1

‘REPORTABLE’

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 3441 -3442 OF 2015

UNION OF INDIA & ORS. Appellant(s)

VERSUS

M/S. BHARAT ENTERPRISE Respondent(s)

J U D G M E N T

K. M. JOSEPH, J.

1) A contract was entered into between the parties

for the repair of bathrooms and other allied works

on 02.07.2001. It would appear that time was extended

up to 19.01.2002. The respondent -Contractor

submitted final bill on 13.02.2002. It contained a

No Claims Certificate. The said amount claimed by

the respondent apparently was not paid immediately.

The respondent it would appear made several reminders

regarding the non -payment of the final bill for a

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period of one year. Following many reminders by the

respondent regarding the non payment of the final

bill, according to the respondent, it sent a list of

additional claims on 25.02.2003 and in the said

letter, claimed that the letter and the Final bill

should be considered as under protest. The

respondent signed affidavit dated 24.05.2003 which

according to the respondent was prepared by the

appellant and which provided for the withdrawal of

the letter dated 25.02.2003. An undertaking was also

got signed from the responden t on 12.09.2003.

Thereafter, respondent on 14.11.2003 revoked the

affidavit and undertaking on account of non payment

of the bill and purported to give the final notice

invoking the arbitration clause contained in the

contract for the non payment of claim s due. It is,

thereafter, on 25.11.2003, that the appellant made

payment of Rs.100358/ -. This was followed by letter

dated 08.09.2004 by which the respondent sought to

invoke the arbitration clause and appointment of

arbitrator. Later, on 12.11.2007, a p etition was

moved under Section 11(6) of the Arbitration and

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Conciliation Act, 1996 (hereinafter referred to as

‘Act’ for brevity) for appointment of an arbitrator.

The same was allowed. A fresh agreement for

arbitration was entered into on 22.11.2007 pr oviding

for appointment of a new Arbitrator. Suffice it to

notice that a former District and Sessions Judge came

to be appointed as sole arbitrator. The appellant

filed an application under Section 16 for dismissal

of the claims. The appellant invoked c lauses 65 and

65A of the contract. This application, no doubt, was

rejected on 04.03.2009 by the Arbitrator.

Thereafter, the Arbitrator entered upon the merits

of the matter and passed Award dated 16.07.2009.

There were a total of 10 claims. The Arbitr ator

disallowed seven out of the ten claims while it

allowed three claims. The claims were allowed with

rate of interest which we need not notice at this

stage. The petition filed by the appellant under

Section 34 of the Act came to be allowed by the

District Judge. It is this order passed by the

District Judge under Section 34 which stands

overturned by the impugned order in an appeal under

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Section 37 of the Act.

2) We have heard Col. R. Balasubramanium, learned

senior counsel for the appellants, and Ms. P raveena

Gautam, learned counsel for the respondent.

3) The only controversy which we are called upon to

resolve is whether the impugned order is sustainable

having regard to clauses 65 and 65A of the Contract.

4) The contention of the learned senior counsel fo r the

appellants is that the impugned order is in the teeth

of law laid down by this Court in Bharat Coking Coal

Ltd. vs. Annapurna Construction (2003) 8 SCC 154.

He also points out that the said view has been

followed in PSA SI CAL Terminate (P) Ltd. v. Board

of Trustees of V.O. Chidambranar Port Trust

Tuticorin 2021 SCC Online SC 508. In a nutshell,

the argument is as follows:

5) He contends that the Arbitrator cannot travel

outside the boundaries of the contact. In fact, he

is fully bound by the terms of the contract. In the

terms of the contract which are apposite in the

context of the dispute before us, there is a

prohibition against the Contractor supplementing the

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claims in the final bill by including claims which

are not found in the final bill. In the facts of

this case, he would submit that this is precisely

what has happened by pointing out the final bill

which was submi tted on 13.02.2002 and the claims

allowed are later raised. He would submit that the

High Court was clearly in error in tiding over this

insuperable barrier in law and granting relief. The

reasoning which has weighed with the High court is

sought to be b rought under a cloud as being

unsustainable in the teeth of the judgments rendered

by this Court referred to hereinbefore.

6) Per contra, Ms. Praveena Gautam, learned counsel for

the respondent, lays store by the law laid down by

this Court in Union of India and Others v. Master

Construction Company (2011) 12 SCC 349 and the

judgment in Union of India v. Parmar Construction

Company (2019) 15 SCC 682. She would point out that

there was a long delay in signing the final bill and

the Arbitrator has only awarded the amounts which

were found due. It is further contended that an

attempt made under Section 16(2) of the Act to shake

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the premise of the Arbitrator’s jurisdiction failed.

It is pointed out that the said decision has not

been challenged under Section 37 o f the Act. It is

also pointed out that in the facts of this case, at

any rate, the Court may not exercise its jurisdiction

based on an appeal generated by the State filed under

Article 136 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 LumpSum Contracts). - The Final Bills

shall be submitted by the Contractor on

I.A.F.W.-2262 in duplicate within three

months of physical completion 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 prescribed by the

G.E.

No further claims shall be made by

Contractor after submission of the Final

Bill and these shall be deemed to have been

waived and extinguished.

The Contractor shall be entitled to be

paid the final sum less the value of

payments already made on account, subject

to the certification of the final bill by

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the G.E.

No charges shall be allowed to the

Contractor on account of the preparation of

the final bill.”

CONDITION NO.”65-A.

Final Bill (Applicable only to Term

Contracts). - The Final Bill shall be

submitted by the Contractor on I.A.F.W.2262

in duplicate, accompanied by all supporting

abstracts, vouchers, etc., except I.A.F.W. -

2158 and 1833 pr epared in the manner

prescribed by the G.E. within three months

of physical completion of the Works to the

satisfaction of the Engineer -in-Charge. In

respect of works orders arising out of unit

requisitions or M.E.S. inspections for

maintenance and repairs, any portion of such

an order which remains uncompleted at the

date of the next subsequent requisition or

inspection may, purely to facilitate payment

of completed Work and without prejudice to

any other right or remedy of Government in

respect of any su ch delay, be deleted and

the Works Order, as so amended forthwith,

billed for final payment.

No further claims shall be made by the

Contractor after submission of a Final Bill

and these shall be deemed to have been

waived and extinguished. The Contract or

shall be entitled to be paid the full

measured value of the Works Order, less the

value of payments made on account and of any

charges properly preferred under the

Conditions of Contracts for Government

Stores, etc. supplied on repayment, subject

to the certification of the final bill by

the G.E.

When fractions of a rupee occur in the

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totals of bills, fractions less than half a

rupee shall be disregarded and half a rupee

and over taken as a rupee.

No charges shall be allowed to the

Contractor on account of the preparation of

a final bill.”

8) The Arbitrator comes on the scene as a result of the

agreement between the parties. Not unnaturally, the

fundamental and primary foundation for the

Arbitrator to settle the dispute is the contrac t

between the parties. An Arbitrator is a creature,

in other words, of the parties and the contract. It

is elementary that as Arbitrator he cannot stray

outside the contours of the contract. He is bound

to act within its confines. A disregard of the

specific provisions of the contract would incur the

wrath of the Award being imperiled. This position

cannot be in the region of dispute.

9) There is another scenario. This relates to a claim

that there is accord and satisfaction. On the one

hand, it is sought to be rebuffed by the case of the

contractor that the accord and satisfaction was

brought about by vitiating factors which are

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contemplated essentially in sections 15 to 18 of the

Indian Contract Act, 1872. In other words, where

the case of the contr actor that a No Claim

Certificate is given under duress or coercion, this

may be the subject matter of inquiry by the

Arbitrator. It may be open to the Arbitrator to

find merit in the complaint of the contractor and to

reject the case of accord and satisf action and to

proceed to examine the merits of the claim of the

contractor and to award compensation in accordance

with law in a given case. These distinct streams of

cases and therefore differences in the judicial

approach is what essentially arise for o ur

consideration.

10) In Bharat Coking Coal Ltd. v. Annapurna Construction

(2003) 8 SCC 154, this Court considered inter alia

the effect of an Arbitrator failing to consider the

relevant clauses of the contract. It is on the said

premise that the Court procee ded to hold inter alia

as follows:

“Findings

9. Only because the respondent has accepted

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the final bill, the same would not mean that

it was not entitled to raise any claim. It

is not the case of the appellant that while

accepting the final bill, the resp ondent had

unequivocally stated that he would not raise

any further claim. In absence of such a

declaration, the respondent cannot be held

to be estopped or precluded from raising any

claim. We, therefore, do not find any merit

in the said submission of Mr Sinha.

40. However, as noticed hereinbefore, this

case stands on a different footing, namely,

that the arbitrator while passing the award

in relation to some items failed and/or

neglected to take into consideration the

relevant clauses of the contract, nor did he

take into consideration the relevant

materials for the purpose of arriving at a

correct fact. Such an order would amount to

misdirection in law.”

In the same vein is the judgment of this Court

reported in PSA SICAL Terminate (P) Ltd.

1

11) On the other hand, is the decision reported in Master

Construction Company

2

.

12) We must notice the following facts:

Firstly, the case arose under Section 11 of the

Act.

1 PSA SI CAL Terminate (P) Ltd. v. Board of Trustees of V.O. Chidambranar

Port Trust Tuticorin 2021 SCC Online SC 508

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

349

CA Nos. 3441-3442/ 2015

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Upon completion of the work in question, the

completion certificate was issued and this was

followed by the contractor furnishing a No Claim

Certificate. The final bill was signed.

Thereafter, the payment of the final bill was made

within a period of little over a month. Thereafter,

it would appear that the contractor wrote to the

appellant withdrawing the No Claim Certificate.

The employer (the appellant) declined to entertain

the claims on the ground that the final bill was

accepted by the contractor af ter furnishing the No

Claim Certificate. It was in the context of the

said facts that this Court after an exhaustive

review of earlier case law which we must notice

included the judgment of this Court reported in

National Insurance Company Limited v. Boghara

Polyfab Private Limited (2009) 1 SCC 267 went on

to hold as follows:

“23. The present, in our opinion, appears

to be a case falling in the category of

exception noted in Boghara Polyfab (P)

Ltd. [(2009) 1 SCC 267 : (2009) 1 SCC

(Civ) 177] (p. 284, par a 25). As to

financial duress or coercion, nothing of

this kind is established prima facie.

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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 contractor

clearly shows that “no -claim

certificates” were given by it

voluntarily; the contractor accepted the

amount voluntarily and the contract was

discharged voluntarily.”

13) In National Insurance Company Li mited

3

this Court

inter alia held as follows:

“The questions for consideration

15. In this case existence of an arbitration

clause in the contract of insurance is not in

dispute. It provides that “if any dispute or

difference shall arise as to the quantu m to be

paid under this policy (liability being

otherwise admitted) such difference shall,

independently to all other questions be referred

to the decision of a sole arbitrator”. The rival

contentions give rise to the following question

for our consideration:

In what circumstances, a court will refuse to

refer a dispute relating to quantum to

arbitration, when the contract specifically

provides for reference of disputes and

differences relating to the quantum to

arbitration? In particular, what is the posit ion

when a respondent in an application under

Section 11 of the Act, resists reference to

arbitration on the ground that the petitioner

has issued a full and final settlement discharge

voucher and the petitioner contends that he was

constrained to issue it due to coercion, undue

3 National Insurance Company Limited v. Boghara Polyfab Private Limited

(2009) 1 SCC 267

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influence and economic compulsion?

17. The decision in Kishorilal Gupta [AIR 1959

SC 1362 : (1960) 1 SCR 493] was followed and

reiterated in several decisions including

Naihati Jute Mills Ltd. v. Khyaliram Jagannath

[AIR 1968 SC 522] , Damodar Valley Corpn. v.

K.K. Kar [(1974) 1 SCC 141] and Indian Drugs &

Pharmaceuticals Ltd. v. Indo Swiss Synthetics

Gem Mfg. Co. Ltd. [(1996) 1 SCC 54] In Damodar

Valley Corpn. [(1974) 1 SCC 141] this Court

observed : (SCC p. 145, para 7)

“7. … A contract is the creature of an agreement

between the parties and where the parties under

the terms of the contract agree to incorporate

an arbitration clause, that clause stands apart

from the rights and obligations under that

contract, as it has been incorporated with the

object of providing a machinery for the

settlement of disputes arising in relation to or

in connection with that contract. The questions

of unilateral repudiation of the rights and

obligations under the contract or of a full and

final settlement of the contract relate to the

performance or discharge of the contract. Far

from putting an end to the arb itration clause,

they fall within the purview of it. A repudiation

by one party alone does not terminate the

contract. It takes two to end it, and hence it

follows that as the contract subsists for the

determination of the rights and obligations of

the parties, the arbitration clause also

survives. This is not a case where the plea is

that the contract is void, illegal or

fraudulent, etc. in which case, the entire

contract along with the arbitration clause is

non est, or voidable. As the contract is an

outcome of the agreement between the parties it

is equally open to the parties thereto to agree

to bring it to an end or to treat it as if it

never existed. It may also be open to the parties

to terminate the previous contract and

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substitute in its place a new contract or alter

the original contract in such a way that it

cannot subsist. In all these cases, since the

entire contract is put an end to, the arbitration

clause, which is a part of it, also perishes

along with it.”

18. Section 16 of the Act bestows u pon the

Arbitral Tribunal, the competence to rule on its

own jurisdiction. Sub-section (1) of the section

reads thus:

“16. Competence of Arbitral Tribunal to rule on

its jurisdiction.—(1) The Arbitral Tribunal may

rule on its own jurisdiction, including ru ling

on any objections with respect to the existence

or validity of the arbitration agreement, and

for that purpose,—

(a) an arbitration clause which forms part of a

contract shall be treated as an agreement

independent of the other terms of the contract;

and

(b) a decision by the Arbitral Tribunal that the

contract is null and void shall not entail ipso

jure the invalidity of the arbitration clause.”

22. Where the intervention of the court is sought

for appointment of an Arbitral Tribunal under

Section 11, the duty of the Chief Justice or his

designate is defined in SBP & Co. [(2005) 8 SCC

618] This Court identified and segregated the

preliminary issues that may arise for

consideration in an application under Section 11

of the Act into three categories, th at is, (i)

issues which the Chief Justice or his designate

is bound to decide; ( ii) issues which he can

also decide, that is, issues which he may choose

to decide; and (iii) issues which should be left

to the Arbitral Tribunal to decide.

22.1. The issues (first category) which the

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Chief Justice/his designate will have to decide

are:

(a) Whether the party making the application has

approached the appropriate High Court.

(b) Whether there is an arbitration agreement

and whether the party who has applied unde r

Section 11 of the Act, is a party to such an

agreement.

22.2. The issues (second category) which the

Chief Justice/his designate may choose to decide

(or leave them to the decision of the Arbitral

Tribunal) are:

(a) Whether the claim is a dead (long -barred)

claim or a live claim.

(b) Whether the parties have concluded the

contract/transaction by recording satisfaction

of their mutual rights and obligation or by

receiving the final payment without objection.

22.3. The issues (third category) which the

Chief Justice/his designate should leave

exclusively to the Arbitral Tribunal are:

(i) Whether a claim made falls within the

arbitration clause (as for example, a matter

which is reserved for final decision of a

departmental authority and excepted or exclude d

from arbitration).

(ii) Merits or any claim involved in the

arbitration.”

14) We may notice that this is a judgment which was rendered

in the regime which was put in place by the larger

Bench decision of this Court reported in SBP & Co. v.

Patel Engineering Ltd. and Another (2005) 8 SCC 618.

CA Nos. 3441-3442/ 2015

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In fact, it is also a case arising under Section 11 of

the Act. The Court went on to deal with the question

of non-arbitrability of disputes. It categorises the

cases broadly into three categories, as can be seen

from paragraphs 22.1 to 22.3. We must notice that

following the insertion of Section 11(6A) by the

Arbitration and Conciliation (Amendment) Act, 2016,

with effect from 2015, there has been a change in law

but we need not be detained by the sai d aspect as that

may not be fully apposite for the purposes of the case.

We may notice the following statements as well in

National Insurance (supra):

49. Obtaining of undated receipts -in-advance

in regard to regular/routine payments by

government departments and corporate sector

is an accepted practice which has come to

stay due to administrative exigencies and

accounting necessities. The reason for

insisting upon undated voucher/receipt is

that as on the date of execution of such

voucher/receipt, payment is not made. The

payment is made only on a future date long

after obtaining the receipt. If the date of

execution of the receipt is mentioned in the

receipt and the payment is released long

thereafter, the receipt acknowledging the

amount as having been received on a much

earlier date will be absurd and meaningless.

Therefore, undated receipts are taken so that

it can be used in respect of subsequent

payments by incorporating the appropriate

CA Nos. 3441-3442/ 2015

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date. But many a time, matters are dealt with

so casually that the date is not filled even

when payment is made. Be that as it may. But

what is of some concern is the routine

insistence by some government departments,

statutory corporations and government

companies for issue of undated “no -dues

certificates” or “full and final settlements

vouchers” acknowledging receipt of a sum

which is smaller than the claim in full and

final settlement of all claims, as a

condition precedent for releasing even the

admitted dues. Such a procedure requiring the

claimant to issue an undated receipt

(acknowledging receipt of a sum smaller than

his claim) in full and final settlement, as

a condition for releasing an admitted lesser

amount, is unfair, irregular and illegal and

requires to be deprecated.

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 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 s ame, 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. ”

CA Nos. 3441-3442/ 2015

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15) Before we proceed to finally rule on the issues

which have been raised, we must notice the rationale

of the High Court in the impugned judgment. We deem

it appropriate to set down the following reasoning

in this regard. After referring to the clauses whi ch

we have already extracted viz., clauses 65 and 65A,

we find the following:

“The contract terms and conditions require

submission of the final bill within three

months of physical completion of the works to

the satisfaction of the Engineer -in-Charge.

There is no dispute that the final bill was

presented within the time prescribed. Clauses

65 and 65-A, though set a boundary on the

Contractor to submit its bill, but does not

speak of the time within which the final bill

is to be discharged by the employer.

Admittedly, when the dispute was referred to

Arbitration, the Contractor made further

claims before the arbitrator which were

adjudicated in arbitral proceedings after

hearing the employer and the claims were by

and large allowed. If the final bill was

presented on 13.2.2002, and payment of the same

was made belatedly on 25.11.2003 to the

pecuniary disadvantage of the Contractor, then

it would appear not to lie in the mouth of the

Engineer-in-Charge/employer to invoke an

exclusionary clause as is found emb edded in

Clause 65-A. If such a clause were to operate,

then it would even take away the Arbitrator's

discretion and jurisdiction to award interest

CA Nos. 3441-3442/ 2015

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pendente lite and future interest etc. which

the law permits and such a claim would also

constitute a valid claim which can be awarded.

In any case, such a clause I am inclined to

think would be opposed to public policy and

operate unfairly, and should be understood in

the light of what the Supreme Court enunciated

in Central Inland Water Transport Corporation

& Anr. vs. Brojo Nath Ganguly, AIR 1986 SC

1571, thus expanding the sphere of the law of

contracts and subjecting it to the test of

reasonableness or fairness of a clause in a

contract where there is inequality of

bargaining power. Extracts from the judgmen t

can be profitably quoted: -

"Article 14 of the Constitution

guarantees to all persons equality

before the law and the equal protection

of the laws. This principle is that the

Courts will not enforce and will, when

called upon to do so, strike down an

unfair and unreasonable contract, or an

unfair and unreasonable clause in a

contract entered into between parties

who are not equal in bargaining power.

The above principle will apply where the

inequality of bargaining power is the

result of the great dispari ty in the

economic strength of the contracting

parties. It will apply where the

inequality is the result of

circumstances, whether of the creating

of the parties or not. It will apply to

situations in which the weaker party is

in a position in which he can obtain

goods or services or means of livelihood

only upon the terms imposed by the

CA Nos. 3441-3442/ 2015

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stronger party or go without them. It

will also apply where a man has no

choice, or rather no meaningful choice,

but to give his assent to a contract or

to sign on the dott ed line in a

prescribed or standard form or to accept

a set of rules as part of the contract,

however, unfair unreasonable or

unconsionable a clause in that contract

or form or rules may be. This principle

will not apply when the bargaining power

of the contracting parties is equal or

almost equal. mis principle may not

apply where both parties are businessmen

and the contract is a commercial

transaction. In today's complex world of

giant corporations with their vast

infrastructural organisations and with

the State through its instrumentalities

and agencies entering into almost every

branch of industry and commerce, there

can be myriad situations which result in

unfair and unreasonable bargains between

parties possessing wholly

disproportionate and unequal b argaining

power. The Court must judge each case on

its own facts and circumstances when

called upon to do so by a party under

section 31(1) of the Specific Relief

Act, 1963.”

Then further;

"In the vast majority of cases, however,

such contracts with unconscionable term

are entered into by the weaker party

under pressure of circumstances,

generally economic, which results in

CA Nos. 3441-3442/ 2015

21

inequality of bargaining power, Such

contracts will not fall within the four

corners of the definition of "undue

influence" as defined by section 16(1)

of the Indian Contract Act. The majority

of such contracts are in a standard or

prescribed form or consist of a set of

rules. They are not contracts between

individuals containing terms meant for

those individuals alone. Contracts in

prescribed or standard forms or which

embody a set of rules as part of the

contract are entered into by the party

with superior bargaining power with a

large number of persons who have far less

bargaining power or no bargaining power

at all. Such contracts which affect a

large number of persons or a group or

groups of persons, if they are

unconscionable, unfair and unreasonable

are injurious to the public interest. To

say such a contract is only voidable

would be to compel each person with whom

the party with superior bargaining power

had contracted to go to Court to have

the contract adjudged voidable. This

would only result in multiplicity of

litigation which no Court should

encourage and also would not be in public

interest. Such a contract or such a

clause in a contract ought, therefore,

to be adjudged void under section 23 of

the Indian Contract Act, as opposed to

public policy,"

And still further;

"The Indian Contract Act does not define

CA Nos. 3441-3442/ 2015

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the expression "public policy" or

"opposed to public policy". From the

very nature of things, such expressions

are incapable of precise definition.

Public policy, however, is not the

policy of a particular government. It

connotes some matter which concerns the

public good and the public interest. The

concept of what is for the public good

or in the public interest or what would

be injurious or harmful to the public

good or the public interest has varied

from time to time. As new concepts take

the place of ol d, transactions which

were once considered against public

policy are now being upheld by the courts

and similarly where there has been a

well-recognized head of public policy,

the courts have not shirked from

extending it to new transactions and

changed circumstances and have at times

not even flinched from inventing a new

head of public policy. The principles

governing public policy must be and are

capable on proper occasion, of expansion

or modification. Practices which were

considered perfectly normal at one time

have today become abnoxious and

oppressive to public conscience. If

there is no head of public policy which

covers a case, then the court must in

consonance with public conscience and in

keeping with public good and public

interest declares such practice to be

opposed to public policy. Above all, in

deciding any case which may not be

covered by authority Indian Courts have

before them the beacon light of the

CA Nos. 3441-3442/ 2015

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Preamble to the Constitution. Lacking

precedent, the Court can always be

guided by that light and the principles

underlying the Fundamental Rights and

the Directive Principles enshrined in

our Constitution."

It is not the case that the payment of the

final bill was made promptly and delay in

payment alone should constitute a separate

ground for submission of the bills by the

Contractor on closer scrutiny of his claims

to make fresh claims which may have escaped

contractor's notice at the time of

presentation of the final bill. In human

affairs, such situations can and do arise

and the courts c an and should make an

allowance for them to be accommodated for

adjudication on the merits of such claims.

Therefore, I find myself unable to subscribe

to the reasoning adopted by the learned

District Judge, Chandigarh in non -suiting

the petitioner and shutting out his case for

examination of the 'further claims' beyond

those pressed in the original claim petition

on the materials on record and that too only

by virtue of oppressive exclusion in Clause

65-A. Delay in payment of dues would itself

give rise to an actionable claim for

interest accruing by virtue of default in

payment of final bills, keeping money beyond

reasonable time in the pocket of the

employer.”

16) Thereafter, the High Court also proceeds to refer to

the subsequent agreement, the order by whi ch the

CA Nos. 3441-3442/ 2015

24

Arbitrator was appointed, the agreement which is

entered into and finally, it is found as follows:

“Mr. Manohar Lall, learned counsel appearing

for the appellant points out that the

Arbitrator in the present case was appointed

under Section 11 of t he Act by the Chief

Justice of this Court exercising

jurisdiction under the Act by order dated

12.11.2007 after recognizing and identifying

the dispute and difference which had arisen

between the parties that demanded resolution

through arbitration process in terms of the

arbitration clause signed by the parties.

This jurisdictional issue was pressed before

the Arbitrator by the employer itself and a

preliminary issue was accordingly framed and

answered in favour of the appellant and

Clause 65-A was duly noticed and interpreted

in a manner which appeals to this court as

a correct exposition of the law. Besides,

the Arbitrator in his award dated 4.3.2009

(Annexure A-3) found from the agreement

dated 22.11.2007 that dispute still exists

between the parties, which is evident from

the recitals in the agreement, which reads

as follows:

“The new arbitrator shall decide all the

disputes between the parties”

The award ought not to have been

tinkered with by the Learned District

Judge, Chandigarh for the reason tha t

jurisdiction stood denuded by operation

of the offending part of Clause 65 and

65-A cannot be read as waiver or

extinguishment of right of a contractor,

much less by deeming fiction as Clause

65-A does, to lay further claims after

the presentation of the final bill if

money or interest is demonstrably owed by

the offer or of the contract to the

contractor. Thus, these two clauses

CA Nos. 3441-3442/ 2015

25

justly deserve to be read against the

offer or of the works contract in the

light of the well established doctrine of

contra proferentum applicable to the law

of contracts.

For the foregoing reason, this appeal

is allowed and the impugned judgment

dated 10.7.2013 passed by the learned

District Judge, Chandigarh is set aside.”

17) The clauses which have been relied upon by the

appellants are clear and unambiguous. What they

interdict is the submission of a new claim after the

submission of the final bill. If there are any claims

left after the submission of the final bill, the

parties have agreed that they shall stand waived.

These are the clauses which are binding not only on

the parties but also on the Arbitrator. Going

against the terms of clauses 65 and 65A would indeed

render the Award vulnerable on the basis that it is

illegal being contrary to the contract and,

therefore, without jurisdiction.

18) There may be cases where a final bill may be

submitted and the contention is taken that the final

bill was submitted under duress. In such a case, it

may be open to the claimants to urge and the

Arbitrator to find that the final bill was itself

CA Nos. 3441-3442/ 2015

26

vitiated on account of the fact that it was brought

about by duress or any other vitiating factors under

law. If such an event had taken place then that may

have been sufficient to non -suit the appellants. In

other words, if under the terms of the agreement,

there is an embargo against the Arbitrator embarking

upon and attempting to find merit in any claim which

is not part of the final bill, an award so

countenancing a claim would be illegal. However, on

the other hand, if the case is that the final bill

itself should not be given life as it was born out

of coercion or any other vitiating factor and the

Arbitrator renders a finding on material as is

sufficient in law then the Award of the Arbitrator

may not be attacked on the ground that he travels

beyond the contractual provisions. Bearing in mind

these principles, we will examine the matter with

reference to the facts which are not in dispute in

this case.

19) On 13.02.2002, the respondent has indeed submitted

a final bill. It is a year thereafter on 25.02.2003,

that the respondent sent a letter inter alia urging

CA Nos. 3441-3442/ 2015

27

that the final bill dated 13.02.2002 was not paid

and is signed under protest. Subsequently, it would

appear that the respondent has filed an affidavit on

24.05.2003. It is ignoring all this that notice was

sent for referring the matter to arbitration. By

order dated 12.11.2007, the High Court proceeding

under Section 11 of the Act appointed an Arbitrator.

During the course of the arbitration, on 03.08.2008,

the appellants filed an application under Section 16

of the Act invoking clauses 65 and 65A of the

Contract. The said application came to be rejected

on 04.03.2009.

20) We have scanned the contents of the said order. The

Arbitrator has proceeded to reject t he application

filed by the appellants under Section 16 on the basis

of the order dated 12.11.2007 passed by the High

Court. The Arbitrator further draws inspiration

from the fact that the application seeking

modification of the order dated 12.11.2007 was

dismissed on 04.12.2007. The Arbitrator further

found that the agreement entered into between the

parties subsequent to the order dated 12.11.2007

CA Nos. 3441-3442/ 2015

28

would indicate that disputes indeed exist. What is,

however, conspicuous by its absence is any finding

by the Arbitrator, that the final bill dated

13.02.2002 was the result of duress or any other

vitiating factors.

21) Learned counsel for the respondent would point out

that the order dated 04.03.2009 passed by the

Arbitrator under Section 16 had attained finality as

the same was not impugned under Section 37 of the

Act. Section 37 of the Act reads as follows:

“37.Appealable orders. —(1) An appeal

shall lie from the following orders (and

from no others) to the Court authorised

by law to hear 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) setting aside or refusing to set

aside an arbitral award under section

34.]

(2) Appeal shall also lie to a court from

an order of the arbitral tribunal —

(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 section 17.

CA Nos. 3441-3442/ 2015

29

(3) No second ap peal shall lie from an

order passed in appeal under this

section, but nothing in this section

shall affect or takeaway any right to

appeal to the Supreme Court.”

22) An appeal lies to the Court from an order of the

Arbitral Tribunal accepting the plea referre d to in

sub-sections (2) and (3) of Section 16. This means

that an appeal can be preferred against the order of

the Arbitral Tribunal allowing the plea that the

Arbitral Tribunal does not have jurisdiction.

Similar is the case with reference to an order which

is rendered appealable under Section 16(3) of the

Act. Thereunder also, it is the plea that the

Arbitral Tribunal is exceeding the scope of its

authority which is allowed which is rendered

appealable. In this case, by order dated 04.03.2009,

the Arbitral Tribunal has not allowed the plea be it

under section 16(2) or under Section 16(3). On the

other hand, the Tribunal has rejected admittedly the

plea of the appellants. Therefore, no appeal could

have been filed under Section 37 against the order

dated 04.03.2009. An order passed by the Arbitral

Tribunal rejecting the plea under Section 16(2) or

CA Nos. 3441-3442/ 2015

30

16(3) being part of the Award itself, it is open to

the parties to challenge 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

apparently to confine a right to appeal to those

cases where accepting a plea of a party would bring

the arbitration to a halt. In fact, we notice that

the order dated 04.03.2009 has been referred to in

the Award and it has been treated as part of the

Award.

23) It is thereafter that in a proceeding that the

District Court has allowed the petition filed under

Section 34 by the appellants. We may notice that

the High Court, in the impugned order, while dealing

with the plea under clauses in question has, inter

alia, held as follows:

“The contract terms and conditions require

submission of the final bill within three

months of physical completion of the works to

the satisfaction of the Engineer -in-Charge.

There is no dispute that the final bill was

presented within the time prescribed. Clauses

65 and 65A, though set a boundary on the

CA Nos. 3441-3442/ 2015

31

Contractor to submit its bill, but does not

speak of the time within which the final bill

is to be discharged by the employer.

Admittedly, when the dispute was referred to

Arbitration, the Contractor made further

claims before the arbitrator which were

adjudicated in arbitral proceedings after

hearing the employer and the claims were by and

allowed. If the final bill was presented on

13.02.2002, and payment of the same was made

belatedly on 25.11.2003 to the pecuniary

disadvantage of the Contractor, then it would

appear not the lie in the mouth of the

Engineer-in-Charge/employer to invoke an

exclusionary clause as is found embedded in

Clause 65-A. If such a clause were to operate,

then it would even take away the Arbitrator’s

discretion and jurisdiction to award interest

pendente lite and future interest etc. which

the law permits and such a claim would also

constitute a valid claim wh ich can be awarded.

In any case, such a clause I am inclined to

think would be opposed to public policy and

operate unfairly, and should be understood in

the light of what the Supreme Court enunciated

in Central Inland Water Transport Corporation

& Anr. vs. Brojo Nath Ganguly & A1R1986 SC

1571, thus expanding the sphere of the law of

contracts and subjecting it to the test of

CA Nos. 3441-3442/ 2015

32

reasonableness or fairness of a clause in a

contract where there is inequality of

bargaining power.”

24) It is thereafter that the Hig h Court has referred

to the judgment of this Court in Central Inland Water

Transport Corporation & Anr. v. Brojo Nath Ganguly

AIR 1986 SC 1571 as noticed by us.

25) It is no doubt true that the salutary principle which

has been enunciated by this Court in Central Inland

Water Transport Corporation

4

being in accord with

constitutional principles must receive due

consideration. However, it cannot be torn out of

context. More importantly, as we have already noticed

when a contractor seeks to wriggle out of a final bill

or a ‘no claims due certificate’ which he has

submitted, as in a civil Court so before the

Arbitrator, he must establish a case that a final bill

or a certificate of no further claims was the result

of any of the vitiating factors under the law. Sans

such finding, the final bill would s tand. If the final

4 Central Inland Water Transport Corporation & Anr. v. Brojo Nath Ganguly AIR

1986 SC 1571

CA Nos. 3441-3442/ 2015

33

bill cannot be overridden by any factors known to law

then the clauses relied upon by the appellants in this

case would operate. There is no finding by the

Arbitrator that the final bill and the no claims

certificate were vitiated. Th e clauses in the contract

were binding on the respondent. It cannot be departed

from invoking the principle in Central Inland Water

Transport Corporation

5

. It is not the case of the

contractor that when the contract was entered into, it

was in circumsta nces which attracted the principles

laid down therein.

26) If the clauses operate, the inevitable result is the

arbitrator could not have traveled outside of the

contractual prohibition and passed an award allowing

claims which were submitted after the submis sion of

the final bill.

27) We cannot be entirely unmindful, however, of the

fact that after submission of the final bill on

13.02.2002, the said bill was settled only after

long delay of over an year. While it may be true

5 Central Inland Water Transport Corporation & Anr. v. Brojo Nath Ganguly AIR

1986 SC 1571

CA Nos. 3441-3442/ 2015

34

that there is no finding that the fi nal bill was the

product of any duress or coercion, the respondent

did have a case that the final bill was the result

of the pressure on account of non -payment of her

claims and therefore, the respondent agreed to

receive the undisputed amounts. But at the same time,

there is no finding as such.

28) While we cannot subscribe to the reasoning adopted

by the High Court, we cannot also lose sight of the

fact that the amounts in question are fairly meagre

and the final bill remained unpaid for long period

of time. It was apparently the long delay in the

payment of the final bill amount which led to the

raising of the new claims. Perhaps, if the final

bill itself was not kept pending for such a long

time, the entire dispute may not have arisen at all.

We cannot lose sight of another aspect also. This

Court has, in the judgment reported in Tahera Khatoon

(D)By LRs. v. Salambin Mohammad (1999) 2 SCC 635

laid down the guiding principles for the exercise of

jurisdiction in an appeal generated under Article

136 of the Constitution even after the grant of leave

CA Nos. 3441-3442/ 2015

35

under Article 136. 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 still say

that it would not exercise discretion to

decide the case on merits and that it would

decide on the basis of equitable

considerations in the fact situation of the

case and “mould the final order ”.

20. In view of the above decisions, even

though we are now dealing with the appeal

after grant of special leave, we are not

bound to go into merits and even if we do

so and declare the law or point o ut the

error — still we may not interfere if the

justice of the case on facts does not

require interference or if we feel that the

relief could be moulded in a different

fashion.”

29) Having regard to all the facts and circumstances,

while we are inclined to set aside the impugned

order, we also feel that the interests of justice

would require that the respondent is paid a lumpsum

amount in full and final satisfaction of all his

claims. Accordingly, the appeals are allowed. The

impugned judgment is set asid e. However, we direct

that the appellants will pay a global sum of Rs.3

CA Nos. 3441-3442/ 2015

36

lakhs (Rupees Three Lakhs only) to the respondent

which will be in full and final settlement of the

claims of the respondent. The said payment of the

amount of Rs.3 lakhs shall be ef fected within a

period of six weeks from today.

No orders as to costs.

……………………………………………………., J.

[ K.M. JOSEPH ]

……………………………………………………., J.

[ KRISHNA MURARI ]

……………………………………………………., J.

[ B.V. NAGARATHNA ]

New Delhi;

March 23, 2023.