Hari Vansh Chawla vs M/S.Prem Kutir Cooperative Group ...
2008 Latest Caselaw 998 Del

       *       HIGH COURT OF DELHI AT NEW DELHI

       +                    FAO(OS) No.385/1996

       HARI VANSH CHAWLA                 ....Appellant
                       Through:Mr.G.N.Aggarwal, Advocate

                                      Versus

       M/S.PREM KUTIR COOPERATIVE GROUP
       HOUSING SOCIETY LIMITED                   ..... Respondent
                      Through Mr.Manish Kumar, Mr.Amit Kumar and
                      Mr.Nitin Bhatia, Advocates
       CORAM:
       HON'BLE THE CHIEF JUSTICE
       HON'BLE DR. JUSTICE S.MURALIDHAR

       1.Whether reporters of the local news papers be allowed to see the judgment?y

       2.To be referred to the Reporter or not ?y

       3. Whether the judgment should be reported in the Digest ?y

                                    JUDGEMENT

% 11.07.2008

1. This appeal which arise out of the judgment and order dated

29th February, 1996 passed by the learned single Judge revolves

around the question as to whether an arbitration clause in a

contract survives despite the settlement which had been arrived at

between the parties.

2. The respondent Society is registered under the Cooperative

Societies Act. The Society was allotted land by the Delhi

Development Authority for construction of low income group flats

for its members. The respondent Society appointed M/s. R.K

&Associates as their architects who in turn invited tenders for

construction of flats. In pursuance thereto the appellant submitted

his tender in the prescribed form on 17th September, 1986 and an

agreement was entered into between the parties on 26th April,

1987. The total value of the work envisaged in the contract was

Rs.1.70 crores (aprox.) and the work was to be completed within

the period of 30 months i.e. by September, 1989. But the

appellant was not able to complete the same and the work was

abandoned in between. The appellant used to raise various bills

towards the work done. A third running bill dated 3rd October, 1989

was raised by the appellant which was subsequently revised as a

final bill on 4th November, 1989. It appears that after some

negotiations, the matter was settled between the parties and the

full and final settlement was arrived on 4th December, 1989. Under

the settlement, duly witnessed by the architect, a total sum of

Rs.24,03,000/- was assessed to be due and payable to the

appellant being the value of the work done by him. After deducting

the value of all the material supplied to him by the respondent and

another sum of Rs.50,000/- being income tax deducted at source, a

sum of Rs.14,75,000/- was found to be due and payable to the

appellant. From out of this amount, a sum of Rs.13,75,000/-

(including the amount of mobilization advance) already stood paid

and a balance of Rs.1 lac was, therefore, paid by the respondent to

the appellant by means of a cheque.

3. It appears that in spite of the full and final settlement of all

the claims, the appellant again raised the same claim before the

architect and this was followed by another letter dated 4th

December, 1990 written by the advocate of the appellant to the

respondent Society inviting their attention that in spite of

submitting claims to the architect, no decision has been conveyed

to him and as such the same amounts to withholding of certificate

under the agreement and the claims are required to be referred to

arbitration. He appointed Mr.J.R. Bhalla, Architect, 5, Sunder

Nagar, New Delhi as his arbitrator for adjudication of the disputes

between the parties and called upon the respondent to agree to

Mr.Bhalla's appointment as the 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

15 days of the receipt of the said letter. As no reply had come from

the respondent to the abovesaid letter, the appellant by letter

dated 6th April, 1990 appointed Mr.J.R. Bhalla as the sole arbitrator

and requested him to proceed with the reference.

4. Mr.J.R. Bhalla entered upon reference and made and

published his award dated 14th November, 1990 awarding a sum of

Rs.7,37,699/- in favour the appellant and further directed the

respondent to pay interest @12% p.a 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

claimant towards recovery of income tax deducted at source.

5. After this award had been filed in Court, objections were filed

by the respondent. The main objection of the respondent under

Sections 30 and 33 of the Arbitration Act, 1940 was that after the

parties had entered into the agreement dated 4th December, 1989,

the matter came to an end and all the claims of the appellant were

finally settled and consequently, not only that the main agreement

stood superseded but no reference could also be made to arbitrator

for adjudication of any disputes raised by the appellant. It was also

contended that in any case the claims preferred by the appellant

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 was urged that he

had no jurisdiction to adjudicate upon the claims raised by the

appellant.

6. The learned single Judge upon consideration of the material

placed on record held that by virtue of the settlement which had

been arrived between the parties by agreement dated 4th

December, 1989, the main contract extinguished and the

arbitration clause contained therein also perished along with it. No

dispute/claims could be referred to the arbitrator and the award of

the arbitrator is therefore wholly without jurisdiction. Consequently

the award dated 14th November, 1990 was set aside.

7. Before us, learned counsel for the appellant strenuously

contended that whether there was discharge of the contract by

accord and satisfaction or not is a dispute arising out of the

contract and is liable to be referred to arbitration. He contended

that despite coming to end of the contract, the arbitration clause

survives and all questions arising out of or in relation to the

execution of the contract are referrable to arbitration. Reliance in

this connection has been placed on the decisions of the Supreme

Court in Damodar Valley Corporation v. K.K.Kar reported in

(1974) 1 SCC 141, M/s. Bharat Heavy Electricals Limited

Ranipur v. M/s.Amar Nath Bhan Prakash reported in (1982) 1

SCC 625, M/s.Bharat Coking Coal Limited v. M/s.Annapurna

Construction reported in AIR 2003 SC 3660, and Chairman &

MD, NTPC Ltd v. Reshmi Constructions, Builders and

Contractors reported in AIR 2004 SC 1330.

8. On the other hand, learned counsel appearing for the

respondent contended that the arbitration would arise only when

there is a subsisting dispute/difference between the parties. Once

there is a settlement of the claims admittedly made by the

appellant, there is no pending dispute and the question of

arbitration of the dispute thereafter would not arise. In view of the

fact that the appellant admittedly accepted the payment in full and

final settlement, there was no arbitrable dispute for reference. He

contends that in view of the settlement, the earlier agreement

between the parties stood perished by substitution of the new

contract in the nature of settlement. He placed reliance on the

decisions of the Supreme Court in M/s.P.K.Ramaiah and

Company v. Chairman & Managing Director, National

Thermal Power Corporation reported in 1994 Supp (3) SCC 126,

State of Maharashtra v. Nav Bharat Builders reported in 1994

Supp(3) SCC 83 and Nathani Steels Ltd v. Associated

Constructions reported in 1995 Supp (3) SCC 324.

9. It is not in dispute that the appellant had settlement with the

respondent in writing. The question emerges whether there exists

arbitrable disputes between the parties. 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 decision 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 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, 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."

A reading of the above arbitration clause would clearly establish

that all questions in connection with the contract or carrying out of

the works shall be referred to arbitration in the manner prescribed

by the said clause. Thus, it is clear that if there is an arbitrable

dispute it shall be referred to the arbitrator in accordance with the

arbitration clause, but there must exist a subsisting dispute.

Admittedly the parties entered into an agreement dated 4th

December, 1989 on the following terms:

" FULL & FINAL SETTLEMENT

Prem Kutir Coop Group Housing Society Ltd. 9/7 Patodia Hotel, Shakti Nagar, Delhi-110 007 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 & 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                 Treasurer

              16-17 Ahluwalia Chambers          for Prem Kutir

              Near Pushpa Bhawan,               Coop GHS Ltd

              New Delhi.



                                                Ms/.H.V Chawla &

                                                Associates,

                                                Contractor



              Place: New Delhi"

10. The question is whether with the settlement which had been

arrived at between the parties by the aforesaid agreement, the

main contract had extinguished and the arbitration clause

contained therein also perished along with it. The claims which had

been raised by the appellant in his letter dated 23rd December,

1989 were also the claims which had been made in the third

revised final bills submitted to the architect and these were claims

which ultimately referred to the arbitrator for adjudication on which

the arbitrator made and published his impugned award. It was

specifically recorded that due to some unavoidable circumstances

the work was incomplete and the full and final settlement had

arrived at between the parties. The work done under the contract

was assessed at Rs.24,03,000/- and after deducting therefrom the

value of the material supplied and income tax paid as well as

amount already paid as per the running bills, the net amount of

Rs.1 lac was found to be due and payable to the appellant. At the

time of entering into the settlement the parties were aware that

the contractor had raised certain claims, which, according to him,

arose under the terms of the agreement. Taking all these facts into

consideration the parties entered into full and final settlement on

4th December, 1989 whereby the total amount to be paid under the

agreement to the appellant was a sum of Rs.1 lac. The parties

having arrived at a settlement under the aforesaid agreement with

regard to their subsisting disputes and having acknowledged in

writing the full and final satisfaction of their disputes, there was

complete accord and satisfaction by accepting final settlement of

claims.

11. In P.K.Ramaiah's case (supra) the Supreme Court

considered the ambit of accord and satisfaction by the parties

voluntarily entered into and disputation raised thereunder. The

Court after considering the entire controversy held that:

"Admittedly the full and final satisfaction was acknowledged by a receipt in writing and the amount was received unconditionally. Thus there is accord and satisfaction by final settlement of the claims. The subsequent allegation of coercion is an afterthought and a devise to get over the settlement of the dispute, acceptance of the payment and receipt voluntarily given.... Having acknowledged the settlement and also accepted measurements and having received the amount in full and final settlement of the claim, there is accord and satisfaction. There is no existing arbitrable dispute for reference to the arbitration."

In the above case the appellant had admittedly accepted the

amount in full and final settlement and given the receipt. Later it

disputed its correctness on the ground that it was obtained by

coercion. When proceedings were laid for reference to arbitration

the trial court upheld the contention and referred the matter for

arbitration. On appeal the High Court set aside the order. When

the appeal was filed in the Supreme Court, the Court concurred in

the above findings and held that there was no arbitrable dispute.

12. In Nathani Steels case (supra) the Court held that once

there is full and final settlement in respect of any particular dispute

or difference in relation to a matter covered under the arbitration

clause in the contract and that dispute or difference is finally

settled by and between the parties, the said dispute or difference

does not remain to be an arbitrable dispute. Arbitration cannot be

invoked even though for certain other matters the contract may be

in subsistence. Once parties have arrived at a settlement in

respect of any dispute or difference arising out of any contract or

that dispute or the difference is amicably settled by way of final

settlement by and between the parties, unless that settlement is

set aside in appropriate proceedings, it cannot lie in the mouth of

one party to the settlement to spurn on the ground that it was a

mistake and to proceed to invoke arbitration clause. If this is

permitted, the sanctity of the contract, the settlement also being a

contract, would be wholly lost and it would be open to one party to

take the benefit under the settlement and then to question the

same on the ground of mistake without having the settlement set

aside. In the circumstances it was held that since the dispute or

difference was finally settled and payments were made as per the

settlement, it was not open to the respondent unilaterally to treat

the settlement as non est and proceed to invoke the arbitration

clause.

13. In State of Maharashtra v. Nav Bharat Builders (supra)

the respondent therein filed a suit under Section 20 of the

Arbitration Act, 1940 for filing agreement so as to refer the dispute

to the arbitrator. Pending the suit he submitted a letter to the

government on 8th September, 1986 and pursuant to this and

further correspondence, the government constituted a sub-

committee to go into the question of labour escalation claimed by

the respondent. The sub-committee in its report had submitted to

the government for acceptance of the claim of the respondent

subject to the terms mentioned in paragraph 8.0 of its report.

Pursuant thereto, when it was addressed to the respondent, the

respondent in his letter dated 3rd March, 1989 had agreed to

receive the amount of the price escalation on account of labour

component worked out by the committee stating that : "I further

agree to accept the payment as decided by the Government till

completion of the work". Thereafter the recommended amount

was tendered to the respondent and he had accepted the payment

in his letter dated 7th May, 1990 thus: "In continuation of our above

letter as instructed by you we will withdraw from our special suit

No.134, claim in respect of labour escalation". Thereafter the

respondent had disputed the correctness of the amount quantified

contending that it was obtained by coercion and therefore he is

not bound by it. When an objection was raised, the trial judge

accepted the same. On appeal, the High Court held that it is an

arbitrable dispute and arbitrator would decide the same. Allowing

the appeal the Supreme Court held as follows:

"The respondent -contractor acknowledged the receipt of the amount paid to him and stated that he was unconditionally withdrawing his claim in the suit in respect of labour escalation. Thus, there was full and final settlement of the claim and thereby there was no arbitrable dispute in respect of labour escalation. But, any other claims which the respondent made in the suit, the court is to consider whether arbitrable disputes arose under the contract for reference to arbitration and if so whether the respondent is entitled to any amount so claimed."

14. The learned single Judge has referred to the decision in

Union of India v. Kishorilal reported in AIR 1959 SC 1662

wherein after execution of the contracts, the parties entered into

three fresh contracts on successive dates purporting to settle the

disputes on the terms contained therein. By the first of the two

settlements, the respondent agreed to pay certain monies in

settlement respectively of the disputes regarding the first two

original contracts. By the last of these settlements, the respondent

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 which had then 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."

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 Supreme Court 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:

"(i) 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 there under; (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 latter 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 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 the light of the principle enunciated, in the present case it

is clear that after signing of the full and final settlement on 4th

December, 1989 the contract came to an end and there exist no

arbitrable disputes which could be referred to arbitration.

16. In our opinion various decisions referred to by the learned

counsel for the appellant are clearly distinguishable and have no

bearing on the facts of the present case. In Damodar Valley

Corporation case (supra) the Court noted the facts thus:

"It is the case of the appellant that these payments including the return of the deposit amount finally settled the claims of the respondent. No doubt the respondent was asked to submit his bill along with a receipt stating that he received the payment in full and final settlement of all payments and that there was no other claim. But the respondent while submitting his bill did not give the receipt as desired. The amount of the bill was, however, paid after receipt of which the respondent claimed further sums from the appellant including damages for repudiation of the contract."

17. On these facts the Court held that although there was

alleged payment as final satisfaction of the contract, yet as the

respondent did not give any receipt accepting the settlement of the

claim, the payment was unilateral, so the dispute still subsisted and

therefore it was arbitrable dispute and the reference was valid. In

fact the decision in Damodar Valley Corporation case was

considered and held to be distinguishable on facts in the later

decision of the Supreme Court in State of Maharashtra v. Nav

Bharat Builders (supra).

18. In Bharat Heavy Electricals case (supra) the Supreme

Court held that there was no full and final settlement and the

payment was not received under a receipt.

19. The decision in Bharat Coking Coal case (supra) also turns

on its own facts. There the Court held that the fact the respondent

had accepted the final bill would not mean that it was not entitled

to raise any claim. The Court noted that the respondent had not

unequivocally stated that he would not raise any further claim.

20. In Chairman & MD, NTPC case (supra) parties had entered

into an agreement for a project at Kayamkulam. Upon completion

of the work, the respondent therein submitted final bill which was

allegedly not accepted by the appellant, whereafter they

themselves prepared the final bill and forwarded the same along

with a printed format being a "No Demand Certificate". The said

No Demand Certificate was signed by the respondent therein on

the same date. The respondent sent a letter stating that the said

No Demand Certificate was obtained under coercion. The

respondent thereafter invoked the arbitration clause by way of a

letter through his advocate dated 21st December, 1991 with a

request to refer the disputes and difference to the sole arbitrator

for arbitration and the request was accepted by the appellant

through its letter dated 13th February, 1992. Subsequently a

clarificatory letter was sent to the effect that in view of the No

Demand Certificate the contract had come to an end. In these

circumstances, the Court held that the finding that prima facie

there are triable issues before the arbitrator so as to invoke the

provisions of Section 20 of the Arbitration Act, 1940 cannot be said

to be perverse and unreasonable. In our opinion this decision is

also of no assistance to the case of the appellant.

21. In view of the above discussion, we are of the considered

opinion that the learned single Judge has rightly come to the

conclusion that no disputes/claims could be referred to the

arbitrator and that the award of the arbitrator is without

jurisdiction. We find no merit in this appeal. The same is

accordingly dismissed.

                                          CHIEF JUSTICE



                                          S.MURALIDHAR
JULY 11, 2008                                (JUDGE)
'v'