Hari Vansh Chawla vs M/S. Prem Kutir Co-Operative
1996 Latest Caselaw 225 Del

JUDGMENT

S.K. Mahajan, J.

1. Under an agreement entered into between the parties on April 26, 1987 the petitioner was awarded the work of construction of flats for the respondent society. Though, the total value of the work to be executed under the contract was approximately Rs. 1.70 crores, the petitioner was not able to complete the same and the work was abandoned in between. The petitioner raised his third running bill on 3rd October, 1989 which was subsequently revised vide the third revised and final bill dated 9th November, 1989 as asked for by the architect vide his letter dated September 20, 1990. It appears that after some negotiations, the matter was settled between the parties and the full and final settlement was drawn on a stamp paper on December 4, 1989. Under the settlement duly witnessed by the architect, a total sum of Rs. 24,03,000/- was assessed to be due to the petitioner being the value of the work done by him and after taking the value of the material supplied to him by the respondent and another sum of Rs. 50,000/- being the income-tax deducted at source, a sum of Rs. 14,75,000/- was found due and payable to the petitioner. From out of this sum, a sum of Rs. 13,75,000/- (including the amount of mobilisation advance) already stood paid and the balance sum of Rs. 1,00,000/- was, therefore, paid by the respondent to the petitioner by means of a cheque. It was stated that after this payment nothing remains due to the petitioner.

2. In spite of full settlement of all the claims, the petitioner again raised the same claims before the architect. This was followed by another letter dated February 12, 1990 written by the advocate of the petitioner to the society informing it that in spite of submitting the claims to the architects, no decision has been conveyed by them and as such the same amount to withholding of certificate under the agreement and claims were required to be referred to arbitration. He, therefore, appointed Mr. J. R. Bhalla, architect, 5 Sunder Nagar, New Delhi as his arbitrator for adjudication of the dispute between the parties and called upon the respondent to agree to his appointment as sole arbitrator and in case he was not acceptable as the sole arbitrator, the respondent was requested to exercise its option by appointing an arbitrator within fifteen days of the receipt of the said letter. As no reply had been given by the respondent to the aforesaid letter, the petitioner by letter dated April 6, 1990 appointed Mr. J. R. Bhalla, architect as the sole arbitrator and requested him to proceed with the reference. Copy of this letter was sent to the respondent.

3. Mr. J. R. Bhalla, the arbitrator appointed by the petitioner entered upon the reference and made and published his award dated 14th November, 1990 awarding a sum of Rs. 7,37,699/- in favour of the petitioner and further directed the respondent to pay interest at the rate of 12 per cent per annum on the amount awarded by him from the date of the award till the date of payment. Respondent was also directed to issue a certificate in favour of the claiment towards recovery of income tax deducted at source.

4. After this award had been filed in court, objections were filed by the respondent. Main objections of the respondent under Sections 30 and 33 of the Arbitration act are that after the parties had entered into the agreement dated December 4, 1989, the matter came to an end and all the claims of the petitioner were finally settled and consequently not only that the main agreement stood superceded but no reference could also be made to arbitrator for reference of any disputes raised by the petitioner. It is also stated that in any case the claims preferred by the petitioner fell in the category of excepted matters and the same could not, therefore, be referred to the arbitrator. There being no subsisting agreement between the parties, the appointment of Mr. J. R. Bhalla as the sole arbitrator was also challenged and it is stated that he had no jurisdiction to adjudicate upon the claims raised by the petitioner.

5. The question, therefore, for consideration is whether on the signing of the agreement dated December 4, 1989 by the parties, the original agreement stood exhausted and whether Mr. J. R. Bhalla could act as sole arbitrator.

6. The arbitration clause as contained in the special conditions of contract was in the following terms :

(6) Settlement of Dispute, Arbitration.

"All disputes and differences of any kind whatever 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 contract) shall be referred to and settled by the Architects who shall state their decision in writing. Such decisions may be in the form of a final certificate or otherwise. The decision of the Architect with respect to any of the accepted matters shall be final and without appeal. But if either the employer or the contractor be dissatisfied with the decision of the Architect or may matter question or the dispute of any (except any of the accepted matters) or as to the withholding by the Architect of any certificate of which the contractors) may within 28 days after receiving notice to such decision give a written notice to the other party through the Architects requiring that such matters in dispute be arbitrated upon such written notice shall specify the matters which are in dispute and such dispute or difference of which such written notice as has been given and no other shall be and is hereby referred to the arbitration and final decision 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 case of disagreement to the appointment of a single arbitrator to the arbitration of two arbitrators being both Fellow of the Indian Institute of Architects or Fellow of Institute of Engineers or equivalent one to be appointed by each party, which arbitrators shall before taking upon themselves the burden of reference appoint an umpire.

The Arbitrator, the Arbitrators or the Umpire shall have power to open up, review, and revise may certificate, opinion, requisition or notice, save in regard to the excepted matters to determine all matters in dispute which shall be submitted to him or them of which notice shall have been given as aforesaid."

7. Though, under Clause 6 of the conditions of contract, the matter was required to be referred to an arbitrator, however, by this clause as well as by a subsequent agreement entered into between the parties on April 26, 1987 powers were given to the architect to give a decision in reference to all matters of disputes to the materials, workmanship, or accounts, and as to the intended interpretation of the clauses of this agreement or any other document attached hereto and such decisions was held to be final and binding. Clause 4 of the said agreement reads as under :

"The within plans, Agreement and documents above mentioned shall form the basis of this Contract and the decision of the said Architects or other Architect or Employer for the time being as mentioned in the Conditions of Contract in reference to all matters of disputes to the materials, workmanships or accounts, and as to the intended interpretation of the clauses of this Agreement or any other document attached hereto, shall be final and binding on both parties and may be made a rule of court."

8. The contention of learned counsel for the objector is that as the decision of the architect has been made final both under the original agreement as well as under the agreement dated April 26, 1987. His contention is that the certificate dated December 4, 1989 in full and final settlement of the claims of the petitioner stands duly witnessed by the architect and the same will amount to his decision under clause 6 of the terms and conditions as well as under clause 4 of the agreement dated April 26, 1987. The further contention of the objector is that all those claims which have been referred by the petitioner to the arbitrator were raised by him before the architect, as is evident from the letter dated October 23, 1989 and it was after this letter received by the architect that a decision was given in the form of a final certificate/full and final settlement dated December 4, 1989. According to Mr. Kaul learned counsel for the objector, this letter was followed by third revised and final bill dated 9th November, 1989 submitted by the petitioner to the society through the architect.

9. It is contended by Mr. Lakhanpal, appearing on behalf of the petitioner, that the question whether there has been a full and final settlement of the claims under the contract was itself a dispute arising under the contract, and as such, the same was required to be referred to arbitrate. According to him the claims which were subject-matter of reference were not considered by the parties at the time of signing the agreement dated December 4, 1989. According to him, agreement dated 4th December, 1989 will not come in his way to claim arbitration. In support of his contention, he has relied upon the judgment reported as Union of India v. M/s. L. K. Ahuja & Co. . In this case, the contractor had accepted full and final payments under the agreements and no claim declaration in respect of the same had been given. Thereafter, certain disputes were raised and on the refusal of the Chief Engineer to refer the said disputes, an application under Section 20 of the Arbitration Act was filed in court. The court, in those circumstances, held that "it is true that on completion of the work, right to get payment would normally arise and it is also true that on settlement of the final bill, the right to get further payment gets weakened but the claim subsists and whether it does subsist, is a matter which is arbitrable."

10. To appreciate the contention of Mr. Lakhanpal as to whether the disputes could still be referred to an arbitrator or whether by entering into the agreement dated December 4, 1989, the original contract had come to an end and with the same the arbitration agreement also perished, it will be useful to look to the terms of the said agreement dated December 4, 1989. The said agreement which had been entered into between the parties was on the following terms :

Full & Final Settlement

Prem Kutir Co-op. Group Housing Society Ltd., 9/7 Patodia Hotel, Shakti Nagar, Delhi-110007 executed an agreement for the construction of 100 flats with M/s. H. V. Chawla & Associates, M-203, Greater Kailash-I, New Delhi 110048.

Due to some unavoidable circumstances the work was incomplete and the full and final settlement made on 4th December, 1989.

  
 Work done under the contract agreement 
 Value of the work done                            24,03,000.00 
 Less material supplied                             8,78,000.00                             
                                                  --------------
                                                   15,25,000.00 
 Less Income tax                                      50,000.00
                                                 ---------------
                                                   14,75,000.00 
 Less already paid                                 13,75,000.00
                                                 ---------------
 Now payable                                        1,00,000.00
                                                 --------------- 
 
 

A sum of Rs. 1,00,000/- (Rs. one lac only) has been paid vide cheque No. 115658 drawn on Bank of India, Kamla Nagar Branch, Delhi. 
 

It is agreed by the contractor that the payment was made to all sub-contractors, labour and employee engaged at site for the work done till date. There is any charges for water, electricity, labour, sub-contractors, employees etc., shall be the liability of the contractor. 
  
  WITNESS      President            Secretary 
  R. K. & Associates
  16-17 Ahluwalia Chambers      Treasurer
  Near Pushpa Bhawan'           for Prem Kutir
  New Delhi 110062              Co-op. G.H.S. Ltd.,
                                M/s. H. V. Chawla and Associates
      Place : New Delhi
                        Contractor." 
 
 

11. The question is whether the settlement which had been arrived at between the parties by this agreement dated December 4, 1989, the main contract had extinguished and the arbitration clause contained therein also perished along with it. The claims which had been raised by the petitioner in his letter dated 23rd December, 1989 were also the claims which had been made in the third revised final bill submitted to the architect and these were the claims which were ultimately referred to the arbitrator for adjudication and on which the arbitrator made and published this impugned award. At the time of entering into this settlement dated December 4, 1989, all the parties were aware that the contractor had raised certain claims which, according to him, arose under the terms of the agreement and he was claiming payment under the said claims. Taking all these factors into consideration, the parties willingly entered into the full and final settlement of December 4, 1989, whereby the total amount found to be due under the agreement to the contractor was Rs. 15,25,000/-. After deducting the amount which had already been paid and the amount of income tax, a total sum of Rs. 1 lakh was found payable to the contractor. This agreement has been witnessed by the architect. I am unable to agree with Mr. Lakhanpal, that these claims were not considered by the parties or by the architect at the time of signing the full and final settlement dated December 4, 1989.

12. The contention of learned counsel for the objector/society is that this will be deemed to be a decisions of the architect under the terms of the contract, and as such, the claims which had been raised in the third revised final bill could not be subject-matter of further arbitration to the arbitrator. There is force in the arguments of Mr. Kaul. Under clause 6 of the special conditions of the contract as well as under clause 4 of the agreement dated April 26, 1987, the decision of the architect has been made final and this decision could have either been in the form of certificate or otherwise. The judgment in Union of India v. L. K. Ahuja, will, therefore, not be applicable to the facts of the present case.

13. In Union of India v. Kishorilal (AIR 1959 SC 1662), the facts were that the respondents had entered into three contracts with the appellant in that case, each of which contained an arbitration clause. Before the contracts were fully executed certain disputes arose between the parties and the parties then entered into three fresh contracts on successive dates purporting to settle the disputes on the terms contained therein. By the last two of these settlement, the respondents agreed to pay pay certain monies in settlement respectively of the disputes regarding the first two original contracts. By the last of these settlements, the respondents agreed to pay to the appellant in specified instalments certain monies in settlement of the disputes relating to the third original contract as also the monies in settlement of the become due on the first two settlement contracts and had not been paid. In the end, it provided as follows :

"The contracts stand finally concluded in terms of the settlement and no party will have any further or other claim against the other."

14. On a question whether arbitration clause in the original contract had ceased to have any effect and the contract stood finally determined as a result of the settlement, the Calcutta High Court held that the first original contract and been abrogated by the settlement, in respect of it but the third original contract and the arbitration clause contained in it had ceased to exist as a result of the last settlement and as such the arbitrator had no jurisdiction to arbitrate under that arbitration clause. When the matter came up before the Supreme Court, High Court's decision was confirmed and it was held that the third settlement contract was in substitution of the third contract and, after its execution all the contracts were extinguished and the arbitration clause contained therein also perished along with them. After review of the relevant case law, Subba Rao, J. as he then was, speaking for the majority enunciated the following principles :

"(1) An arbitration clause is a collateral term of a contract as distinguished from its substantive terms; but none the less it is an integral part of it; (2) however comprehensive the terms of an arbitration clause may be, the existence of the contract is a necessary condition for its operation; it perishes with the contract; (3) the contract may be non est in the sense that it never came legally into existence or it was void ab initio : (4) though the contract was validly executed, the parties may put an end to it as if it had never existed and substitute a new contract for it solely governing their rights and liabilities thereunder; (5) in the former case, if the original contract has no legal existence, the arbitration clause also cannot operate, for along with the original contract, it is also void, in the later case, as the original contract is extinguished by the substituted one, the arbitration clause of the original contract perishes with it, and (6) between the two fall many categories of disputes in connection with a contract, such as the question of repudiation, frustration, breach etc. In those cases it is the performance of the contract that has come to an end, but the contract is still in existence for certain purposes in respect of disputes arising under it or in connection with it. As the contract subsists for certain purposes, the arbitration clause operates in respect of these purposes."

15. In my opinion, this judgment is fully applicable to the facts of the present case and with the signing of the full and final settlement on December 4, 1989, the contract came to an end.

16. It is not the case of the contractor that at the time of submission of third final revised bill, the claims which had been referred to the arbitrator were not within his knowledge or that the same were not mentioned in the final bill. Petitioner has also not challenged the factum of settlement nor has claimed the same to have been signed under duress so as to raise a dispute concerning this settlement before the arbitrator. In fact, all these claims were part of the third revised final bill. The position might have been different, in case the said claims were not before the architect or before the parties at the time of this final settlement on December 4, 1989. But as the parties were aware of the existence of those claims and it was in those circumstances that they willingly entered into this agreement of December 4, 1989, in my opinion, this agreement would amount to a fresh contract between the parties which would put an end to the main contract and with the contract coming to an end the arbitration clause contained therein would perish along with it. The contract as well as arbitration agreement, therefore, in my opinion, stood discharged. Moreover, this settlement of December 4, 1989, can also be said be a decision of the architect under the agreement and this decision having not been challenged, the claims could not be subject matter of reference before the arbitrator.

17. That being the position, no disputes/claims could be referred to the arbitrator and the award of the arbitrator, therefore, is wholly without jurisdiction and I need not dwell myself upon other questions which had been raised by the parties in the present case.

18. For the foregoing reasons, the award dated November, 14, 1990 is set aside, leaving the parties to bear their own costs.