Delhi High Court
M/S.Thermospares India vs Bharat Heavy Electricals Ltd. & ... on 26 March, 2012
Author: Pradeep Nandrajog
$~ R-7
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment Reserved on: March 06, 2012
Judgment Pronounced on: March 26, 2012
+ FAO(OS) No.480/2006
M/S.THERMOSPARES INDIA ..... Appellant
Represented by: Mr.Raman Kapur, Senior Advocate
instructed by Mr.R.P.Singh and
Mr.Aviral Tiwari, Advocates.
versus
BHARAT HEAVY ELECTRICALS LTD. & ORS...Respondents
Represented by: Mr.Parag Tripathi, Senior
Advocate instructed by
Mr.B.K.Satija and
Mr.Kunal Bahari, Advocates for BHEL
CORAM:
HON'BLE MR. JUSTICE PRADEEP NANDRAJOG
HON'BLE MS. JUSTICE PRATIBHA RANI
PRADEEP NANDRAJOG, J.
1. The agreement(s) between the parties, having an
arbitration clause, two claims in sum of `3,36,13,692.50
raised by the appellant were referred to a Sole Arbitrator.
2. As per the appellant, on November 03, 1976 and May
10, 1977, the respondent issued two Work Orders
No.529/VA/103/60049 and No.07/PPN/60049 respectively on
the appellant for transportation from project stores, erection,
testing and commissioning of pressure parts of Units I and II
of Panipat Thermal Power Plant, Panipat. Thereafter, on
August 17/22, 1977 the respondent issued a third Work Order
No.27/PPN/60049 on the appellant for transportation from
project stores/Railway siding, pre-assembly, erection, testing
and commissioning of external pipelines and auxiliaries of
Units I and II of Panipat Thermal Power Plant, Panipat.
Whereas the Work Orders Nos.529/VA/103/60049 and
07/PPN/60049 required the appellant to erect, test and
commission the pressure parts of Unit I and II by „ARC
Welding‟, the appellant erected, tested and commissioned the
pressure parts of Unit I and II by „TIG Welding‟ at the instance
of the officials of the respondent and since this entailed extra
cost, the appellant raised 3 bills totaling `6,07,605.60 viz. (i)
Bill No.TS1/A1/151 dated January 10, 1978 for a sum of
`2,47,859/-; (ii) Bill No.TS3/A-1/140 dated January 10, 1979
for a sum of `3,03,600/- and (iii) Bill No.TS1/B-1/239/80-81
dated October 31, 1980 for a sum of `56,146.60 upon the
respondent for having erected, tested and commissioned the
pressure parts of Unit I and II by „TIG Welding‟. Stating that
the respondent paid a sum of `1,23,034.56 to the appellant
towards the said 3 bills but did not make the balance
payment in sum of `4,84,571.04, it was pleaded that the
appellant was required to complete the work of erecting,
testing and commissioning of pressure parts of Unit I and II
within a period of 15 months from the issuance of the work
orders Nos.529/VA/103/60049 and 07/PPN/60049 as per the
said work orders, however the appellant managed to
complete the work within a period of 21 months from the
issuance of the said work orders and thus the respondent is
liable to pay overrun charges to the appellant to compensate
it for having overstayed at the site for nearly 6 months. In
respect of Work Order No.27/PPN/60060 it was pleaded by the
appellant that it had executed joinery work for the purposes
of erection, testing and commissioning of external pipelines
and auxiliaries of Unit I and II at the instance of the officials of
the respondent, which work was not stipulated in the Work
Order No.27/PPN/60060. The appellant raised 3 bills totaling
`10,48,450/- viz. (i) Bill No.TS1/EP1/179 dated March 26, 1979
for a sum of `2,53,600/-; (ii) Bill No.TS1/EP1/180 dated March
26, 1979 for a sum of `2,64,200/- and (iii) Bill No.TS1/B-
1/238/80-81 dated October 11, 1980 for a sum of `5,30,650/-
upon the respondent in respect of the extra joinery work
executed by it. The respondent paid a sum of `1,49,315.60 to
the appellant towards the said 3 bills but did not make the
balance payment in sum of `8,99,134.40. When the
respondent refused to make payment of the aforesaid bills
despite repeated requests made by the appellant in said
regards, the appellant was constrained to invoke arbitration
clause contained in the agreement(s) between the parties in
the year 1985. With respect to work orders Nos.
529/VA/103/60049 and 07/PPN/60049 the appellant raised 8
claims, gist whereof is as under:-
S. No. Particulars Amount
1. Payment of bills dated `4,84,571.04
10.01.1978, 10.01,1979 and (principal) +
31.03.1980 referred to above `5,46,845.40
together with interest thereon (interest) =
`10,31,416.44
2. Payment of overrun charges `3,15,000/-
for compensating the (principal) +
appellant for having `1,41,751/- =
overstayed at the site for 6 `4,56,751/-
months together with interest
thereon
3. Refund of labour security `3,750/-
4. Refund of sales tax recoveries `28,000/-
5. Payment of overhead charges `46,000/-
on consumables
6. Interest @ 18% per annum on `1,60,50,638.50
the claims nos.(1) to (5) for the
period from 17.12.1984 to
31.08.1998
7. Damages `5,00,000/-
8. Legal Expenses `50,000/-
3. With respect to Work Order No.27/PPN/60060 the
appellant raised 6 claims, the gist whereof is as under:-
S. No. Particulars Amount
1. Payment of bills dated `8,99,134.40
26.03.1979 and 11.10.1980
referred to above together
with interest thereon
2. Payment of a running bill of `5,000/-
Rs.5,000/-
3. Interest accrued on claims (1) `4,20,056/-
and (2) till 17.12.1984
4. Interest @ 18% per annum on `1,35,72,947.10
the claims nos.(1) to (5) for the
period from 17.12.1984 to
31.08.1998
5. Damages `5,00,000/-
6. Legal Expenses `50,000/-
4. In the reply(s) filed by the respondent it was pleaded
that on April 24, 1979 the appellant executed a no claim
certificate in respect of Work Order No.529/VA/103/60049. On
the very next day i.e. April 25, 1979 a meeting was held
between Mr.B.K.Jain, the partner of the appellant, and the
representatives of the respondent and a settlement was
arrived at between the parties in respect of the bills raised by
the appellant pertaining to TIG Welding and extra joinery
work. In pursuance of the aforesaid settlement, the appellant
issued no claim certificates in respect of Work Orders
Nos.07/PPN/60049 and 27/PPN/60060 on April 05, 1980 and
October 21, 1981 respectively and thereafter in terms of the
settlement recorded on April 25, 1979 received the final
payment from the respondent in full and final settlement of
the dues pertaining to the work(s) done by the appellant. On
October 11, 1980 a letter was written by the appellant to the
respondent regarding payment of the bills pertaining to TIG
Welding Work raised by the appellant, in response to which
the respondent wrote letter dated October 20, 1980 stating
therein that the issue relating to said bills were settled in the
meeting held on April 25, 1979 and that no payment is
outstanding in said regards. Thereafter on February 08, 1983
and February 18, 1983 the appellant wrote 2 letters to the
respondent wherein it was stated that the appellant has
decided to withdraw the claims pertaining to interest raised
by it vide letter dated January 18, 1983. On January 24, 1983
the appellant wrote another letter to the respondent stating
therein that all bills raised by the appellant stand settled and
only a sum of `12,000/- is left unpaid. On June 12, 1984 the
appellant wrote a letter requesting the respondent to make a
payment in sum of `5,000/- withheld by it for completion of
the balance work. It was pleaded that there was complete
accord and satisfaction of the disputes pertaining to the work
orders in question and that in view thereof the appellant is
estopped from raising any claim in respect of the said work
orders.
5. In the rejoinder filed, the appellant denied that there
was a complete accord and satisfaction of the disputes
pertaining to the work orders in question. With respect to no
claim certificates dated April 24, 1979, April 05, 1980 and
October 21, 1981 it was pleaded that the said certificates
pertained to the bills raised by the appellant with respect to
execution of works which formed part of the work orders and
that they do not pertain to the bills which form subject-matter
of the claim petition(s), inasmuch as said bills were raised by
the appellant with respect to execution of TIG Welding and
extra joinery works which did not form part of the work
orders. With respect to meeting dated April 25, 1979 it was
pleaded that the respondent cannot arbitrarily pay an
insignificant amount to the appellant in respect of extra
joinery works executed by it without going into the merits of
the case of appellant and that the respondent cannot
arbitrarily impose the rates decided in respect of other
contractor upon the appellant in respect of TIG Welding Work
executed by it without going into the merits of the case of
appellant. With respect to the letter dated January 24, 1983 it
was pleaded that said letter was written in the context of the
bills raised by the appellant pertaining to the execution of
works which formed part of the work orders and not with
respect to the bills which form subject-matter of the claim
petition(s) i.e. extra work. With respect to the letters dated
February 08, 1983 and February 18, 1983 it was pleaded that
the said letters were signed by one of the partners of the
appellant on account of undue harassment by respondent.
6. On the basis of pleading of parties, following issues were
settled by the learned Arbitrator:-
"A Contract No.529/VA/103/60049 & Contract
No.07/PPN/60049
Issues of the Claim of M/s Thermo Spares:
1) Whether M/s Thermo Spares is entitled to
recover a sum of `4,84,571.04 Paise from M/s BHEL
on account of execution of additional work of TIG
Welding, as claimed?
2) Whether M/s Thermo Spares is entitled to
recover over-run charges of `3,15,000/- from BHEL,
as claimed?
3) Whether M/s Thermo Spares is entitled to
recover `3750/- towards security with BHEL, as
claimed?
4) Whether M/s Thermo Spares is entitled to
recover `28,000/- towards Sales Tax recovered by
BHEL, as claimed?
5) Whether M/s Thermo Spares is entitled to
recover `46,000/- towards overhead charges of
consumables charged by BHEL, as claimed?
6) Whether M/s Thermo Spares is entitled to
recover `5,00,000/- as damages from BHEL, as
claimed?
7) Whether M/s Thermo Spares is entitled to
recover `50,000/- towards legal expenses from
BHEL, as claimed?
8) Whether M/s Thermo Spares is entitled to
award of interest from BHEL, as claimed?
ISSUES OF BHEL
1) Whether the claims filed by M/s Thermo
Spares is maintainable or not?
2) Whether M/s Thermo Spares is entitled for any
amount or amount as claimed for in the claim
petition under different heads especially when the
claimant has already submitted no claim certificate
and even otherwise?
B CONTRACT NO.27/PPN/60060
ISSUES OF THE CLAIM OF M/S THERMO SPARES
1. Whether M/s Thermo Spares is entitled to
recover a sum of `8,99,134.40 from M/s BHEL on
account of execution of additional work of extra
joints, as claimed?
2. Whether M/s Thermo Spares is entitled to
recover a sum of `5,000/- being outstanding
amount of running bills, as claimed?
3. Whether M/s Thermo Spares is entitled to
recover a sum of `5,00,000/- damages from M/s
BHEL, as claimed?
4. Whether M/s Thermo Spares is entitled to
recover a sum of `50,000/- towards legal expenses
from M/s BHEL, as claimed?
5. Whether M/s Thermo Spares is entitled to
award of interest, as claimed?
ISSUES OF BHEL
1. Whether the claims filed by M/s Thermo
Spares is maintainable or not?
2. Whether M/s Thermo Spares is entitled for
any amount or amount as claimed for in the claim
petition under different heads especially when the
claimant has already submitted no claim certificate
and even otherwise?"
7. Before the Arbitrator no oral evidence was led and
parties relied upon the correspondence to which they had
referred to in their pleadings. It had to be so, for the reason
the job of the learned Arbitrator was to decide whether a full
and final settlement had been arrived at by the parties
without any undue pressure upon the appellant for the reason
the respondent was relying upon documentary evidence
recording full and final payment having been acknowledged
as received by the appellant.
8. Now, the Minutes of a meeting held on April 25, 1979
are important for the reason the satisfaction of the claim of
the appellant and the documentary evidence relied upon by
the respondent relates to the said minutes of the meeting and
it is not the case of the appellant that its representative
agreed to what was minuted in the said meeting. The
relevant portion of the minutes, read as under:-
"Minutes of the meeting held with Sh. B.K. Jain of
M/s Thermospares India on 25th April, 1979 at New
Delhi.
Present:
.....
2. The representative of M/s Thermospares
mentioned that two of their extra claim bills might
be settled.
3. After discussion, it was settled that
(a) the claim on extra tig-welding joints (Bill
No.20/BHEL/PPP/78-79 against work order
No.529/VA/10/60049 and Bill No.26/BHEL/PTP/78-79
against work order No.07/PPN/60049 dated
10.5.1977, belonging to Jan. 10, 79 and 10.1.78
respectively) will be settled on the same terms and
conditions as were settled for M/s Northern India
Erectors, Badarpur, and adjustments made for the
advances already paid to them on this account.
(b) The extra claims regarding the extra joints for
piping, namely, Bill No.TSI/EP1/179 dated 26.3.79
for `2,63,000 and TSI/EP1/180 dated 26.3.79 for
`2,64,200 were settled to `77,315.60 (Rupees
seventy seven thousand three hundred fifteen and
paise sixty only) as per the annexures attached. An
amount of `65,000/- will be released to effect
immediate labor payment and the balance set of
against the dues of M/s Thermospares to BHEL.
4. While making the above settlement as in
above para 3, it was agreed by M/s Thermospares
that
(a) those settlements regarding the extra claims
are final as far as those bills are concerned and
nothing would be outstanding in this regard......"
(Emphasis Supplied)
9. Suffice would it be to state that as per para 3(a),
pertaining to the extra items of TIG Welding, it was agreed
that payment would be made on the same terms and
conditions as were settled for M/s.Northern India Erectors
Badarpur. Thus, the basis was agreed to by the parties and
qua said works, the only issue would be, whether payment
was released on same basis. The dispute raised before the
Arbitrator that the respondent could not force upon the
appellant rates agreed to be paid for the same work executed
by a same party, would be dealt with by us at the appropriate
stage, but we note as aforesaid for the benefit of the reader
of our decision as what we have noted in the preceding part
of the present paragraph would be our take off point.
10. As noted above while summarizing the pleadings of the
appellant, it had raised a bill under cover of its letter dated
October 11, 1980 in sum of `5,30,650/- and qua the said
letter and bill, on October 20, 1980 the respondent wrote to
the appellant as under:-
"SUB: - TIG WELDING CLAIM REG.
Dear Sir,
This is in reference to your letter No.TSI/B-1/240/80-
81 dated Oct. 11, 1980 regarding the above
mentioned subject. Your claims in respect of TIG
welding have already been settled and cleared vide
minutes of meeting held on 25.4.79 at New Delhi
and no further payment is outstanding in this
regard. As such your letters No.TSI/B-1/239/80-81
dated Oct. 11, 1980 and TSI/B-1/243/80-81 dated
July 21, 1980 (for bill No.26/BHEL/PTP/78-79 against
W.O. No.07/PPN/60049 dated 10.5.77), and TSI/B-
1/242/80-81 dated July 21, 1980 (for bill
No.30/BHEL/PTP/78-79 against W.O.
No.529/VA/10/60049) are hereby returned to you in
original."
11. As noted, while recapping the pleadings of the
respondent, the appellant had written to the respondent a
letter dated January 24, 1983, affirming full payment being
received except `12,000/-. The letter reads as under:-
"SUB: Finalisation of Final Bill against W.O.27/PPN
Dear Sir,
We are to bring it to your kind notice that all our
bills are cleared and settled, except the above and
now only a sum of `12,000/- (Rupees Twelve
Thousand Only app.) is left to be paid to us against
the above bill. The Bank Guarantees against all the
work orders were also released long back. We shall
be highly thankful to your goodself if the above sum
is released immediately and the cheque of the said
amount be sent to our bankers. The Hindustan
Commercial Bank Ltd., Panipat‟ with the request to
credit the same to our current account and under
intimation to us.
We are also pleased to withdraw our letter No.TSI/B-
1/244/82-83 dated 23-8-1982.
We also request you to kindly refund a sum of
`3750/- deducted as security against labor from our
bills as we have made the payments to all our
workers and no liability on labour account is left.
Thanking you and hoping for an immediate action
at your end for the clearance of the bill under
question." (Emphasis Supplied)
12. The letter dated June 12, 1984 referred to by the
respondent in its pleadings, which was addressed to it by the
appellant reads as under:-
"SUB: - Final Bill against W.O. No.27/PPN/60060
dated 22.8.77
Dear Sir,
We shall be highly thankful to your goodself if
you very kindly make the payment for a sum of
`5,000/- (Rupees five Thousand only) withheld to
complete the balance work, during shut down. As
no work is done during shut down on this account
and hence this refund is required.
The measurement of the final bill were
recorded in M.B. No.317 at page 6 to 8.
Thanking you and hoping for an immediate
action at your end."
13. Highlighting that in addition to arguing that no claim
certificates dated April 24, 1979, April 05, 1980 and October
21, 1981 executed by its partner did not pertain to the bills
which formed the subject-matter of the claim petition(s) it
was argued by the appellant before the learned Arbitrator
that the said certificates were issued by its partner under
duress since the respondent was not releasing the bank
guarantees furnished by the appellant nor was making
payments of other bills raised by the appellant. With regard to
the claim towards over-run charges raised by the appellant it
was argued by the respondent before the learned Arbitrator
that the appellant is prohibited from claiming any amount
towards over-run charges in view of clause 3.34 of the
agreement(s) between the parties which provides that „no
over run charges shall be paid in the event the completion
period is extended for any reasons whatsoever‟. With regard
to the claims towards interest raised by the appellant it was
argued by the respondent before the learned Arbitrator that
the appellant is prohibited from claiming any amount towards
interest in view of clauses 1.10.4 and 1.8.10 of the
agreement(s) between the parties which provide that „ no
interest shall be payable by BHEL on Earnest Money/Security
Deposit or any money due to the contractor by BHEL‟.
14. After considering the case in its entirety, vide award
dated July 27, 2000, the learned Arbitrator allowed claims
Nos.1, 2, 3, 5, 7 and 8 raised by the appellant with respect to
work orders Nos. 529/VA/103/60049 and 07/PPN/60049 and
claims Nos.1, 2 and 5 raised by the appellant with respect to
work order No.27/PPN/60060, though it awarded lesser
amounts than what was claimed by the appellant under each
claim. It was held by the learned Arbitrator that:- (i) no claim
certificates dated April 24, 1979, April 05, 1980 and October
21, 1981 were given by the appellant without its free consent
which is evident from the fact that the respondent would have
released payment of the bills raised by the appellant only
upon the appellant issuing the no claim certificates; (ii) clause
3.34 of the agreement between the parties is without
consideration and that there is uncertainty in the said clause
regarding the period for which no over run charges are
payable; (iii) terms of agreement between the parties are
inequitable inasmuch as a penalty is to be levied on the
contractor when it is not able to complete the work within the
specified period whereas no penalty is to be levied on the
department when delay in completion of the work is caused
due to act or fault of the department; and (iv) clause 1.10.4
contained in the agreement(s) between the parties is against
public policy inasmuch as no party can be allowed to suffer
losses for indefinite period.
15. Aggrieved by the award dated July 27, 2000 passed by
the Arbitrator the respondent filed objections under Sections
30 and 33 of the Arbitration Act, 1940 before a learned Single
Judge of this Court. On the other hand, the appellant filed a
petition under Sections 14 and 17 of the Arbitration Act, 1940
before a learned Single Judge of this Court inter-alia praying
that the award dated July 27, 2000 be made rule of the Court
and decree be drawn accordingly.
16. Vide impugned judgment dated May 26, 2006, the
learned Single Judge allowed the objections filed by the
respondent and set aside the award dated July 27, 2000
passed by the Arbitrator. It has been held by the learned
Single Judge that:- (i) the Arbitrator committed an illegality in
concluding that no claims certificates dated April 24, 1979,
April 05, 1980 and October 21, 1981 were given by the
appellant without its free consent when said plea was not
taken up by the appellant in its claim petition(s); (ii) the
conduct of the appellant of not raising the issue of duress at
the time of receipt of payment from the respondent or in any
communication issued by the appellant to the respondent
between the period from giving no claim certificates till the
invocation of arbitration clause by the appellant when seen in
the light of correspondences exchanged between the parties
strongly probablizes that no claim certificates were given by
the appellant with its free consent and without there being
any duress from the side of the respondent; (iii) despite the
fact that the respondent had stated in its letter dated October
20, 1980 written to the appellant that the bills relating to TIG
Welding and extra joinery works stand settled, no
communication was issued by the appellant to the respondent
rebutting the aforesaid stand and on the contrary, it stated in
its letter dated January 24, 1983 that all the bills raised by it
stand settled and that only a sum of `12,000/- is outstanding,
negates the plea of the appellant that the no claim
certificates dated April 24, 1979, April 05, 1980 and October
21, 1981 did not relate to TIG Welding and extra joinery works
executed by the appellant; and (iv) the very fact that the total
value of the work order No.27/PPN/60060 was `12,37,450/-
whereas the no claim certificate dated October 21, 1981
issued in respect of the said work order was for a sum of
`14,88,288.84 shows that the extra joinery work executed by
the appellant was envisaged in the no claim certificate dated
October 21, 1981.
17. Though it was opined by the learned Single Judge that
the finding of the Arbitrator that the appellant had given the
no claim certificates dated April 24, 1979, April 05, 1980 and
October 21, 1981 under duress is liable to be set aside and as
a natural consequence thereof, all claims raised by the
appellant should be held to have been settled, the learned
Single Judge has proceeded to examine the correctness of the
decision of the Arbitrator with respect to claims pertaining to
overrun charges and interest raised by the appellant. On the
issue of overrun charges, it has been held by the learned
Single Judge that clause 3.34 of the agreement(s) between
the parties does not imply that even if the delay in the
completion of work was attributable to the respondent the
appellant would be without any remedy. However, in order to
allow the claim of overrun charges raised by the appellant the
Arbitrator ought to have returned a finding that the delay was
occasioned, on account of the factors attributable to the
respondent, which finding was not returned by the Arbitrator.
In the absence of such finding, the learned Single Judge has
held that the Arbitrator has committed an illegality in allowing
the claim pertaining to overrun charges raised by the
appellant. On the issue of interest, it has been held by the
learned Single Judge that clauses 1.10.4 and 1.8.10 of the
agreement(s) between the parties does not prohibit or
prevent an Arbitrator from awarding interest for the period
after the invocation of arbitration clause till payment was
made. Thus, for all effect and purposes, with respect to the
first finding returned by the learned Single Judge, the award
has been set aside.
18. Aggrieved by the impugned judgment dated May 26,
2006 passed by the learned Single Judge the appellant has
filed the above captioned appeal.
19. In support of the present appeal, it was argued by the
learned counsel for the appellant that the Arbitrator had
returned a finding of fact that the appellant had given no
claim certificates dated April 24, 1979, April 05, 1980 and
October 21, 1981 under duress after duly considering the
facts and circumstances of the case. Counsel argued that it is
settled law that the arbitrator being sole judge of the quality
and quantity of evidence, it is not open to the Court to sit in
appeal over the decision of the arbitrator by re-appreciating
evidence led before the Arbitrator while dealing with an
objection under Section 30 of the Arbitration Act, 1940. Such
being the legal position, it was urged that the learned Single
Judge fell into an error in upsetting a finding of fact returned
by the Arbitrator.
20. The controversy involved in the present case can be
pithily stated as under: Whereas the appellant contended that
the respondent did not make full payment of the bills
pertaining to TIG Welding and extra joinery works raised by it,
the respondent contended that there was complete accord
and satisfaction of the disputes which had arisen between the
parties in respect of said bills.
21. What is meant by "accord and satisfaction"?
22. In legal parlance, accord and satisfaction means that a
person entitled to the performance of a promise might
accept, instead of the original performance, something
different. This different thing is agreed upon by an accord
reached between the promisor and promisee. Thus accord is a
name given to a special agreement between the parties
which has as it foundation another earlier agreement between
the same parties. Satisfaction is the performance of the
different promise as per the new agreement of accord and its
acceptance by the promisee.
23. The law relating to accord and satisfaction was dealt by
a Division Bench of this Court in the decision reported as Jain
Refractory Erectors v Cement Corporation of India (104) 2003
DLT 469. It would be apposite to reproduce following
observations made by the Court in the said decision:-
"Is there an accord and satisfaction between the
parties on 11.4.1980? Did the Arbitrator have
jurisdiction to adjudicate upon the claim? Was there
any subsisting dispute or difference between the
parties, which could be referred to the Arbitrator?
16. The aforesaid questions have received the
attention of the Apex Court and are a subject
matter of adjudication in the five cases noted
above. Appellant relies upon two of them. The
respondent relies upon three judgments of the Apex
Court.
17. The judgment in U.O.I. v. L.K. Ahuja (supra),
being the first on point of time may be noted. It is a
judgment by a two-Judge Bench of the Apex Court.
The issue arose in the context of limitation for
invoking the arbitration clause and the invoking of
the arbitration clause if the final payment was
received by a party coupled with issuance of a no
claim declaration. In the context of the twin issues
raised it was held as under:
"In view of the well-settled principles we are of
the view that it will be entirely wrong to mix-
up the two aspects, namely, whether there
was any valid claim for reference under
Section 20 of the Act, and, secondly, whether
the claim to be adjudicated by the Arbitrator,
was barred by lapse of time. The second is a
matter which the Arbitrator would decide
unless, however, if no admitted facts a claim
is found at the time of making an order under
Section 20 of the Arbitration Act, to be barred
by limitation. In order to be entitled to ask for
a reference under Section 20 of the Act, there
must be an entitlement to money and a
difference or dispute in respect of the same. 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.
In this case, the claim for reference was made
within three years commencing from April 16,
1976."
18. The aforesaid observations were considered in
the second judgment in a P.K. Raimaia's case
(supra). The said judgment is again by two Judges.
It was noted in the said judgment that there was a
dispute between the parties pertaining to
measurement and payment under the final bill.
Parties had deliberated upon the said difference
and on May 19, 1981, the contractor had made, in
his own hand the endorsement that: "final
measurement and payment accepted in full and
final settlement of the contract." Later on the
contractor sought to wriggle out of the same by
pleading coercion. Matter was sought to be referred
to arbitration. It was declined and the matter came
up before the Supreme Court. The contractor relied
upon the judgment in L.K. Ahuja's case. Dealing
with the issue, it was held as under:
".......In L.K. Ahuja and Company case this
Court while laying the general law held that if
the bill was prepared by the department, the
claim gets weakened. That was not a case of
accord and satisfaction but one of pleading
power of limitation without prior rejection of
the claim. Therefore, the ratio therein is of
little assistance."
19. It was held that admittedly the full and final
satisfaction was acknowledged in writing and the
amount was received unconditionally. Thus, there
was accord and satisfaction by final settlement of
the claims. It was held that the subsequent
allegation of coercion is an after-thought and a
device to get over the settlement of the dispute.
The Apex Court held that there was no existing
arbitrable dispute capable of reference to the
arbitration. The decision of not referring the dispute
to arbitration was upheld, the appeal was
dismissed.
20. In the third case, Nathani Steels Ltd. (supra), we
may note that the judgment is by a Three-Judge
Bench. The facts were similar. Contractor's claim
under the final bill was disputed. Parties sat across
the table and negotiated. Settlement was arrived
at. Payment was received and thereafter the
contractor sought reference of the dispute to
arbitration. It was held as under:
"It appears that the dispute which arose on
account of the non-completion of the contract
came to be settled by and between the parties
and the settlement was reduced to writing as
found in document dated 28.12.199 (Exh. 'F'
at p. 236). By this document the disputes and
differences were amicably settled by and
between the parties in the presence of the
Architect on the terms and conditions set out
in Clauses 1 to 8 thereof. There is no dispute
that the parties had, under the arrangement,
arrived at a settlement in respect of disputes
and differences arising under the contract
then existing between the parties. This
document bears the signatures of the
respective parties. There is also a reference in
regard to discussion that had ensued prior in
point of time before the parties came to a final
amicable settlement of the disputes and
differences."
"In the circumstances, we think that in the
instant case 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. We are, Therefore, of the
opinion that the High Court was wrong in the
view that it took."
21. In the 4th judgment, Union of India v. Popular
Builders, which again is a judgment by a Three-
Judge Bench, it was noted that the agreement
between the parties contained an arbitration clause
and that after completion of the work a final bill was
raised. There was dispute pertaining to the claim
under the final bill. A settlement was arrived at. The
contractor agreed to accept the final bill without
demur and indeed received payment for the same.
Contractor claimed that dispute subsisted. Matter
was referred to arbitration. Arbitrator made an
award in favor of the contractor. Award was
challenged as being without jurisdiction on the
ground that there was no subsisting dispute, which
could be referred to arbitration and hence the
Arbitrator had no jurisdiction. Following the ratio of
law in Nathani Steels Ltd. and P.K. Raimaia's case it
was held that the existence of a dispute being the
condition precedent for appointment of an
Arbitrator, the matter being settled and the
contractor receiving the payment pursuant to the
settlement, there was no subsisting dispute, which
could be made a subject matter of reference of an
arbitrable dispute.
22. In the 5th judgment Jayesh Engineering Works
(supra), which is a judgment by a two-Judge Bench,
the Apex Court relying upon L.K. Ahuja's case came
to the conclusion that notwithstanding the receipt
of payment in full and final settlement of the works
the appellant was entitled to have the matter
referred to arbitration. The issue was decided by
the Apex Court as under:
"(1) The appellant offered Tenders I and II to
the respondents, pursuant to which certain
civil works were carried out and in respect of
which they made a claim for payment of
money. Although several claims had been
made by the appellant, ultimately on
6.2.1989, the respondents intimated the
appellant to receive a cheque for a sum of Rs.
2,79,600/- in full and final settlement of the
works relating to Tenders I and II. The
appellant acknowledged the same by
endorsing on the said letter stating that he
had received the said amount as full and final
settlement and he had no further claim in that
regard. Thereafter, he wrote a letter dated
24.2.1989 stating that his statement that
payment had been accepted by him on
6.2.1989 in full and final settlement is not
correct and still there are outstanding dues
which need to be paid otherwise the matter
will have to be referred to arbitration in terms
of Clause 37 of the agreement. Pursuant to
the said notice each of the parties nominated
their respective Arbitrators. At that stage, an
application was filed under Section 33 of the
Arbitration Act seeking a declaration that the
agreement dated 7.4.1981 between the
parties no longer subsists as the work has
already been completed and the payment was
received by respondent in full and final
settlement. It was also contended that the
clause providing for reference of disputes to
arbitration is not attracted in such a situation.
In an identical situation, this Court in Union of
India v. L.K. Ahuja and Co., held that on
completion of work, the right to get further
payment gets weakened but whether the
claim subsists or not, is a matter which is
arbitrable. When this direction was cited
before the High Court, the same was
distinguished by stating that it was a decision
on its own facts and has no application to the
case. We find that this view does not appear
to be correct. Whether any amount is due to
be paid and how far the claim made by the
appellant is tenable are matters to be
considered by the Arbitrator. In fact, whether
the contract has been fully worked out and
whether the payments have been made in hill
and final settlement are questions to be
considered by the Arbitrator when there is a
dispute regarding the same. We, Therefore,
set aside the order made by the High Court
and dismiss the application filed under Section
33 of the Arbitration Act. Now proceedings
before the Arbitrator/s will have to be
continued in accordance with law.
(2) The appeal is allowed. No costs."
23. What would be the legal position pertaining to
the issue of accord and satisfaction culled out from
the aforesaid five judgments of the Apex Court? The
observations made in L.K. Ahuja's case have been
explained in P.K. Raimaia's case, followed in
Nathani Steel's case and reiterated in Jayesh
Engineering Works. If there is a considered
endeavor made by the parties to settle the dispute
and the dispute is settled between the parties
resulting in an accord and satisfaction of the
dispute, no dispute would subsist thereafter and as
a result there would be no existing arbitrable
dispute capable of being referred to arbitration."
(Emphasis Supplied)
24. In the backdrop of above legal position, we proceed to
determine whether the learned Arbitrator applied correct
principles while deciding that there was no accord and
satisfaction and thus the learned Single Judge was justified in
interfering with the award.
25. The respondent had issued 3 work orders upon the
appellant for transportation from project stores, erection,
testing and commissioning of pressure parts, external
pipelines and auxiliaries of Units I and II of Panipat Thermal
Power Plant, Panipat. It is not in dispute that the appellant
had executed TIG Welding and extra joinery works, which
works did not form part of the work orders issued to the
appellant. Disputes arose between the parties in respect of
the bills relating to TIG Welding and extra joinery works raised
by the appellant. On April 24, 1979 a no claim certificate was
issued by the appellant with respect to the final bill pertaining
to 1st work order i.e. work order No.529/VA/60049 raised by it
and this indisputably related to the work done as per the work
order and not the extra work and we see no reason why
counsel for the appellant made an attempt to urge that even
this No Claim Certificate was obtained by duress for the
reason the payment made pertaining to this bill was in terms
of the bill. On the very next day i.e. April 25, 1979 a meeting
was held between a partner of the appellant and
representatives of the respondent to resolve the dispute
which had arisen between the parties with respect to the bills
pertaining to TIG Welding and extra joinery works raised by
the appellant. A settlement was arrived between the parties
in the said meeting. The minutes of the said meeting were
prepared and the settlement arrived between the parties was
recorded in the said minutes. The minutes specifically record
that the appellant would be paid for the extra works on the
same basis on which payment was released to M/s.Northern
India Erectors Badarpur. Thus, a basis to effect payment was
agreed upon. The minutes have been signed by Mr.B.K.Jain, a
partner of the appellant. Pursuant to the settlement arrived at
between the parties, on April 05, 1980 and October 21, 1981
the appellant issued no claim certificates with respect to the
final bills pertaining to the remaining 2 work orders i.e. work
orders Nos.07/PPN/60049 and 27/PPN/60060 raised by it and
payments were released to the appellant pursuant to the
settlement arrived on April 25, 1979 and at the time of
receiving payment, the appellant did not allege any duress.
Further, on January 24, 1983 the appellant wrote a letter to
the respondent stating therein that all the bills raised by it
stand settled and only a sum of `12,000/- is outstanding. It is
most significant to note that there is not even a whisper in
the said letter that the no claim certificates dated April 24,
1979, April 05, 1980 and October 21, 1981 were issued by the
appellant under duress or that the bills relating to TIG
Welding and extra joinery works raised by the appellant
remain to be settled. Thereafter on June 12, 1984 the
appellant wrote another letter to the respondent requesting it
to release a sum of `5,000/- withheld by it for some reason.
Yet again, the letter dated June 12, 1984 does not contain
even a whisper that the no claim certificates dated April 24,
1979, April 05, 1980 and October 21, 1981 were issued by the
appellant under duress or that the bills relating to TIG
Welding and extra joinery works raised by the appellant
remain to be settled. However, all of a sudden, in the year
1985 the appellant awoke from a slumber and issued a notice
to the respondent invoking the arbitration clause contained in
the agreement(s) between the parties, inter-alia claiming
therein, that the respondent had not released the payments
of the bills pertaining to TIG Welding and extra joinery works
raised by it. There is nothing on record to show that the
appellant had issued any communication to the respondent
stating therein that the no claim certificates April 24, 1979,
April 05, 1980 and October 21, 1981 were issued by the
appellant under duress or that the bills relating to TIG
Welding and extra joinery works raised by the appellant
remained unsettled till the appellant invoked the arbitration
clause.
26. It is significant to note that the stand taken by the
appellant in the claim petition(s) filed by it was that no claim
certificates dated April 24, 1979, April 05, 1980 and October
21, 1981 did not relate to the bills pertaining to TIG Welding
and extra joinery works raised by the appellant. It was also
sought to be projected by the appellant in the claim petition
that the settlement arrived at between the parties on April 25,
1979 was inequitable. However, at the time of arguments
before the Arbitrator the stand which was taken by the
appellant was that the no claim certificates dated April 24,
1979, April 05, 1980 and October 21, 1981 were issued by the
appellant under duress, little realizing that a party which sets
up a plea of duress/coercion has to lay the factual foundation
for said plea in its pleadings. The said inconsistency in the
stands taken by the appellant before the Arbitrator brings out
the mala fides of the appellant and that the learned Arbitrator
has approached the subject ignoring the principles of law on
which an issue pertaining to accord and satisfaction has to be
decided.
27. The inescapable conclusion which result from the afore-
noted cauldron of facts is that there was a complete accord
and satisfaction of the disputes which had arisen between the
parties with respect to the bills pertaining to TIG Welding and
extra joinery works raised by the appellant and that no
amount whatsoever was required to be paid by the
respondent to the appellant in respect of said bills.
28. We need not go into the issues of overrun charges and
interest claimed by the appellant for the same would be an
academic exercise in view of our decision that there was
complete accord and satisfaction of the disputes which had
arisen between the parties with respect to the bills pertaining
to TIG Welding and extra joinery works raised by the
appellant and that no amount whatsoever was required to be
paid by the respondent to the appellant in respect of said
bills.
29. We thus do not opine upon the view taken by the
learned Single Judge on the issue of interest for the reason,
even as per the view taken by the learned Single Judge, it was
only an academic exercise completed by the learned Single
Judge who took the view that there was a complete accord
and satisfaction.
30. In view of above discussion, the impugned judgment
dated May 26, 2006 passed by the learned Single Judge is
upheld and the appeal is dismissed.
31. Parties are left to bear their own costs.
(PRADEEP NANDRAJOG)
JUDGE
(PRATIBHA RANI)
JUDGE
MARCH 26, 2012
dk
