Ans Constructions Limited vs Ompl Mangalore Petrochemicals Ltd. and Others

B.S. Patil, J.—This petition is filed seeking appointment of an Arbitrator for resolution of the dispute that has arisen between the petitioner and the 1st respondent.

Petitioner is a Company engaged in carrying out various construction works. Petitioner was awarded a contract for Site Grading, Construction of Roads, Water Drains and Compound Wall for Aromatic Complex at Mangalore on 17.03.2008. The total contract value as per the Letter of Award was Rs. 163,25,68,576/-. This amount was subsequently revised to Rs. 195,68,24,399.02/- vide letter of Award dated 20.09.2010.

According to the petitioner, during the subsistence of the contract, it had raised Running Account Bills (RA Bills) for the expenses incurred towards carrying out the construction work, but the said Bills were cleared after inordinate delay. It is also urged that even the final bill of Rs. 20.34 crores was released only after the petitioner furnished No Dues/No Claim Certificate dated 21.09.2012.

After the 1st respondent cleared the payments of the petitioner, particularly the sum of Rs. 20.34 crores which was withheld, petitioner submitted a Letter of Withdrawal/Revocation of the No Due Certificate submitted by it. This was done on 24.10.2012 alleging that No Due Certificate had been furnished under duress and coercion. Thereafter, petitioner submitted its claim dated 12.01.2013 for the amount of Rs. 96,88,48,642/- towards the alleged loss suffered due to idle machineries/equipments, escalation in cost of materials, etc.

This claim was rejected by the 1st respondent on 25.07.2013 on the ground that petitioner had already submitted No Due/No Claim Certificate and that the allegations made regarding coercion were untenable. Thereafter, petitioner invoked Arbitration Clause and nominated its Arbitrator. The 1st respondent declined to nominate its Arbitrator by issuing a letter dated 18.10.2013. Thus, the petitioner has approached this Court by filing this petition.

I have heard the learned counsel for both parties. In the light of the various contentions urged by the learned counsel for both parties, question that requires to be considered in this case is whether the petitioner has made out a case for referring the dispute for arbitration on the strength of the allegations made that it was coerced to submit the No Due/No Claim Certificate under coercion and duress.

It is contended by the counsel for the petitioner that question whether there has been duress and coercion exerted against the petitioner to submit the No Due/No Claim Certificate has to be examined keeping in mind the background in which the said letter has been issued by the petitioner and the correspondences that were exchanged between the petitioner and the 1st respondent, particularly with regard to the delayed payment and the release of the amount belatedly by the 1st respondent. In this connection, learned counsel for the petitioner takes me through the letter dated 31.03.2009 produced at Annexure-Q wherein it is stated that an amount of Rs. 2,86,97,732.95 as per RA Bills Nos. 1, 2 and 3 were not released for reasons not known to the petitioner and therefore, the 1st respondent was called upon to clarify the same as the petitioner intended to finalise its accounts up to 31.03.2009. This was followed by another letter dated 22.07.2009 written by the petitioner to the 1st respondent requesting for release of payment regarding 5th RA balance, 6th and 7th RA adhoc. It is stated in the said letter that except receiving balance ad hoc payment of 5th RA Bill on 18.05.2009, petitioner has not received any further payment from the 1st respondent. Petitioner has stated therein that it was hard pressed for money to make payments for fuel and suppliers of materials at the end of every month. Petitioner has gone on to state the reasons which would compel it to stop the work, if the amount was not released. Letter dated 31.12.2009 which was subsequently issued also makes grievance regarding non-payment of the amount due. Thus, by taking me through several correspondences addressed by the petitioner to the 1st respondent, it is contended by the counsel for the petitioner that petitioner was put to serious difficulties and loss on account of delay in settling the claims of the petitioner periodically.

Learned counsel for the petitioner has pointed out that claims submitted by the petitioner on 12.01.2013 brings home various categories against which specific amount had been claimed totally amounting to Rs. 96,88,48,642/-. In this connection, reference is made to details of claim for interest on delayed payment at ''claim 8'' to contend that there has been delay ranging from 17 days to 459 days in settling the various dues payable to the petitioner and as a result, Rs. 4,61,37,934.94 was the amount payable to the petitioner towards the head interest on delayed payment.

While this is the sum and substance of the claim and the grievance made by the petitioner, the fact that petitioner had given No Due/No Claim Certificate on 21.09.2012 certifying that total amount of Rs. 197,23,68,674/- had been paid against their bills in total settlement of all claims whatsoever against the contract is staring against the petitioner and the contention of the 1st respondent is that in the wake of such Certificate issued, petitioner cannot contend that a dispute has arisen which required resolution by arbitration.

It is urged by the counsel for the 1st respondent that withdrawal of No Due/No Claim Certificate subsequently by issuing another letter on the ground that there was duress/threat/coercion held out by the 1st respondent which forced the petitioner to issue such a letter certifying No Due/No Claim is an afterthought and is a baseless allegation made against the 1st respondent. In this context, both the learned counsel have placed reliance on several judgments regarding the scope and nature of examination that this Court is required to undertake to come to the conclusion whether the dispute deserved to be referred for arbitration.

Both the learned counsel have placed reliance on the judgment of the Apex Court in the case of National Insurance Co. Ltd. Vs. Boghara Polyfab Pvt. Ltd., . In the said decision, the Apex Court has held that where the intervention of the Court is sought for appointment of an Arbitral Tribunal under Section 11, the duty of the Chief Justice or his designate has been defined in S.B.P. and Co. Vs. Patel Engineering Ltd. and Another, . The issues which the Chief Justice or his designate will have to decide are:

(a) Whether the party making the application has approached the appropriate High Court.

(b) Whether there is an arbitration agreement and whether the party who has applied under Section 11 of the Act, is a party to such an agreement.

The issues which the Chief Justice/his designate may choose to decide (or leave them to the decision of the Arbitral Tribunal) are:

(a) Whether the claim is a dead (long-barred) claim or a live claim.

(b) Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection.

In paragraph 25 of the judgment in the case of National Insurance Co., referred above, the Apex Court has found that whether the contract has been discharged by performance or not is a mixed question of fact and law, and if there is a dispute in regard to the said question, the same is arbitrable. However, dealing with an exception in this category, the Apex Court has stated that where both the parties to a contract confirm in writing that the contract has been fully and finally discharged by performance of all obligations and there are no outstanding claims or disputes, Courts will not refer any subsequent claim or dispute to arbitration. Similarly, where one of the parties to the contract issues a full and final discharge voucher (or no-dues certificate) confirming that he has received the payment in full and final satisfaction of all claims, and he had no outstanding claim, that amounts to discharge of contract by acceptance of performance and such party cannot thereafter make such claim or revive any settled claim, nor can seek reference to arbitration in respect of such claim.

The Apex Court has further gone on to clarify in paragraphs 26 to 29 of the said judgment that if the party who has executed discharge agreement or discharge voucher alleges that execution of such discharge agreement/discharge voucher was on account of fraud/coercion/undue influence practiced by the other party and is able to establish the same, then the discharge of the contract by such agreement/voucher would be rendered void and cannot be acted upon. Consequently, any dispute raised by such party would be arbitrable. Therefore, it is clear that when the contract is discharged on account of performance or due to satisfaction or by mutual agreement, particularly, where the same had been reduced to writing, normally the dispute will not be subject matter of arbitration and cannot be referred. However, where one of the parties to the contract alleges that such discharge or satisfaction as contained in the letter of No Due Certificate/No Claim Certificate issued was occasioned on account of coercion and duress, it becomes the duty of this Court to find out if there is any substance in such allegation and this Court has to record its prima facie finding regarding the same.

In paragraph 51 of the said judgment, the Apex Court has held as under:

"The Chief Justice/his designate exercising jurisdiction under Section 11 of the Act will consider whether there was really accord and satisfaction or discharge of contract by performance. If the answer is in the affirmative, he will refuse to refer the dispute to arbitration. On the other hand, if the Chief Justice/his designate comes to the conclusion that the full and final settlement receipt or discharge voucher was the result of any fraud/coercion/undue influence, he will have to hold that there was no discharge of the contract and consequently, refer the dispute to arbitration. Alternatively, where the Chief Justice/his designate is satisfied prima facie that the discharge voucher was not issued voluntarily and the claimant was under some compulsion or coercion, and that the matter deserved detailed consideration, he may instead of deciding the issue himself, refer the matter to the Arbitral Tribunal with a specific direction that the said question should be decided in the first instance." 16. In the instant case, while the petitioner has produced several documents, some of which have been already referred to show that there had been delayed payment and the 1st respondent had not discharged its obligation of settling the dues periodically and therefore, petitioner was entitled for payment of interest towards the delayed payment and such other claims, the 1st respondent along with the statement of objections has produced several other documents including the request for issue of Completion Certificate made by the 1st respondent from which it is sought to be contended that petitioner had not reserved any such right, nor had made any grievance regarding the loss or the dues payable. In such circumstances, this Court can only prima facie gather from the materials on record that there is a genuine and serious dispute regarding the claim made by the petitioner and that the conduct of the parties as reflected in the correspondences exchanged between them discloses that petitioner had problem due to the financial constrains and pressure and hence, petitioner had addressed such a letter expressing No Due/No Claims for the purpose and with the hope that it can receive the settlement of its claim. Therefore, in the facts of the present case, without expressing any opinion on the claims made by the petitioner and having regard to the serious dispute even with regard to the question of undue influence/coercion/duress allegedly exerted by the 1st respondent against the petitioner, as a prima facie case has been made out and the assertion made by the petitioner are probablised by the correspondences relied upon by the petitioner and adverted to by this Court herein above, I am of the view that the matter deserves to be referred for arbitration.

The arbitration clause contained in the bid document clearly states that any dispute, difference, question or disagreement arising between the parties or their respective representatives or assignees, at any time, in connection with construction, meaning, operation, effect, interpretation of or out of the contract or breach thereof the same shall be decided by an Arbitral Tribunal consisting of three Arbitrators. It further states that each party shall appoint one Arbitrator and the Arbitrators so appointed shall appoint the third Arbitrator who will act as Presiding Arbitrator.

As regards the 2nd respondent who is arrayed as party to this proceeding, there is no agreement muchless arbitration clause between the petitioner and the 2nd respondent. The 2nd respondent is a stranger to the contract entered into between the petitioner and the 1st respondent. Therefore, question of the 2nd respondent being made party to the arbitration proceedings does not arise.

In the result and for the foregoing, this petition is allowed. As the petitioner has already appointed an Arbitrator in terms of the arbitration clause, the 1st respondent is directed to appoint the arbitrator of their choice within a period of four weeks from the date of receipt of a copy of this order. After the appointment of the Arbitrator by the 1st respondent in terms of the arbitration clause, both the Arbitrators shall name and appoint the Presiding Arbitrator (Third Arbitrator). Thereafter, the Arbitrators shall enter upon reference, notify both parties, hear and dispose of the dispute including the question regarding discharge of contract and/or the allegation of duress and coercion exerted by the 1st respondent as alleged by the petitioner.