Villayati Ram Mittal (P) Ltd vs Reseerve Bank Of India
2017 Latest Caselaw 7332 Bom

                                               1 /34               ARAPP-125-05.doc
Ladda R.S.

                   IN THE HIGH COURT OF JUDICATURE AT BOMBAY

                        ORDINARY ORIGINAL CIVIL JURISDICTION

                           ARBITRATION APPEAL No. 125 of 2005
                                          IN
                           ARBITRATION PETITION No. 28 of 2003


             Vilayati Ram Mittal (P) Ltd.              ]
             505, Belscot Tower,                       ]
             Lokhandwala Complex,                      ]
             Link Road, Andheri (West)                 ]
             Mumbai-400 058.                           ]        ..   Appellant.
                                                                (Orig. Respondent)

                           Versus


             Reserve Bank of India,                    ]
             constituted under the                     ]
             Reserve Bank of India Act, 1934,          ]
             through the Premises Department,          ]
             Western Zone, Garment House,              ]
             Worli, Mumbai-400 018.                        ..       Respondent.
                                                                (Orig. Petitioner)

             Mr. Sarosh Bharucha a/with N.C. Parekh and Sunil Vyas i/by
             Mansukhlal Hiralal & Co. for the Appellant.
             Mr. Phiroz Palkhiwala a/with Debojit Banerjee i/by Udwadia &
             Udeshi for the Respondent.


                         CORAM: NARESH H. PATIL &
                                 SMT. BHARATI H.DANGRE, JJ.

RESERVED ON: 3 rd August, 2017.

JUDGMENT PRONOUNCED ON: 20 th Sept, 2017.

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JUDGMENT (Per: Smt. Bharati H. Dangre, J):-

(1) The present appeal challenges the judgment dated

30th August, 2004 delivered by the learned Single Judge

thereby setting aside the Award mainly on two counts, namely

that there was accord and satisfaction in between the parties

as the amount was accepted towards full and final settlement

by the claimant without any demur and secondly rejecting the

claim for no damages in view of Clause 18 of the Agreement

between the parties which dis-entitle the contractor from

claiming any compensation for any loss suffered.

For adjudicating the challenge to the order passed

by the learned Single Judge, it would be necessary to avert to

certain essential facts:-

(2) The Reserve Bank of India, (RBI) constituted under

the Reserve Bank of India Act, 1934 invited tenders for

construction of eighty Class III Quarters and one hundred and

twelve Class IV Quarters and a Community Hall at Kharghar,

Navi Mumbai. The appellant (hereinafter referred to as the

"claimant") is a Private Limited Company engaged in the

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business of construction submitted its offer which was

accepted by the RBI being the lowest and the letter of

acceptance was issued to the claimant on 25 th June, 1993. An

Agreement was signed between the parties on 14 th September,

1993 in which the date of commencement was specified as 5 th

July, 1093 and the period of completion was fixed as 20

months. The total value of work awarded was Rs.

4,89,94,854/-.

(3) Though the date of completion was specified as 5 th

July, 1993, the conditional extension was regularly granted

and time for completion of the project was finally extended till

31st January, 1997. The virtual completion certificate was

granted on 31st March, 1997. The claimant raised final bill in

regard to the work carried out by them on 4th May, 1998 which

was scrutinized by both the parties, certified by the Architect

and finally the claimant accepted the amount of final bill of

Rs.4,16,51,201/- towards full and final settlement of their

dues (except PVA). Subsequently, even the PVA Bill relating

to escalation was scrutinized and claimant received an amount

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of Rs. 76,23,930/- as full and final claim. The claimant raised a

dispute and sought reference of the same to the Arbitrater by

virtue of Clause 34 of the contract and Shri Prabhakar

Shankar Ambike was the sole arbitrator to whom the dispute

was referred. The claimant raised claims under 17 Heads.

The respondent/RBI raised issue of jurisdiction of Arbitrator to

entertain the alleged claims and claimed that accord and

satisfaction had taken place between the parties, bringing the

contract to an end and, therefore, no arbitrable dispute exists

to be referred to the Arbitrator. It was also a ground of the

respondent that there was no compliance of the provisions of

arbitration clause having not followed the procedure under

clause 34 while referring the matter to the arbitration. The

Reserve Bank of India also raised a counter claim before the

Arbitrator. The Arbitrator declared his Award on 30 th

September, 2002 and awarded a sum of Rs. 47,55,507.00

against the 17 claims but rejected the counter claims of the

respondent in totality. The Arbitrator further awarded future

simple interest @ 12% per annum on the award amount from

the date of publishing award till the date of decree or date of

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             payment, whichever is earlier.

             (4)                       Being aggrieved by the said Award, RBI filed

Arbitration Petition which was numbered as 28 of 2003 before

the learned Single Judge of this Court praying for quashing

and setting aside the award alleging that the Arbitrator had

no jurisdiction to entertain the claims in view of accord and

satisfaction reached between the parties and that the amount

granted by the Arbitrator ought not to have been granted

under the various Heads as the learned Arbitrator had failed

to appreciate that the various claims which were raised by the

claimant fell under the category of "excepted matters" under

the contract on which decision of the Architect is final and

there is no appeal.

(5) The learned Single Judge by judgment dated 30 th

August, 2004 was pleased to allow the arbitration petition and

set aside the impugned award.

This is how the present appeal is before us.

(6) We have extensively heard Advocate Shri Sarosh

Bharucha a/with N.C. Parekh and Sunil Vyas i/by Mansukhlal

Hiralal & Co. for the Appellant and Advocate Shri. Phiroz

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Palkhiwala a/with Debojit Banerjee i/by Udwadia & Udeshi for

the Respondent.

(7) Advocate Shri Sarosh Bharucha appearing for the

appellant argued in extenso that the order passed by the

learned Single Judge does not fall within the purview of

Section 34 of the Arbitration Act and the learned Single Judge

could not have substituted the view of the Arbitrator unless

and until he recorded a finding of perversity. It is argued by

him that the learned Arbitrator's finding that after considering

the facts of the case, terms of the contract and evidence on

record there was no accord and satisfaction, has been

substituted by the learned Single Judge on the ground that the

Arbitrator's finding was based on no evidence which is ex facie

perverse and contrary to the evidence on record. Further it is

also argued by Mr. Bharucha that the finding of the learned

Single Judge that the appellant did not demonstrate any case

of "financial hardship" on count of delay in release of

payments was not established and no pleadings to that effect

were raised nor it was proved by any cogent evidence, is also

an incorrect finding not based on facts and to demonstrate so

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the learned counsel took us through the documents contained

in the form of letters which specifically refer to the

correspondence prior to completion of work and after

completion of work but prior to receipt of payment, which

according to him was sufficient proof of financial hardship and

coercion. In order to substantiate his contention that the

learned Single Judge should not have substituted his view for

that of the Arbitrator in exercise of powers under clause 34,

he placed reliance upon a judgment of the Apex Court in the

case of T.P. George 1 Vs. State of Kerala and Anr to urge

that it was not permissible for the High Court to substitute its

views for those of the arbitrator as it could not be said that the

view taken by the arbitrator is unreasonable or one which

cannot be arrived at by a reasonable person. He also placed his

reliance on the case of Numaligarh Refinery Ltd 2 Vs.

Daelim Industrial Co. Ltd. Shri Bharucha also argued that

the finding of the learned Single Judge on clause 18 debarring

claimant from raising any claim is also an incorrect finding he

attempted to demonstrate before us that the said clause is

1 (2001) 2 Supreme Court Cases 758.

2 (2007) 8 SCC 466.

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violative of Section 28 of the Indian Contract Act and such

existence of a clause in the Agreement binds the parties but do

not bind the Court. In support of his submission he refers to

the following judgments of the Hon'ble Supreme Court.

                           1)       (2009) 10 SCC 354
                                    Asian Techs Ltd Vs. Union of India.


                           2)       (2009) 16 SCC 705

Bharat Drilling & Foundation Treatment Pvt Ltd. Vs. State of Jharkhand & Ors.

3) (1996) 1 SCC 516 Board of Trustees for the Port of Calcutta Vs. Engineers-DE-SPACE-AGE

According to him, the clause dealt by the Apex

Court in the aforesaid judgments is of similar nature as clause

No.18 and according to him, existence of such a clause will not

bind the Arbitrator or even the Court. It is the contention of

the learned Counsel that the respondent has not filed an

appeal challenging the impugned order and if at all the

respondent was aggrieved by the said order on the ground that

it had failed to take into consideration various other grounds

raised in his petition, it was open for the respondents to

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challenge the impugned order to that extent and having failed

to do so the respondents are precluded from raising the said

grounds in the appeal which is filed by the appellant.

(8) As against the claim of the appellant, learned

Counsel Shri Palkhiwala appeared on behalf of the

respondents and argued the matter at length. He placed

reliance on the judgment of the Hon'ble Apex Court

demonstrating the powers of the Court to interfere with and

setting aside an arbitral award under section 34 of the

Arbitration Act and by placing heavy reliance upon the

judgment of the Apex Court in Oil & Natural Gas

Corporation 3 Vs. Saw Pipes Ltd , he argued that an award

can be set aside if it is in contravention of the provisions of the

Act or any other substantive law governing the parties and is

contrary to the fundamental policy of the Indian Law. He

relied upon the judgment of the Apex Court in the case of

Delhi Development Authority 4 Vs. R.S.Sharma & Co.

and according to the learned counsel the following grounds

permit interference in an arbitral award :-

3 2003 (5) SCC 705 4 2008 (13_ SCC 80

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(a) An award which is contrary to the substantive

provisions of law or the said Act, (b) an award which is

against the specific terms of the contract, (c) an award which

is patently illegal, (d) an award which is prejudicial to the

rights of the parties, (e) an award contrary to the fundamental

policy of Indian Law and (f) an award which is so unfair and

unreasonable that it shocks conscience of the Court. He also

placed reliance on the judgment of the Apex Court in the case

of Associate Builders 5 Vs. Delhi Development

Authority, wherein the Hon'ble Apex Court had interpreted

the term "fundamental policy of Indian Law" to include the

principles which the Arbitrator must follow and adopt "a

judicial approach". The said judgment also mandates the

Arbitrator to follow the principles of natural justice and

recording of reasons in support of the decision has been held to

be fundamental policy of Indian law. The Apex Court has also

included the perversity or irrationality of decision to be tested

on the touchstone of Wednusbury's Principle of

Reasonableness to be included within the purview of

"fundamental policy of Indian Law".

5 2015 (3) SCC 49

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             (9)              The learned Counsel advanced argument to the

effect that Arbitrator is bound to follow due process, to comply

with the requirement of natural justice, fair play and must

apply his mind and consider all relevant material before

arriving at his findings and if he does not do so, his Award is

liable to be set aside on that ground alone. According to him, if

findings of Arbitrator are shown to be contrary to law,

patently illegal or contrary to the contract, or based on no

evidence, or shocks judicial conscience, or are prejudicial to

the rights of parties, or contrary to policy of Indian Law, then,

such an award needs to be set aside.

(10) Shri Palkhiwala also referred two letters dated 28 th

November, 1998 and 10th December, 1998 which acknowledge

the receipt of the amount towards final bill and the PVA bill

(i.e. Escalation bill) and he also contended that the amount

thereunder in fact has been paid to the appellant. According to

him, on such demand and acceptance, all rights and

obligations of the parties came to an end, and accord and

satisfaction had taken place with respect to the subject

contract. He relied upon the following judgments of the

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Hon'ble Supreme Court and this Court to demonstrate that

when accord and satisfaction is reached, the contract comes to

an end and there is no scope for arbitration.

                   i.       Union        of     India   v   Ajit       Mehta         and
                            Associates: AIR 1990 Bombay 45.


                   ii.      P. K. Ramaiah and Co. v Chairman and
                            Managing           Director,    National          Thermal
                            Power Corporation: 1994 Supp (3) SCC

                   iii.     Nathani            Steels   Ltd        v      Associated
                            Constructions: 1995 Supp (3) SCC 324.
                   iv.      National Insurance Company Limited v
                            M/s Boghara Polyfab Pvt Ltd.: AIR 2009
                            Supreme Court 170.


                   v.       Cauvery Coffee Traders, Mangalore v
                            Hornor              Resources          (International)
                            Company Limited: (2011) 10 SCC 420.
                   vi.      Union of India and Others v Master
                            Construction Company: (2011) 12 SCC



                   vii.     New India Assurance Company Limited v

Genus Power Infrastructure Ltd: (2015) 2

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                            SCC 424.


             (11)          Shri Palkhiwala also strenuously attempted to

demonstrate that the Arbitrator has chosen to ignore all the

relevant and germane arguments put forth by the respondent

to the effect that no evidence was led to prove alleged coercion

or financial hardship and the same was neither pleaded nor

proved. He further argued that the Arbitrator has relied upon

several trade practices to come to a conclusion that final bill

should have been paid within six months from the date of

virtual completion. However, no opportunity was given to the

respondent to deal with trade practice or to negate the same

and moresoever his precise argument is that even if such

trade practices exist, it cannot override the specific provision

in the contract between the parties. He therefore submitted

that the learned Single Judge has rightly set aside the award

though on a limited ground of accord and satisfaction being

reached between the parties.

(12) Mr. Palkhiwala, however, attempted to demonstrate

before us that the award was liable to be set aside on several

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other grounds; namely, it being contrary to specific terms of

the contract and the fact that the arbitrator has misconducted

himself in allowing the claim and not considering the objection

raised by other party and also on the ground that the

arbitrator being a creature of contract must operate within

four corners of the agreement and cannot travel beyond it.

According to him, an act of the arbitrator in allowing claims

relating to delayed damages are also contrary to the specific

terms of the contract and specific reliance is placed on clause

18 of the contract between the parties. He also assailed the

award on the ground that the claimant had not followed the

procedure for reference to arbitration under the contract

which was prescribed in terms of clause 34 of the contract and

according to him said clause created a contractual allegation

for the purpose of reference to the arbitration and the

reference to the arbitration according to him, itself is

unsustainable. He also argued that there was no arbitral

dispute at the time of reference. Mr. Palkhiwala also dealt in

detail with the individual claims granted by the arbitrator

under various heads namely from claim no.1 to claim no.17

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and in detail. He demonstrated as to how grant of such claims

by the arbitrator cannot be sustained. When we specifically

questioned the learned Counsel as to whether this Court while

exercising power under section 37 of the Arbitration Act, can

look into the award and sit in appeal over the award, which

was in fact put to test before the learned Single Judge and the

learned Single Judge though on a limited ground found that

the award to be not sustainable and has set aside the award

and whether it is permissible for this Court to deal with all his

arguments. The learned counsel argued that the Court is

exercising the appellate power conferred under section 37 of

the Arbitration Act and the said section do not in any manner

expressly or by necessary implication restrict the power of the

Appellate Court. According to the learned counsel, provisions

of section 107 of the Code of Civil Procedure will apply fully

even to appeals under section 37 of the Arbitration Act and the

this Court is required to consider all aspects and contentions

to arrive at its conclusion, whether or not the impugned award

is required to be set aside.

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             (13)          We have carefully considered the submissions

advanced on behalf of both the parties and also perused the

judgment of the learned Single Judge dated 30 th August, 2004.

It is not in dispute that the contract was entered into between

the claimant and the RBI in pursuance of acceptance of a bid

by the former for the construction of residential quarters and

Community hall for the later at Belapur with an estimated cost

of Rs.483.64 lakhs. The agreement executed between the

parties contained several clauses including the clauses for

payment to be made to the claimant, the phase and manner of

such payments apart from the technical specifications of the

work to be carried out by the contractor. As per clause 31, the

contractor is to be paid from time to time an amount by the

employer by instalments under interim certificates to be

issued by the Architect to the contractor on account of the

works executed. According to clause 33 of the Agreement, the

decision, opinion, direction, certificate for payment issued by

the Architect was final and conclusive and binding on the

parties. Clause 34 of the contract provides for settlement of

disputes arising out of or in connection with contract or

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carrying out of the work to be referred and decided by the

arbitrator to be agreed upon by both the parties. The existence

of the arbitration clause is not in dispute. However, the dispute

in the present matter revolves around the date when the

payment was due and the period of honouring the certificates

of payment. According to the agreement, defective liability

period was for 12 months and the period of final measurement

is prescribed as three months from the date of virtual

completion. The period of honouring the certificate of payment

was prescribed as one month for running account bill and

three months for final bill. According to the respondent RBI,

the work under the tender was to be completed within 20

months i.e. by 4th March, 1995 but there was delay in

execution of the work and extension was granted from time to

time for completion of the said work and the period for

execution was extended upto 31st January, 1997, virtual

certificate was issued on 31st March, 1997 subject to certain

conditions. It appears that the claimant raised the final bill

with regard to the work carried out by them on 4 th March,

1998. The virtual completion certificate issued on 27 th August,

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1997 mentions that the works were to be considered virtually

completed on 31st March, 1997 subject to rectification of

defects as per respondent's letter of 10 th June, 1997 and other

cited instructions and it also mention that the defect and

liability period would start from the date of handing over

buildings after rectification of defects. On 6 th October 1997 the

RBI asked the appellant to rectify the defects and hand over

the buildings in the phased manner. On 1 st May, 1998 the final

bill was submitted by the appellant and on 14 th July,1998 ad-

hoc payment of Rs.17,57,471/- was made by the respondent to

the appellant. On 16th July, 1998 the respondent noted serious

lapse on the part of the appellant in failing to furnish the water

proof guarantee. On 30th September, 1997 the RBI recorded

that there is a delay on the part of the contractor for

rectification, taking measurement and handing over of the

premises and in the same letter it asked the contractor to

depute their representative to discuss and finalize the final

bill on 9th October, 1998 the meeting took place for discussion

of the final bill to be cleared pending rectification with an

assurance that the rectification would be completed before

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settlement of final bill failing which the respondent could

retain a reasonable amount from the final bill towards

rectification of defects. It was on 9th October, 1998 the final bill

was certified for payment by the Architect. On 16th October,

1998 the respondent paid the balance 50% of the retention

money to the appellant. We have noted that on 28 th November,

1998 the appellant unequivocally accepted the amount of final

bill scrutinised by the respondent and admitted that the same

was correct and the appellant accepted the amount mentioned

in the said bill as full and final settlement except for the PVA

Bill amount relating to escalation which was to be certified and

paid separately. In pursuance of the said letter on 1 st

December, 1998 the RBI paid the amount mentioned in the

said bill to the appellant and on 10th December, 1998 the

appellant issued a letter accepting that the scrutinised

escalation bill was corrected and accepted the amount

thereunder as full and final settlement. On 10 th December,

1998 the escalation bill amount was paid towards full and final

settlement, retaining amount of Rs. 50,000/- for non-

compliance by the appellant as far as attending to the defects

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             and deficiencies.

             (14)          We have noted that the appellant referred the

dispute to the arbitration on 23.1.1999 and submitted his

statement of claim before the Arbitrator on 21.8.1999. The

respondent submitted their reply in response to the claim on

15th November, 1999 and on 1st December, 1999 the rejoinder

was filed by the appellant in which for the first time they

protested/stated that the letter dated 28th November, 1998

and 10th December, 1998 accepting the amounts towards full

and final settlement were obtained by coercion and pressure.

It was only when the respondent in the written statement

pointed out that "accord and satisfaction" had taken place in

view of two letters and the payment having been made and

accepted by the appellant, there was no question of arbitrator

entertaining the claims and there was no arbitrable dispute. In

rejoinder the appellant, for the first time, contended that the

said letters had been obtained by causing extreme financial

hardship and coercion and is therefore invalid in law. Thus,

the allegations that the acceptance of the amount towards full

and final settlement was on account of free will was made for

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the first time on 1st December, 1999. However, it is noteworthy

to mention that there are no particulars given about any

financial hardship or coercion except making bald statements.

The Arbitrator brushed aside the said objection which was

duly raised by the respondent RBI. The arbitrator after noting

dates of virtual completion certificate as on 31.3.1997

observed that as per normal trade practice the final bill is

required to be certified and finalized within reasonable time

and normally the final bill should have been paid within six

months' time. The Arbitrator also observed that the

respondent could have on its own prepared the final bill after

giving notice to the claimant and there is a practice that the

payment was actually released as latest on 31.12.1998. The

arbitrator did not accept the contention of the respondent in

respect of "accord and satisfaction" and concluded that looking

to the chronology of the events the amount of final bill

involved in releasing retention bill and also bill as PVA one

would think that the claimant were under pressure so far as

getting their legitimate dues are concerned. The arbitrator

therefore agreed with the claim of the claimant that "no claim

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certificate" was procured as delay in payment was causing

financial hardship to the claimant and in the circumstances, if

the claimants have accepted the final bill without murmur, it is

not necessary that it is by way of accord and satisfaction. The

learned Single Judge has rightly dislodged the conclusion of

the arbitrator on the said point. The learned Counsel for the

respondent has rightly relied upon the judgment of the Apex

Court in the case of Union of India and Anr. Vs. Master

Construction Co wherein the Court has held that the 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/

designated. In New India Assurance Co 6 . Ltd vs. Genesis

Infrastructure Ltd, the Apex Court observed as follows :-

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

6 (2015) 2 SCC 424,

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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."

(15) In the case in hand, the appellant did not plead as to

how he was under the financial hardship which coerced him to

accept the amount towards full and final settlement and in fact

the plea that the amount has been accepted under coercion

was raised for the first time after a period of one year from

writing such letters. In case, if it was the case of the appellant

that he was coerced to accept the amount and he was

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undergoing a financial hardship which prompted him to accept

the amount that ought to have been the case of the appellant

while filing his claim before the arbitrator. It is, however, only

when the reply was filed by the respondent, wherein an

objection was raised about "accord and satisfaction" being

reached between the parties, the plea has come forth. No

evidence is adduced to demonstrate the financial hardship and

it is very apparent that the said plea is merely an after thought

to counter the case of the respondent of reaching accord and

satisfaction. The learned Single Judge has rightly recorded in

paragraph 6 of the judgment that the requirement of giving

particulars of coercion is a basic requirement of compliance

and no particulars whatsoever of alleged financial hardship or

coercion are given. The learned Single Judge has also observed

that what circumstance can operate as coercion in relation to

one person may not so operate in relation to another person

and it was for the respondent to give particulars of the alleged

financial hardship and coercion and in the absence of the same

being pleaded or proved, mere delay in preparation of final bill

will not itself amount to financial hardship or coercion. The

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learned Single Judge has therefore proceeded to conclude that

the findings recorded by the arbitral tribunal was based on no

evidence and therefore has rightly set aside the same.

(16) As regards the contention of the respondent that

there was no arbitrable dispute which called for the reference

to arbitration, since there was "accord and satisfaction", we

have carefully analysed the position of law on the said aspect.

Though for a considerable time there was an issue as to

whether in spite of full and final settlement of the claim, the

arbitration clause in the contract can be invoked which

provide for reference to arbitration in case of existence of an

arbitrable dispute. The trend of judgment took a view that

Court need not refer the dispute to the arbitrator, if it did not

exist at all. In case of Steel Authority of India Ltd 7 . Vs.

J. C. Budharaja, it was held that once there is full and final

settlement in respect of any particular dispute or difference in

relation to matter covered under arbitration clause in the

contract and that dispute or difference is finally settled by and

between the parties, such a dispute or reference does not

remain to be arbitrable dispute and arbitration clause cannot

7. AIR 1999 S.C. 3275

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be invoked even though for certain other matter contract may

be in existence. The Apex Court further observed that once

parties have carried out the settlement in respect of any

dispute arising under a contract and that dispute or difference

is amicably settled by way of final settlement, unless that

settlement is set aside in appropriate proceeding, it cannot lie

in the mouth of one party to the settlement to spurn it on the

ground that it was mistake and to proceed to invoke

arbitration clause and if this is permitted sanctity of contract,

settlement also being a contract would be wholly lost and it

would be open to one party to take benefit under the

settlement and question the same on the ground of mistake

without having the settlement set aside.

The divergence of views was put to rest by the Apex

Court in the case of National Insurance Co. 8 Vs. M/s

Boghra, where the Apex Court in paragraph 24 observed as

follows:-

24. "We thus find that the cases referred fall under two categories. The cases relied on by the appellant are of one category where the court after considering the facts, found

8. AIR 2009 SCC 170

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that there was a full and final settlement resulting in accord and satisfaction, and there was no substance in the allegations of coercion/ undue influence. Consequently, this Court held that there could be no reference of any dispute to arbitration. The decisions in Nav Bharat and Nathani Steels are cases falling under this category where there were bilateral negotiated settlements of pending disputes, such settlements having been reduced to writing either in the presence of witnesses or otherwise. P.K. Ramaiah is a case where the contract was performed and there was a full and final settlement and satisfaction resulting in discharge of the contract. It also falls under this category. The cases relied on by the respondent fall under a different category where the court found some substance in the contention of the claimants that `no due/claim certificates', or `full and final settlement Discharge Vouchers' were insisted and taken (either in a printed format or otherwise) as a condition precedent for release of the admitted dues. Alternatively, they were cases where full and final discharge was alleged, but there were no documents confirming such discharge.

Consequently, this Court held that the disputes were arbitrable. None of the three cases relied on by the appellant lay down a proposition that mere execution of a full and final settlement receipt or a discharge voucher is a bar to arbitration, even when the validity thereof is challenged by the claimant on the ground of fraud, coercion or undue influence. Nor do they lay down a proposition that even if the discharge of contract is not genuine or legal, the claims cannot be referred to arbitration"

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Ultimately, the Apex Court held that whether there

was a "full and final satisfaction" is also an issue which has to

be looked into by the Arbitrator and it would depend on the

facts and circumstances of each case and the Chief Justice/

Designate would consider while exercising jurisdiction under

Section 11 as to 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 the arbitration, however, if he comes to conclusion that full

and final settlement received/or discharged, was a result of

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

there was no discharge and refer the dispute to arbitration.

In view of the aforesaid legal position, facts and

circumstances of the case would have to be looked into to

determine, whether the arbitrable dispute existed and cause

for reference to arbitration. In the present case, after the

claim was raised though after period of almost a year, the

appellant raised a plea of fraud and coercion it was looked into

by the arbitrator and concluded that it was a case of "financial

hardship" and it cannot be said that there was no case of

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"accord and satisfaction" and the claim was entertained. The

learned Single Judge also dealt with the issue of accord and

satisfaction and held that there was, one in the form of

acknowledgement receipt. In such circumstances, we do not

feel it necessary to conclude that the dispute was not

arbitrable.

(17) The learned Single Judge has also made reference to

the clause 18 of the contract and it was argued by the Counsel

for the appellant that existence of such a clause which

prevented the claim to be entertained, in any event, did not

bind the arbitrator or the Court. He had relied upon judgment

in case of Asian Techs Ltd. Vs. Union of India (2009)

10 SCC 354 to canvass that a clause on similar nature did

not preclude adjudication in the said case. The referable

clause reads as under :-

(C) "No claim in respect of compensation or otherwise howsoever arising as result of extensions granted under condition (A) & (B) above shall be admitted."

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In recording a finding the Hon'ble Apex Court

referred to its earlier judgment in the case of Board of

Trustees for the Port of Calcutta 9 Vs. Engineers-DE-

SPACE-AGE and Bharat Drilling & Foundation

Treatment Pvt Ltd. 10 Vs. State of Jharkhand & Ors.

cited supra.

"Clause 1.21.4 reads as under : No claim shall be entertained for delays in communicating decision drawing or specifications by the Department. The Department may however consider the grant of extension of time in completion of work. If there is any such genuine reason of it."

The principle of law discernable from the aforesaid

judgment reveals to us that it is for the arbitrator to decide

the effect of the said clause and deal with the issue.

Per contra, Shri Palkhiwala had relied upon the

judgment of the Apex Court in the case of Associated

Engineering Co.11 Vs. Government of Andhra Pradesh and

Ramnath International Construction (P) Ltd.12 Vs. Union of

9 (1996) 1 SCC 516.

             10. (2009) 16 SCC 705
             11      (91) 4 SCC 93

             12      (2007) 2 SCC 453

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India, wherein the Apex Court has held that any derogation

from terms of contract is not sustainable and award of

damages ignoring the terms of contract amounted to legal

misconduct on the part of Arbitrator. In the present case,

clause 18 reads as follows :-

18. "The contractor shall not be entitled to any compensation for any loss suffered by him on account of delays in commencing or executing the work, whatever the cause of delays may be, including delays arising out of modifications to the work entrusted to him or in any sub- contract connected therewith or delays in awarding contracts for other trades of the project or in commencement or completion of such works or in procuring Government controlled or other building materials or in obtaining water and power connections for construction purposes or for any other reason whatsoever and the Employer shall not be liable for any claim in respect thereof. The Employer does not accept liability for any sum besides the tender amount, subject to such variations as are provided for herein."

By virtue of said clause, the contractor is not held

entitled for any compensation for any loss suffered on account

of delays, whatever may be cause, the arbitrator has to operate

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within the parameters of the agreement and is bound by its

terms and if the clause provide that the contractor will not be

entitled for any claim, it binds both the parties since the

agreement was signed by both the parties and now it is not

open to the appellant to construe clause No.18 so as to seek

benefit and contend that the clause is binding between the

parties but do not bind the arbitrator or the Court. The

judgment cited by the Counsel for the appellant does not

support him for the said proposition which he had attempted

to canvass. If the clause specifically prohibits any claim on

account of delay, on any ground whatsoever, by ignoring the

said clause 18, arbitrator has travelled beyond his jurisdiction

as his existence depends upon the agreement and his function

is to act within its limits. It is settled law that arbitrator is

creature of the contract between the parties and if he ignores

the specific terms of the contract, it would be question of a

jurisdictional error on his part which could be corrected by

Court.

(18) We find that the learned Single Judge has rightly

construed clause No.18 and arrived at a conclusion that the

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contractor is not entitled to claim any interest or damages and

in fact the arbitrator has excluded from his consideration

clause no.18 which was relevant for deciding the claim for

damages.

The learned counsel Shri Palkhiwala is not successful in

persuading us to look into various other flaws, which the

arbitrator has committed, because according to us, our

jurisdiction is appellate one, where an appeal is carried against

the judgment of the learned Single Judge and therefore we will

confine ourselves to the findings of the learned Single Judge,

who has set aside the Award. The respondents did not carry an

appeal against the judgment of the learned Single Judge and

rightly so, since the purpose of respondent in the arbitration

petition is achieved by setting aside of the Award. The

Arbitration Act contains provision for supervision by the

Courts over the specially created Forum of Arbitrator, only

with a view to ensure fairness. The jurisdiction of the Court

under Section 34 is not appellate in nature and it is not open to

the Court to interfere with the Award, merely because other

view is possible if the arbitrator has taken a plausible view on

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facts, evidence and pleadings before him. The extent of judicial

scrutiny under section 34 of the Act is limited and under

Section 37 it is further narrower. Appeal under section 37 is in

the nature of second appeal, and where there are concurrent

findings of facts and law, first by the Arbitraral Tribunal which

are then confirmed by the Court, while scrutinizing it under

Section 34, the Scope of the Appellate Court is minimal. In our

opinion, the learned Single Judge has rightly set aside the

award since it suffered from patent illegality and found it to be

unfair and unreasonable. We do not propose to enhance the

scope of Section 37 to sit in appeal over the Award once again

and we refrain to advert to the arguments advanced by the

learned Counsel Shri. Palkhiwala for setting aside the Award

on grounds other than the one which are reflected in the

impugned judgment passed by the learned Single Judge.

In the result, we uphold the order and judgment of the

learned Single Judge and dismiss the appeal.

The appeal is dismissed.

(SMT. BHARATI H.DANGRE,J) (NARESH H. PATIL,J.)

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