K.S. Makin vs Prasaran Commissioner Of Income ...
1989 Latest Caselaw 442 Del

JUDGMENT

P.N. Nag, J. (D.B.)

(1) The petitioner, K.S. Makin, who is a proprietor of M/s. Kuldip Singh Gian Singh Kapoor which is a construction company and is engaged in the construction of various multi-storeyed projects including construction of flats of cooperative housing societies, has filed this petition under Section 20 of the Arbitration Act, 1940 against the respondent, M/s .Prasaran Cooperative Group Housing Society Ltd. praying for issuance of direction to the respondent to file the agreement dated 29th August, 1984 in court and to refer the disputes' to the arbitration in accordance with the arbitration agreement to settle the disputes between them.

(2) The facts set out in the petition are that the respondent society entered into an agreement dated 29th August, 1984 for the construction of 165 dwelling units with the petitioner's sole proprietorship concern. In Clause Ii of the said agreement it has been provided that in the event of any question, disputes and I or differences arising out of or concerning with and/or relating to or touching upon, the matter in disputes shall be referred to the sole arbitration of the architects and the decision of the arbitrator shall be final and binding upon the parties. Special conditions have been appended to the said agreement and Clause 19 of the said conditions elaborately deals with the arbitration clause, relevant extract of which is reproduced, below :- "ALL disputes and differences of any kind whatsoever arising out of or in connection with the contract, or the carrying out of the works (whether during the progress of the works or after their completion and whether before or after the determination, abandonment or breach of the terms of the agree ment) shall be referred to the Architects who shall state their decision in writing but if either the employer or the contractors be dissatisfied with the decision of the Architect on any matter or as to withholding of any Certificate by the Architects, the aggrieved party may within 20 days after receiving notice to such decision, give a written notice to the other party through architects that the matter in dispute be put to arbitration of a single arbitrator being a Fellow of the Indian Institute of Architects to be agreed upon and appointed by both the parties or in the event of disagreement to the appointment of a single arbitrator to the arbitration of two arbitrators both being Fellow of the Indian Institute of Architects of Fellow of the Institute of Engineers of equal one to be appointed by each party which arbitrators shall, before taking upon themselves the burden of reference, appoint a Umpire."

(3) After having entered into the agreement dated 29th August, 1984 the petitioner started the construction work. However, it appears that there was change in the management of the respondent-society and the new management which came into existence adopted illegal tactics to pressurise the petitioner to seek undue favor. The new management also threatened that in case the petitioner did not agree to their illegal and unjust demands to reimburse them in respect of the cost of their flats' or agreed to give them other fringe benefits, they would place hurdle at each and every step of the execution of the works by the petitioner The petitioner obviously did not accede to such demand at the cost of quality and standard work of the dwelling units with the result the respondent-Society started creating hurdles in the execution of works allotted to the petitioner in the agreement. The petitioner was asked by the architects appointed by the respondent-Society through a letter that the petitioner should complete the work by July. 1986 which, according to the petitioner, was not possible. The cement bricks, steel, binding wire. turn steel etc. which were to be supplied by the respondent Society were not supplied from time to time to the petitioner and as such the works could not be carried out. with the result the petitioner had to suffer huge losses. The petitioner had been submitting to the architects of the Society the running bills, in respect of the works carried out. from time to time but the respondent Society failed to make the payment of the running bills submitted by the petitioner. The running bills which the petitioner had submitted to the respondent Society from time to time are referred to in paragraph 12 of the petition.

(4) Meanwhile, the respondent Society, without disclosing the arbitration clause and conditions in the agreement dated 29th August, 1984, filed a suit for declaration and permanent injunction in the court of Senior Sub Judge, Delhi, inter alia, praying that a decree for declaration be passed against the petitioner herein as he has no right to enter the premises at which the construction work was being carried out. A further decree for permanent injunction was asked for restraining the petitioner to enter into the said premises and also not to remove any material lying at the said premises. It appears that injunction was granted by the Sub Judge, Shri Rakesh Kishore. On having come to know the pendency of the suit and injunction granted, the petitioner filed an application, under Section 34 of the Arbitration Act for stay of the suit in view of the arbitration clause contained in the agreement dated 29th August, 1984 as. well as an application under Order 39, Rule 4 for vacation of the interim injunction granted by the civil court. However, before these two applications filed by the petitioner for stay of the suit and vacation of interim injunction came up for hearing, the respondent-Society withdrew the suit No. 368186. The petitioner was put under great financial constraints in as much as the money due to the petitioner from the respondent Society was not forthcoming and was being withheld arbitrarily, illegally and unjustifiably by the respondent. The petitioner had to make payments to his bankers and other persons from whom he had borrowed the stores for construction. In these circumstances, the petitioner was coerced to enter into a deed of settlement dated 24th May, 1986 which is completely contrary to the terms of the agreement dated 29-th August, 1984 entered into between the parties and to accept payment of Rs. 6,89,299.50 and to accept a further payment of Rs. 60,700.50 besides keeping Rs. I lakh with the architect for a period of 30 days as security for making payments to agencies to whom the petitioner had to make any payment. Although this deed of settlement dated 24th May, 1986 has been entered into but, according to the petitioner, this has been done under coercion and duress and, therefore, this itself raises a dispute between the parties under the terms of the agreement dated 29th August, 1986 and as such should be referred to the arbitration. The petitioner in paragraph 23 has enumerated various disputes which, according to him, are covered under Clause Ii of the agreement and as these disputes have not been settled by the respondent Society, hence this petition.

(5) In reply to this petition the respondent Society's stand is that the petition under Section 20 of the Arbitration Act is not maintainable in law inasmuch as there is no dispute to be referred to the arbitrator under the arbitration clause of the agreement dated 29th August, 1984. The petitioner has finally settled the matter across the table in terms of the deed of settlement dated 24th May, 1986 and in terms of the settlement he has received Rs. 6,89,299.50 vide receipt dated 24th May, 1986 and the petitioner handed over the site to the respondent Society in writing on 24th May, 1986 itself. In terms of the said settlement the petitioner has received Rs. 60,700.50 on 26th May, 1986. As such the petitioner after having entered into and acted upon the said settlement is not entitled to invoke the arbitration clause of the agreement dated 29th August, 1984. The other averments of the petitioner against the respondent Society have been denied by the respondent Society which need not be stated here as these are not relevant for determining the point in controversy.

(6) Out of the pleadings of the parties the following issues were framed on 20/11 May, 1987 :

1. Whether the deed of settlement dated 24-5-1986 is not binding on the petitioner for the reasons slated in the petition ?

[1 2.Whether there exists any dispute between the parties which can be referred for arbitration in terms of the arbitration agreement.

3.Relief. "

(7) During the course of arguments, the only point argued by counsel for the respondent was the same which has been taken by the respondent Society under the head 'Preliminary Objections' in Written Statement that the matter has been settled finally between the parties in terms of the settlement dated 24th May, 1986 across the table and there is no dispute left for reference to the arbitrator. It was further submitted by counsel for the respondent Society that there was no material on record to show that the settlement dated 24th May, 1986 entered between the petitioner and the respondent was under duress or coercion. Since there has been final and full settlement under the contract, the rights and obligations under the contract do not subsist and consequently the arbitration clause also perishes along with the settlement. If so, the dispute whether there has or has not been a settlement cannot be the subject of an arbitration. Therefore, the question that arises for consideration is whether there was or was not a valid settlement dated 24th May, 1986 between the parties can be said to be a dispute which should be included in the arbitration agreement. In this connection reference has already been made to the arbitration clause No. 19. In my view whether or not there has been final and full valid settlement of claim under the contract is a dispute arising out of or in connection with the contract or the carrying out of the works of the contract. These words 'arising out of or in connection with the contract or the carrying out of the works' are wide enough to cover all the disputes and differences. Therefore, the dispute whether or not there has been final and full valid settlement of claim under the contract is required to be referred to the arbitration, I am fully fortified in taking this view by the observation of the Supreme Court in Damodar Valley Corporation v. V. K. Ker wherein it has been held : "WHETHER there has been a full and final settlement of a claim under the contract is itself a dispute arising 'upon' or 'in relation to' or 'in connection with' the contract. These words are wide enough to cover the dispute sought to be referred."

FURTHER in paragraph 7 of the lodgment while dealing with the question whether or not there has been a full and final settlement under the contract, the rights arid obligations under the contract do not subsist and consequently the arbitration clause also perishes along with the settlement and, if so, the dispute whether there has or has not been a settlement cannot be the subject of an arbitration, the Supreme Court has further explained the position as under : "A contract is the creature of an agreement between the parties and where the parses 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 Seal settlement of the contract relate to the performance or discharge of the contract. Far from putting an end to the arbitration 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."

IN this connection further observations of the Supreme Court may be referred to : "......Similarly the question whether there has been a settlement of all the claims arising in connection with the contract also postulates the existence of the contract The principle laid down by Sarkar, J., in Kishorilal Gupta Pres's case that accord and satisfaction does not put an end to the arbitration clause was not dissented from by the majority. On the other hand proposition (6) seems to lend weight of the views of Sarkar, J. In these circumstances, the question whether the termination was valid or not and whether damages are recoverable for such wrongful termination does not affect the arbitration clause, or the right of the respondent to invoke it for appointment of an arbitrator."

REFERENCE may also be made to the judgment of Delhi High Court in Arvind Kumar v. Union of India (1987- 2 Arbitration Law Reporter 220) (2), wherein a similar view has been expressed whether a letter operates as final settlement of the claim of the petitioner or not and whether the said letter had been written by the petitioner under threat and coercion as alleged itself has been considered to be a dispute which has been settled by the arbitrator as per the arbitration clause between the parties. As a matter of fact the learned Judge has relied upon Damodar Valley Corporation's care (supra).

(8) In view of the above discussion I am of the view that the deed of settlement dated 24th May. 1986 does not stand in the way of reference of the disputes to the arbitration in accordance with the terms of the arbitration clause (Clause 19) of the agreement dated 29th August, 1984. The claims mentioned in paragraph 23 of the petition, which are denied by the respondent-society, are the claims which arise out of or in connection with the contract, or the carrying out of the works of the contract and are, therefore, covered under arbitration clause and as such are required to be referred to the arbitrator. Both the issues are decided in favor of the plaintiff and against the defendant.

(9) I, therefore, hereby direct the respondent-Society r,o file the arbitration agreement dated 29th August, 1984 in court and to appoint an arbitrator in accordance with arbitration clause (No. 19) within two months from today to decide and settle the claims.

(10) Suit stands disposed of. No costs.