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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 1659 OF 2018

(Arising out of Special Leave Petition (C) NO. 12939 OF 2015)

M/s ONGC Mangalore Petrochemicals Ltd. .... Appellant(s)

Versus

M/s ANS Constructions Ltd. & Anr. .... Respondent(s)

J U D G M E N T

R.K. Agrawal, J.

1) Leave granted.

2) This appeal is directed against the final judgment and order

dated 12.01.2015 passed by the High Court of Karnataka at

Bengaluru in C.M.P. No. 35 of 2014 whereby learned single

Judge of the High Court allowed the petition filed by the

respondent No. 1- Company for appointment of an arbitrator

for resolution of the dispute between the appellant-Company

and respondent No. 1-Company.

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3)Brief facts:

(a)Respondent No. 1-the Contractee Company was awarded

a Contract for “Site Grading, Construction of Roads, Water

Drains and Compound Wall for Aromatic Complex at

Mangalore” in Mangalore SEZ by the appellant-Contractor on

17.03.2008. The total contract value as per the Letter of

Acceptance (LOA) was Rs. 163,25,68,576/- which was

subsequently revised to Rs. 195,68,24,399.02/- vide letter

dated 20.09.2010 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 total settlement of all the claims whatsoever

against the Contract. Thereafter, on 10.10.2012, the appellant

herein-the Contractor Company made a payment of the final

bill of Rs. 20.34 crores to the Contractee Company.

(c)Subsequently, on 24.10.2012, the Contractee Company

withdrew letter dated 21.09.2012 for “No Dues/No Claim

Certificate” stating that it was a pre-requisite condition for

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release of their long due legitimate payment against the works

executed under the Contract and the same was furnished by

the Contractee Company under duress and coercion of the

appellant-Contractor.

(d)The Contractee-Company, vide letter dated 12.01.2013 to

the appellant-Contractor, submitted a claim of Rs.

96,88,48,642.00 for the losses incurred during execution of

the contract at Mangalore. On 19.06.2013, the

appellant-Contractor issued a Completion Certificate stating

that the works awarded under the Contract have been

executed and completed in all respects and no claim certificate

has also been submitted by the Contractee-Company. After

several communication in writing, the appellant-Contractor,

vide letter dated 25.07.2013, denied the claim of the

contractee-Company.

(e)Vide letter dated 14.09.2013, the contractee-Company

sent a notice to the appellant-Contractor for resolving the

dispute between the parties through Arbitration as envisaged

under Article 9.0.2.0 to the Contract and appointed Mr. K.

Mohandas, Former General Manager (Law)- SBI as its

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Arbitrator. The appellant-Contractor, vide letter dated

18.10.2013 denied the request of the contractee-Company as

not tenable in law.

(f)Being aggrieved by the decision of the

appellant-Contractor in not referring the dispute to

Arbitration, the contractee-Company preferred a C.M.P. No. 35

of 2014 before the High Court of Karnataka at Bangalore.

(g)Learned single Judge of the High Court, vide judgment

and order 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.

4)Heard Mr. P.S. Narasimha, learned senior counsel for the

appellant-Company and Mr. P. Vinay Kumar for the

Respondents.

Point for consideration:

5)The only point for consideration before this Court is

whether the respondent-Contractee Company has made out a

case for referring the dispute to Arbitration?

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Rival Submissions:

6)Learned senior counsel for the Contractor-the appellant

Company strenuously contended that the High Court erred in

holding that the contractee-Company established a case to

show that there was a genuine and serious dispute regarding

the claim and that the claim that No Dues Certificate/No

Claim Certificate was issued under duress/coercion is

erroneous and unsustainable. Learned senior counsel further

contended that there was no withholding of payment and the

extension was granted subject to the contractee-Company’s

request and the contract does not provide for escalation of

costs.

7)Learned senior counsel further contended that the delay

in payment does not arise at all because as per Clause 6.4.0.0,

there was no obligation cast upon the Contractor to pay the

RA Bills in full but it was to be done merely on the assessment

of the Engineer-in charge. The High Court erred in referring to

few letters exchanged much prior to the Final Bill. In fact, the

alleged claims were never brought up at the time of issuance

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of Final Bill or No Dues Certificate on 21.09.2012 and now at

this stage it is not open for the contractee-Company to raise

the issue of losses incurred during the execution of the

Contract.

8)Learned senior counsel finally contended that when both

the parties to a contract confirm in writing that the contract

has been fully and finally discharged by performance of all

obligations and there are no outstanding claims or disputes,

court will not refer the subsequent claim or dispute to

arbitration. There was complete accord and satisfaction of the

contract between the parties and nothing further was left to be

done by either parties. The High Court was not right in

allowing the petition filed by the contractee-Company and no

case is made out for referring the dispute to Arbitration and

also for the payment of the alleged amount to the

contractee-Company.

9)Per contra, learned counsel for the contractee-Respondent

No. 1 herein submitted that during the execution of Contract,

the contractee Company raised Running Account Bills (RA

Bills) to the Contractor-Company for the expenses incurred

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towards carrying out the construction work but the same were

cleared with inordinate delay and even the final bill to the tune

of Rs. 20.34 crores was released by the appellant- Contractor

only when the contractee Company furnished “No Dues/No

Claim Certificate” dated 21.09.2012. Upon submitting the

above Certificate, the appellant-Contractor issued a

Completion Certificate approving the work carried out by the

contractee under the Contract.

10)Learned counsel for the contractee-Company further

submitted that since the appellant-Contractor was not clearing

the legitimate and genuine dues payable under the RA Bills

and was always at the mercy of the appellant-Contractor for

the release of payment from the very beginning of the

Contract, the last payment of Rs. 20.34 crores and the release

of performance bank guarantee was deliberately withheld by

the appellant-Contractor. The work got completed on

30.06.2011 and it was only after the submission of No-Dues

Certificate on 21.09.2012, the final payment was released.

Due to non-payment of RA Bills on time, the

contractee-Company was under severe financial crunch and

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could not have refused to issue the “No Dues Certificate”

which was issued under duress and has no meaning in the

eyes of law.

11)Learned counsel further submitted that it is prima facie

evident that there is a genuine and serious dispute between

the parties which requires the appointment of an Arbitrator

under the clauses of the Contract to adjudicate upon the

claims made by the contractee and it will cause grave injustice

to the party if the claims are not adjudicated in terms of the

Contract. Learned counsel further submitted that under these

circumstances, the withdrawal of No Dues/No Claim

Certificate, which was given under duress, is not an

afterthought and in a number of decisions of this Court it has

been held that if a party who has executed the discharge

agreement or discharge voucher alleges that execution of such

document was on account of fraud/coercion/undue influence

practiced by the other party then such discharge of the

contract by such agreement would be rendered void and

cannot be acted upon.

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12)Learned counsel further submitted that the

contractee-Company could not continue with the work due to

various reasons like pooja, shifting of idols, non-availability of

free encumbrance of site, obstruction in the blasting work,

stoppage of hard rock blasting, issues with respect to work to

be given to local contractors, non-vacation of project displaced

families, permission for forest clearance, permission for

shifting of wooden logs etc. and the huge expenditure as

disclosed in the claim was incurred by the

contractee-Company due to the factors attributable to the

appellant-Contractor.

13)Learned counsel finally contended that the “No Dues

Certificate” was filed by the contractee-Company under duress

owing to their huge payment pending towards the

appellant-Contractor which was rightly withdrawn for the

losses incurred due to the appellant-Contractor. Further,

when there is an Arbitration clause in the agreement, the

contractee Company has the right to invoke the same. The

High Court was right in allowing the petition filed by the

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contractee-Company and no interference is sought for by this

Court in this regard.

Discussion:

14) The appellant Contractor-ONGC Mangalore

Petrochemicals Ltd. invited tender for “Award of Work for Site

Grading, Construction of Roads, Storm Water Drains &

Compound Wall for Aromatic Complex at Mangalore”. The bid

document was issued by M/s Toyo Engineering India Limited

(TEIL)-Respondent No. 2 herein on behalf of the OMPL (the

contractor) being their Project Management Consultant. M/s

ANS Constructions Limited-Respondent No. 1 herein

submitted its bid on 15.11.2007. Respondent No. 1 herein

was awarded the Contract vide Letter of Acceptance (LOA)

dated 17.03.2008. The total Contract Value was 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 also extended upto 30.11.2010.

15)During the subsistence of the contract, the

contractee-Company raised RA Bills for the expenses incurred

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towards carrying out the construction work. It is evident on

record that the contractee-Company made several requests to

the appellant-Contractor to clear their legitimate and genuine

dues payable under the Bills which was paid to them after

inordinate delay. It is also the claim of the

contractee-Company that the contractee was compelled to file

No Dues Certificate/No Claim Certificate dated 21.09.2012 in

order to get the release of the Final Bill under the Contract.

On 10.10.2012, the contractor-Company made the payment of

the final bill of Rs. 20.34 crores to the contractee-Company.

After the release of the Final Bill, the contractee-Company

withdrew the “No Dues/No Claim Certificate” stating that the

letter dated 21.09.2012 was pre-requisite condition for release

of their long due legitimate payment against the works

executed under the Contract and the same was furnished

under duress and coercion of the appellant-Contractor.

Further, on 12.01.2013, the contractee-Company submitted a

claim for Rs. 96,88,48,642.00 for the losses incurred during

execution of the contract at Mangalore.

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16)The appellant-Contractor, vide letter dated 25.07.2013,

rejected the claim of the contractee-Company on the ground

that the Contractee has submitted No Dues/No Claim

Certificate and withdrawal of the same on the ground that it

was obtained under duress and coercion is wrong, incorrect

and not tenable in law. Being aggrieved by the rejection of

their claim, the contractee-Company invoked the Arbitration

clause under the Contract and appointed its Arbitrator. The

appellant-Contractor, vide letter dated 18.10.2013, declined to

nominate its Arbitrator. The contractee-Company filed a Civil

Miscellaneous Petition under Section 11 of the Arbitration and

Conciliation Act, 1996 (in short ‘the Act’) for the appointment

of an Arbitrator in lieu of the nominee arbitrator of the

appellant-Contractor so that the said arbitrator along with the

nominee arbitrator already appointed by the

contractee-Company agree upon the appointment of the

third/presiding arbitrator for constitution of a three member

Arbitral Tribunal as per the agreed terms of the Contract for

adjudicating upon the dispute arising out of execution of the

Contract.

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17)Learned senior counsel for the appellant-Contractor, after

taking us through the material on record, submitted that the

contract has come to an end and the obligations therein have

been discharged and there is no point of raising a belated

claim in the form of losses incurred during the execution of

the Contract that too after submitting the Final Bills as well as

the No Dues Certificate. In support of his claim, learned

senior counsel relied upon a decision of this Court in Union of

India and Others vs. Master Construction Co. (2011) 12

SCC 349 wherein it was held as under:-

“18. In our opinion, there is no rule of the absolute kind. In

a case where the claimant contends that a discharge voucher or

no-claim certificate has been obtained by fraud, coercion,

duress or undue influence and the other side contests the

correctness thereof, the Chief Justice/his designate must look

into this aspect to find out at least, prima facie, whether or not

the dispute is bona fide and genuine. Where the dispute raised

by the claimant with regard to validity of the discharge voucher

or no-claim certificate or settlement agreement, prima facie,

appears to be lacking in credibility, there may not be a

necessity to refer the dispute for arbitration at all.

19. It cannot be overlooked that the cost of arbitration is

quite huge—most of the time, it runs into six and seven figures.

It may not be proper to burden a party, who contends that the

dispute is not arbitrable on account of discharge of contract,

with huge cost of arbitration merely because plea of fraud,

coercion, duress or undue influence has been taken by the

claimant. A bald plea of fraud, coercion, duress or undue

influence is not enough and the party who sets up such a plea

must prima facie establish the same by placing material before

the Chief Justice/his designate. If the Chief Justice/his

designate finds some merit in the allegation of fraud, coercion,

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duress or undue influence, he may decide the same or leave it

to be decided by the Arbitral Tribunal. On the other hand, if

such plea is found to be an afterthought, make-believe or

lacking in credibility, the matter must be set at rest then and

there.”

18)Further, learned senior counsel relied upon a judgment

of this Court in New India Assurance Co. Ltd. vs. Genus

Power Infrastructure Ltd. (2015) 2 SCC 424 wherein this

Court has held as under:-

7. The question that arises is whether the discharge in the

present case upon acceptance of compensation and signing of

subrogation letter was not voluntary and whether the claimant

was subjected to compulsion or coercion and as such could

validly invoke the jurisdiction under Section 11 of the Act. The

law on the point is clear from following decisions of this Court.

In National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd in paras

26 and 51 it was stated as under:

“26. When we refer to a discharge of contract by an

agreement signed by both the parties or by execution of a

full and final discharge voucher/receipt by one of the

parties, we refer to an agreement or discharge voucher which

is validly and voluntarily executed. If the party which has

executed the discharge agreement or discharge voucher,

alleges that the execution of such discharge agreement or

voucher was on account of fraud/coercion/undue influence

practised by the other party and is able to establish the

same, then obviously the discharge of the contract by such

agreement/voucher is rendered void and cannot be acted

upon. Consequently, any dispute raised by such party would

be arbitrable.

** *

51. The Chief Justice/his designate exercising

jurisdiction under Section 11 of the Act will consider

whether there was really accord and satisfaction or

discharge of contract by performance. If the answer is in the

affirmative, he will refuse to refer the dispute to arbitration.

On the other hand, if the Chief Justice/his designate comes

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to the conclusion that the full and final settlement receipt or

discharge voucher was the result of any

fraud/coercion/undue influence, he will have to hold that

there was no discharge of the contract and consequently,

refer the dispute to arbitration. Alternatively, where the Chief

Justice/his designate is satisfied prima facie that the

discharge voucher was not issued voluntarily and the

claimant was under some compulsion or coercion, and that

the matter deserved detailed consideration, he may instead

of deciding the issue himself, refer the matter to the Arbitral

Tribunal with a specific direction that the said question

should be decided in the first instance.”

8. In the decision rendered in Union of India v. Master

Construction Co this Court observed as under:

“18. In our opinion, there is no rule of the absolute kind.

In a case where the claimant contends that a discharge

voucher or no-claim certificate has been obtained by

fraud, coercion, duress or undue influence and the other

side contests the correctness thereof, the Chief

Justice/his designate must look into this aspect to find

out at least, prima facie, whether or not the dispute is

bona fide and genuine. Where the dispute raised by the

claimant with regard to validity of the discharge voucher

or no-claim certificate or settlement agreement, prima

facie, appears to be lacking in credibility, there may not

be a necessity to refer the dispute for arbitration at all.

19. It cannot be overlooked that the cost of arbitration is

quite huge—most of the time, it runs into six and seven

figures. It may not be proper to burden a party, who

contends that the dispute is not arbitrable on account of

discharge of contract, with huge cost of arbitration merely

because plea of fraud, coercion, duress or undue

influence has been taken by the claimant. A bald plea of

fraud, coercion, duress or undue influence is not enough

and the party who sets up such a plea must prima facie

establish the same by placing material before the Chief

Justice/his designate. If the Chief Justice/his designate

finds some merit in the allegation of fraud, coercion,

duress or undue influence, he may decide the same or

leave it to be decided by the Arbitral Tribunal. On the

other hand, if such plea is found to be an afterthought,

make-believe or lacking in credibility, the matter must be

set at rest then and there.

** *

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22. The above certificates leave no manner of doubt that

upon receipt of the payment, there has been full and final

settlement of the contractor’s claim under the contract.

That the payment of final bill was made to the contractor

on 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 authority concerned,

thereafter, released the bank guarantee in the sum of Rs

21,00,000 on 12-7-2000. It was then that on that day

itself, the contractor lodged further claims.”

9. It is therefore clear that a bald plea of fraud, coercion,

duress or undue influence is not enough and the party who

sets up a plea, must prima facie establish the same by

placing material before the Chief Justice/his designate.

Viewed thus, the relevant averments in the petition filed by

the respondent need to be considered, which were to the

following effect:

“(g) That the said surveyor, in connivance with the

respondent Company, in order to make the respondent

Company escape its full liability of compensating the

petitioner of such huge loss, acted in a biased manner,

adopted coercion, undue influence and duress methods

of assessing the loss and forced the petitioner to sign

certain documents including the claim form. The

respondent Company also denied the just claim of the

petitioner by their acts of omission and commission and

by exercising coercion and undue influence and made

the petitioner Company sign certain documents,

including a pre-prepared discharge voucher for the said

amount in advance, which the petitioner Company were

forced to do so in the period of extreme financial

difficulty which prevailed during the said period. As

stated aforesaid, the petitioner Company was forced to

sign several documents including a letter accepting the

loss amounting to Rs 6,09,55,406 and settle the claim of

Rs 5,96,08,179 as against the actual loss amount of Rs

28,79,08,116 against the interest of the petitioner

Company. The said letter and the aforesaid pre-prepared

discharge voucher stated that the petitioner had

accepted the claim amount in full and final settlement

and thus, forced the petitioner Company to unilateral

acceptance of the same. The petitioner Company was

forced to sign the said document under duress and

coercion by the respondent Company. The respondent

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Company further threatened the petitioner Company to

accept the said amount in full and final or the

respondent Company will not pay any amount towards

the fire policy. It was under such compelling

circumstances that the petitioner Company was forced

and under duress was made to sign the acceptance

letter.”

10. In our considered view, the plea raised by the

respondent is bereft of any details and particulars, and cannot

be anything but a bald assertion. Given the fact that there was

no protest or demur raised around the time or soon after the

letter of subrogation was signed, that the notice dated

31-3-2011 itself was nearly after three weeks and that the

financial condition of the respondent was not so precarious that

it was left with no alternative but to accept the terms as

suggested, we are of the firm view that the discharge in the

present case and signing of letter of subrogation were not

because of exercise of any undue influence. Such discharge and

signing of letter of subrogation was voluntary and free from any

coercion or undue influence. In the circumstances, we hold that

upon execution of the letter of subrogation, there was full and

final settlement of the claim. Since our answer to the question,

whether there was really accord and satisfaction, is in the

affirmative, in our view no arbitrable dispute existed so as to

exercise power under Section 11 of the Act. The High Court was

not therefore justified in exercising power under Section 11 of

the Act.”

19)When we refer to discharge of a contract by an agreement

signed by both the parties or by execution of a full and final

discharge voucher/receipt by one of the parties, we refer to an

agreement or discharge voucher which is validly and

voluntarily executed. If the party which has executed the

discharge agreement or discharge voucher, alleges that the

execution of such discharge agreement or voucher was on

account of fraud/coercion/undue influence practised by the

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other party and is able to establish the same, then obviously

the discharge of the contract by such agreement/voucher is

rendered void and cannot be acted upon. Consequently, any

dispute raised by such party would be arbitrable. But in case

the party is not able to establish such a claim or appears to be

lacking in credibility, then it is not open to the courts to refer

the dispute to arbitration at all.

20)In support of the claim of duress and coercion while

issuing the said Certificate, learned counsel for the

contractee-Company has taken us through a decision of this

Court in National Insurance Company Limited vs. Boghara

Polyfab Private Limited (2009) 1 SCC 267 wherein it was

held as under:-

“24. What is however clear is when a respondent contends

that the dispute is not arbitrable on account of discharge of the

contract under a settlement agreement or discharge voucher or

no-claim certificate, and the claimant contends that it was

obtained by fraud, coercion or undue influence, the issue will

have to be decided either by the Chief Justice/his designate in

the proceedings under Section 11 of the Act or by the Arbitral

Tribunal as directed by the order under Section 11 of the Act. A

claim for arbitration cannot be rejected merely or solely on the

ground that a settlement agreement or discharge voucher had

been executed by the claimant, if its validity is disputed by the

claimant.

50. Let us consider what a civil court would have done in a

case where the defendant puts forth the defence of accord and

satisfaction on the basis of a full and final discharge voucher

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issued by the plaintiff, and the plaintiff alleges that it was

obtained by fraud/coercion/undue influence and therefore not

valid. It would consider the evidence as to whether there was

any fraud, coercion or undue influence. If it found that there

was none, it will accept the voucher as being in discharge of the

contract and reject the claim without examining the claim on

merits. On the other hand, if it found that the discharge

voucher had been obtained by fraud/undue influence/coercion,

it will ignore the same, examine whether the plaintiff had made

out the claim on merits and decide the matter accordingly. The

position will be the same even when there is a provision for

arbitration.

51. The Chief Justice/his designate exercising jurisdiction

under Section 11 of the Act will consider whether there was

really accord and satisfaction or discharge of contract by

performance. If the answer is in the affirmative, he will refuse to

refer the dispute to arbitration. On the other hand, if the Chief

Justice/his designate comes to the conclusion that the full and

final settlement receipt or discharge voucher was the result of

any fraud/coercion/undue influence, he will have to hold that

there was no discharge of the contract and consequently, refer

the dispute to arbitration. Alternatively, where the Chief

Justice/his designate is satisfied prima facie that the discharge

voucher was not issued voluntarily and the claimant was under

some compulsion or coercion, and that the matter deserved

detailed consideration, he may instead of deciding the issue

himself, refer the matter to the Arbitral Tribunal with a specific

direction that the said question should be decided in the first

instance.

52. Some illustrations (not exhaustive) as to when claims are

arbitrable and when they are not, when discharge of contract by

accord and satisfaction are disputed, to round up the

discussion on this subject are:

(i) A claim is referred to a conciliation or a pre-litigation

Lok Adalat. The parties negotiate and arrive at a settlement.

The terms of settlement are drawn up and signed by both

the parties and attested by the conciliator or the members of

the Lok Adalat. After settlement by way of accord and

satisfaction, there can be no reference to arbitration.

(ii) A claimant makes several claims. The admitted or

undisputed claims are paid. Thereafter negotiations are held

for settlement of the disputed claims resulting in an

agreement in writing settling all the pending claims and

disputes. On such settlement, the amount agreed is paid

and the contractor also issues a discharge voucher/no-claim

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certificate/full and final receipt. After the contract is

discharged by such accord and satisfaction, neither the

contract nor any dispute survives for consideration. There

cannot be any reference of any dispute to arbitration

thereafter.

(iii) A contractor executes the work and claims payment of

say rupees ten lakhs as due in terms of the contract. The

employer admits the claim only for rupees six lakhs and

informs the contractor either in writing or orally that unless

the contractor gives a discharge voucher in the prescribed

format acknowledging receipt of rupees six lakhs in full and

final satisfaction of the contract, payment of the admitted

amount will not be released. The contractor who is

hard-pressed for funds and keen to get the admitted amount

released, signs on the dotted line either in a printed form or

otherwise, stating that the amount is received in full and

final settlement. In such a case, the discharge is under

economic duress on account of coercion employed by the

employer. Obviously, the discharge voucher cannot be

considered to be voluntary or as having resulted in discharge

of the contract by accord and satisfaction. It will not be a bar

to arbitration.

(iv) An insured makes a claim for loss suffered. The claim

is neither admitted nor rejected. But the insured is informed

during discussions that unless the claimant gives a full and

final voucher for a specified amount (far lesser than the

amount claimed by the insured), the entire claim will be

rejected. Being in financial difficulties, the claimant agrees to

the demand and issues an undated discharge voucher in full

and final settlement. Only a few days thereafter, the

admitted amount mentioned in the voucher is paid. The

accord and satisfaction in such a case is not voluntary but

under duress, compulsion and coercion. The coercion is

subtle, but very much real. The “accord” is not by free

consent. The arbitration agreement can thus be invoked to

refer the disputes to arbitration.

(v) A claimant makes a claim for a huge sum, by way of

damages. The respondent disputes the claim. The claimant

who is keen to have a settlement and avoid litigation,

voluntarily reduces the claim and requests for settlement.

The respondent agrees and settles the claim and obtains a

full and final discharge voucher. Here even if the claimant

might have agreed for settlement due to financial

compulsions and commercial pressure or economic duress,

the decision was his free choice. There was no threat,

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coercion or compulsion by the respondent. Therefore, the

accord and satisfaction is binding and valid and there

cannot be any subsequent claim or reference to arbitration.”

21)Learned counsel further relied upon a decision of this

Court in R.L. Kalathia & Co. vs. State of Gujarat (2011) 2

SCC 400 wherein it was held as under:-

“10. Before going into the factual matrix on this aspect, it is

useful to refer the decisions of this Court relied on by Mr Altaf

Ahmed. In NTPC Ltd. v. Reshmi Constructions, Builders &

Contractors

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which relates to termination of a contract, one of

the questions that arose for consideration was:

“(i) Whether after the contract comes to an end by

completion of the contract work and acceptance of the final

bill in full and final satisfaction and after issuing a

‘no-demand certificate’ by the contractor, can any party to

the contract raise any dispute for reference to arbitration?”

While answering the said issue this Court held:

“27. Even when rights and obligations of the parties are

worked out, the contract does not come to an end inter alia

for the purpose of determination of the disputes arising

thereunder, and, thus, the arbitration agreement can be

invoked. Although it may not be strictly in place but we

cannot shut our eyes to the ground reality that in a case

where a contractor has made huge investment, he cannot

afford not to take from the employer the amount under the

bills, for various reasons which may include discharge of his

liability towards the banks, financial institutions and other

persons. In such a situation, the public sector undertakings

would have an upper hand. They would not ordinarily

release the money unless a ‘no-demand certificate’ is signed.

Each case, therefore, is required to be considered on its own

facts.

28. Further, necessitas non habet legem is an age-old

maxim which means necessity knows no law. A person may

sometimes have to succumb to the pressure of the other

party to the bargain who is in a stronger position.”

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22)In the case at hand, the High Court allowed the appeal

filed by the contractee on the assertion that the No Dues

Certificate was given on account of coercion/undue influence

practiced by the appellant-Contractor. The contractee, while

basing its claim, relied upon the letters issued to the

appellant-Contractor for releasing the payment of RA Bills.

Whether there has been duress and coercion exerted against

the contractee-Company by the appellant-Contractor has to be

examined keeping in mind the background in which the said

letters have been exchanged between the parties. Learned

counsel for the contractee-Company categorically submitted

the relevant dates for our perusal to show that RA Bills were

raised on various dates for making payments to suppliers and

others but were advertently delayed causing grave financial

crisis to the contractee-Company to carry out the works and

losses on account of delay in settling the claims of the

contractee-Company periodically. However, it is contended

from the side of the appellant-Contractor that the High Court

was not right in considering it a genuine and serious dispute

regarding the claim made and the conduct of the parties as

23

reflected in the correspondence exchanged between the parties

disclosing that the contractee-Company encountered several

financial constraints.

23) Pursuant to taking a false claim of duress and coercion

while filing the No Dues Certificate, the contractee-Company,

vide letter dated 12.01.2013 to the appellant-Contractor,

submitted a claim for Rs. 96,88,48,642.00 for the losses

incurred during execution of the contract at Mangalore. It has

been claimed that the contractee-Company could not continue

with the work due to various reasons like pooja, shifting of

Idols, non-availability of free encumbrance of site, obstruction

in the blasting work, stoppage of hard rock blasting, issues

with respect to work to be given to local contractors,

non-vacation of project displaced families, permission for

forest clearance, permission for shifting of wooden logs etc.

and the huge expenditure as disclosed in the claim was

incurred by the contractee-Company due to the factors

attributable to the appellant-Contractor. Clause 6.6.0 of the

General Conditions of Contract deals with “Claims by the

Contractor” (contractee in the case at hand). Clause 6.6.1.0.

24

of the Contract states that in case of a claim of extra

compensation or remuneration, the Contractee shall give

notice in writing of its claim within 10 days from the date of

issue of orders or instructions related to any works for which

the Contractee claims such additional payment. The notice

shall give full particulars of the nature of such claim, grounds

on which it is based and the amount claimed. Unless and

until notice is given, the Contractor shall not be liable to pay

extra compensation to the Contractee. Clause 6.6.3.0 states

that any claim of the Contractee in accordance with Clause

6.6.1.0 shall be separately included in the Final Bill prepared

by it in the form of Statement of Claims, giving particulars of

the nature of claims, ground on which it is based and the

amount claimed and shall be supported by a copy of the notice

and the Contractor shall not be liable in respect of any notified

claim not specifically reflected in the Final Bill in accordance

with the provisions of Clause 6.6.3.0 which shall be deemed to

have been waived by the Contractee.

24)From the materials on record, we find that the

contractee-Company had issued the “No Dues/No Claim

25

Certificate” on 21.09.2012, it had received the full amount of

the final bill being Rs. 20.34 crores on 10.10.2012 and after

12 days thereafter, i.e., only on 24.10.2012, the

contractee-Company withdrew letter dated 21.09.2012 issuing

“No Dues/No Claim Certificate”. Apart from it, we also find

that the Final Bill has been mutually signed by both the

parties to the Contract accepting the quantum of work done,

conducting final measurements as per the Contract, arriving

at final value of work, the payments made and the final

payment that was required to be made. The

contractee-Company accepted the final payment in full and

final satisfaction of all its claims. We are of the considered

opinion that in the presents facts and circumstances, the

raising of the Final Bill and mutual agreement of the parties in

that regard, all claims, rights and obligation of the parties

merge with the Final Bill and nothing further remains to be

done. Further, the appellant-Contractor issued the Completion

Certificate dated 19.06.2013 pursuant to which the

appellant-Contractor has been discharged of all the liabilities.

With regard to the issue that the “No-Dues Certificate” had

26

been given under duress and coercion, we are of the opinion

that there is nothing on record to prove that the said

Certificate had been given under duress or coercion and as the

Certificate itself provided a clearance of no dues, the

contractee could not now turn around and say that any

further payment was still due on account of the losses

incurred during the execution of the Contract. The story

about duress was an afterthought in the background that the

losses incurred during the execution of the Contract were not

visualised earlier by the contractee. As to financial duress or

coercion, nothing of this kind is established prima facie. Mere

allegation that no-claim certificates have been obtained under

financial duress and coercion, without there being anything

more to suggest that, does not lead to an arbitrable dispute.

The conduct of the contractee clearly shows that “no-claim

certificate” was given by it voluntarily; the contractee accepted

the amount voluntarily and the contract was discharged

voluntarily.

Conclusion:

27

25)Admittedly, No-Dues Certificate was submitted by the

contractee-Company on 21.09.2012 and on their request

Completion 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 coercion and duress and the claim for losses

incurred during execution of the 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 Bill was settled on 10.10.2012.

When the contractee accepted the final payment in full and

final satisfaction of all its claims, there is no point in raising

the claim for losses incurred during the execution of the

Contract at a belated stage which creates an iota of doubt as

to why such claim was not settled at the time of submitting

Final Bills that too in the absence of exercising duress or

coercion on the Contractee by the appellant-Contractor. In

our considered view, the plea raised by the

contractee-Company is bereft of any details and particulars,

and cannot be anything but a bald assertion. In the

circumstances, there was full and final settlement of the claim

28

and there was really accord and satisfaction and in our view

no arbitrable dispute existed so as to exercise power under

Section 11 of the Act. The High Court was not, therefore,

justified in exercising power under Section 11 of the Act.

26)In view of the foregoing discussion, we set aside the

judgment and order dated 12.01.2015 passed by the High

Court. The appeal is allowed.

...…………….………………………J.

(R.K. AGRAWAL)

.…....…………………………………J.

(AMITAVA ROY)

NEW DELHI;

FEBRUARY 7, 2018.