportCorporation[4] being in accord with constitutional principles must receivedue consideration. However, it cannot be torn out of context. Moreimportantly, as we have already noticed when a contractor seeks towriggle out of a final bill or a ‘no claims due certificate’ which he hasBsubmitted, as in a civil Court so before the Arbitrator, he must establisha case that a final bill or a certificate of no further claims was the resultof any of the vitiating factors under the law. Sans such finding, the finalbill would stand. If the final bill cannot be overridden by any factorsknown to law then the clauses relied upon by the appellants in this caseCwould operate. There is no finding by the Arbitrator that the final bill andthe no claims certificate were vitiated. The clauses in the contract werebinding on the respondent. It cannot be departed from invoking theprinciple in Central Inland Water Transport Corporation[5]. It is notthe case of the contractor that when the contract was entered into, itwas in circumstances which attracted the principles laid down therein.D26. If the clauses operate, the inevitable result is the arbitratorcould not have traveled outside of the contractual prohibition and passedan award allowing claims which were submitted after the submission ofthe final bill.

E27. We cannot be entirely unmindful, however, of the fact thatafter submission of the final bill on 13.02.2002, the said bill was settledonly after long delay of over an year. While it may be true that there isno finding that the final bill was the product of any duress or coercion,the respondent did have a case that the final bill was the result of thepressure on account of non-payment of her claims and therefore, theFrespondent agreed to receive the undisputed amounts. But at the sametime, there is no finding as such.

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28. While we cannot subscribe to the reasoning adopted by theHigh Court, we cannot also lose sight of the fact that the amounts inquestion are fairly meagre and the final bill remained unpaid for longGperiod of time. It was apparently the long delay in the payment of thefinal bill amount which led to the raising of the new claims. Perhaps, ifthe final bill itself was not kept pending for such a long time, the entiredispute may not have arisen at all. We cannot lose sight of another aspectalso. This Court has, in the judgment reported in Tahera Khatoon (D)ByHLRs. v. Salambin Mohammad (1999) 2 SCC 635 laid down the guiding principles for the exercise of jurisdiction in an appeal generated underArticle 136 of the Constitution even after the grant of leave under Article136. We may notice in this regard, the following paragraphs:

19. We may in this connection also refer to Municipal Board,Pratabgarh v. Mahendra Singh Chawla [(1982) 3 SCC 331 :1983 SCC (L&S) 19] wherein it was observed that in such cases,after declaring the correct legal position, this Court might stillsay that it would not exercise discretion to decide the case onmerits and that it would decide on the basis of equitableconsiderations in the fact situation of the case and “mould thefinal order”.

20. In view of the above decisions, even though we are now dealingwith the appeal after grant of special leave, we are not bound togo into merits and even if we do so and declare the law or pointout the error — still we may not interfere if the justice of the caseon facts does not require interference or if we feel that the reliefcould be moulded in a different fashion.”

29. Having regard to all the facts and circumstances, while weare inclined to set aside the impugned order, we also feel that the interestsof justice would require that the respondent is paid a lumpsum amount infull and final satisfaction of all his claims. Accordingly, the appeals areallowed. The impugned judgment is set aside. However, we direct thatthe appellants will pay a global sum of Rs.3 lakhs (Rupees Three Lakhsonly) to the respondent which will be in full and final settlement of theclaims of the respondent. The said payment of the amount of Rs.3 lakhsshall be effected within a period of six weeks from today.

No orders as to costs.

Divya Pandey

Appeals allowed.

(Assisted by : Roopanshi Virang, LCRA)

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