Arbitration Case No.163 of 2008 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Arbitration Case No.163 of 2008 Date of Order: 5th October, 2011 M.R.B. Engineers and Contractors Pvt. Ltd. ...Petitioner Versus Modern Diaries Ltd.,Chandigarh, through its Managing Director. ..Respondent CORAM: HON'BLE MR. JUSTICE RAJIVE BHALLA Present:Mr. D.K.Singhal, Advocate for the petitioner. Mr. Ankur Rishi, Advocate for the respondent. RAJIVE BHALLA, J The petitioner has filed a petition under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the 'Act'), for appointment/constitution of an Independent Arbitral Tribunal to adjudicate disputes between the parties arising out of an agreement dated 14.09.2005. The petitioner and the respondent entered into an agreement dated 14.09.2005, requiring the petitioner to carry out construction of proposed plant/building and other civil works. The petitioner accepted the work and proceeded with its execution. The petitioner addressed a letter dated 02.12.2006 Arbitration Case No.163 of 2008 -2- enumerating problems being faced during the execution of work, including non-payment of his upto date dues etc. The petitioner once again addressed another letter dated 06.12.2006 clarifying the problems being faced including non-clearance of his dues and his helplessness in executing the work. The petitioner finally addressed a letter dated 27.12.2006, Annexures A-5, warning the respondent that in case payment of Rs.1,38,98,662/- is not made within four days, the petitioner would demobilise the site. The petitioner demoblised the site and thereafter raised a claim for Rs.54,50,000/- for work done, Rs.3,42,000/- as refund of security and Rs.0.91 lacs and Rs. 3.50 lacs as amounts arbitrarily, withheld by the respondent. Counsel for the petitioner submits that vide letter dated 14.06.2007, the petitioner made a request, to the respondent, to clear his dues, failing which the petitioner would invoke the arbitration clause and warned that the letter may be treated as a notice under Section 21 of the Act. The respondent addressed a letter dated 19.06.2007 alleging that the petitioner has not deputed any officer for measurement of the work done at site. In response, the petitioner vide letter dated 22.06.2007 refuted this allegation and positively asserted that the respondent is in possession of duly verified bills with respect to final measurement. The petitioner also prayed that as a dispute has arisen between parties, an Arbitrator may be appointed in terms of Clause 11 of the agreement dated 14.09.2005. Arbitration Case No.163 of 2008 -3- The petitioner, thereafter, approached the respondent for payment but was eventually coerced, under pain of non- payment into addressing two letters dated 23.07.2007 and 24.07.2007, offering an amicable settlement. The proposal was accepted by the Senior General Manager(Commercial), and an amount of Rs.35,11,374/- was released on 11.08.2007 after deducting a penalty of Rs.15 lacs. The petitioner received Rs.35,11,374/- and immediately, addressed a letter dated 17.08.2007, asserting that as the settlement was extracted, under duress, it is illegal, invalid and not binding, particularly with respect to the deduction of Rs.15 lacs as penalty. The petitioner invoked Clause 11 of the agreement and called upon the respondent to refer the dispute to an Arbitrator. However, as the respondents have not appointed an Arbitrator, the petitioner is left with no option but to file this petition and pray that an Arbitrator, be appointed. Counsel for the petitioner further submits that as the settlement and the proposal preceding the settlement were extracted under duress, namely, under pain of refusal to release admitted amounts, the so called settlement, does not bind the petitioner or nullify the arbitration clause. It is further submitted that while considering a similar controversy, the Hon'ble Supreme Court has held in National Insurance Company Limited v. Boghara Polyfac Private Limited, 2009(1) SCC, 267, that the Chief Justice or his designate, exercising power Arbitration Case No.163 of 2008 -4- under Section 11 of the Act, shall consider whether there was really an accord between the parties, and if they come to a conclusion that the full and final settlement was the result of fraud/ coercion or undue influence, the matter be referred to arbitration. It is further submitted that while holding as above the Hon'ble Supreme Court has held that where a contractor, hard pressed for funds and keen to get the admitted amount released, signs on the dotted line either in a printed form or otherwise, his consent cannot be considered to be a voluntary resolution of the dispute. Counsel for the respondent, on the other hand, submits that the petitioner addressed letters, proposing a settlement. The proposal for settlement cannot possibly be said to be the result of coercion. The petitioner was free to seek his remedy in law, but chose to forward a letter voluntarily proposing a settlement. A perusal of letters, addressed by the petitioner clearly establish that there was no coercion or duress. The petitioner, is guilty of withholding a significant letter dated 23.07.2007, Annexure R-9. The letter, Annexure R-9, contains an unequivocal request for a full and final settlement so as to avoid the consequences of breach of contract. The petitioner has also stated that he undertakes to withdraw all letters/notices sent to the respondent, unconditionally. The letter dated 23.07.2007 was followed by another letter dated 24.07.2007 titled as “proposal for settlement”, wherein the petitioner, Arbitration Case No.163 of 2008 -5- unconditionally, accepted the penalty of Rs.15 lacs and agreed for release of the balance amount of Rs.35,11,374/-. The respondent, addressed a letter dated 11.08.2007 agreeing to the proposal and released Rs.35,11,374/-. A subsequent undated letter retracting the settlement by alleging that the settlement was the result of duress, came as a shock to the petitioner. It is further submitted by reference to various judgments, including judgment titled as Union of India & amp; Ors v. M/s Master Construction Co. Civil Appeal No.3541 of 2011, that there is no absolute rule in law that, acceptance of payment with penalty, raises an inference of duress or coercion. The question of coercion or duress has to be decided on the facts of each case. In the absence of any prima-facie evidence of fraud, coercion, duress or undue influence, the petition should be dismissed with costs. I have heard counsel for the parties and perused the pleadings. An agreement brought into existence by coercion or duress is void. The onus to establish coercion or duress, lies upon the person, who alleges such a fact, in this case the petitioner. A considered appraisal of the facts reveals that the petitioner demobilised the site and thereafter demanded release of Rs.54,50,000/-, for work done. The petitioner addressed a letter dated 23.07.2007, Annexure R-9, requesting Arbitration Case No.163 of 2008 -6- a full and final settlement of his accounts. The petitioner clearly states that he is ready to settle the matter so as to avoid the consequence of breach of contract and undertakes to withdraw all letters/notices, unconditionally. The letter, though, withheld by the petitioner, has not been denied. A relevant extract from this letter reads as follows:- “Due to unavoidable circumstances the work assigned to us could not be completed as per the terms of the contract. So correspondence from both sides started and lastly it has been decided by us to settle the matter forever. We understand that there is penalty clause in the contract as well as incentive but the work could not be completed for one reason or the other. It has been decided by us to settle the matter to avoid any consequences which may arise for the breach of the contract. We undertake to withdraw all the letters/notices sent by us to Modern Diaries in this regard unconditionally. Hope our request would be accepted and the matter would be settled fully and finally in all respects. Your decision in this regard shall be acceptable to us.” A perusal of this letter titled “request for full and final Arbitration Case No.163 of 2008 -7- settlement of the account w.r.t. the above contract” contains an unequivocal offer, on the part of the petitioner, to settle the matter and to avoid the consequences of any claim, arising from breach of the contract. The letter also contains an undertaking to withdraw all letters/notices, addressed by the petitioner. The letter, was intentionally withheld by the petitioner but came to light when it was appended as Annexure R-9, with the reply, filed by the respondent. The petitioner has neither denied this crucial letter nor offered any explanation for withholding this letter. The petitioner apparently concealed this letter as it falsifies of his plea of coercion and duress. The conduct of the petitioner, in withholding this crucial piece of evidence, cannot but be deprecated, and disentitles him to any relief. The matter does not rest here. After addressing letter, Annexure R-9, the petitioner addressed yet another letter dated 24.07.2007, titled as “Proposal for Settlement”. The letter dated 24.07.2007 reads as follows:- “Reg: Proposal for settlement. Dear Sir, We have gone through the accounts with us and found that a sum of Rs.50,11,374.90 is due and payable to us on account of the work done by us. Since under the contract we could not perform our part of the contract obligation, we become liable to penalty as per the terms of Arbitration Case No.163 of 2008 -8- the contract. Taking into consideration that over all work done by us comes to the tune of Rs.2,56,81,145/- (Rs. Two Crores fifty six lac eighty one thousand one hundred forty five only), we unconditionally agree to pay penalty Rs.15,00,000/- (Rs. Fifteen lacs only) on the amount of work done stated above. In case the proposal is acceptable to you, then after deducting the amount of penalty i.e. Rs.15,00,000/- (Rs. Fifteen lacs only), you may please release the balance amount, which works out to Rs.35,11,374/- (Rs. Thirty five lac eleven thousand three hundred seventy four only). This is acceptable to us as full and final payment and no claim shall be made by us against the Company regarding this contract and no further action shall be taken by us. The said agreement shall be treated as settled for all purposes.” The letter does not contain even a whisper of a suggestion that any coercion or duress, was brought to bear upon the petitioner, while forwarding his proposal for a settlement. In response to these unconditional offers of settlement, the respondent addressed a letter dated 11.08.2007, which reads as follows:- Arbitration Case No.163 of 2008 -9- “Sub: Full and final payment. Dear Sir, This is with reference to your letter dated 23.07.2007 regarding request for full and final settlement of the account w.r.t. contract dated 14.09.2005 assigned to you for the construction of building at Modern Dairies Ltd., Karnal and your letter dated 24.07.2007 regarding proposal for settlement. As proposed by you, we have agreed to release payment of Rs.35,11,374.00 (Rs. Thirty five lacs eleven thousand three hundred seventy four only) towards full and final payment against all the outstandings in connection with the work done against above mentioned contract. After this payment, nothing is pending and no claim from your side is liable to be entertained by us. Please acknowledge receipt of Cheque No.615441 dated 11-08-2007 for Rs.35,11,374.00 (Rs. Thirty five lacs eleven thousand three hundred seventy four only).” The petitioner thereafter, received Rs.35,11,374/- in full and final settlement of the dispute vide cheque no.615441 dated 11.08.2007. The letter forwarding the cheque, admittedly, Arbitration Case No.163 of 2008 -10- bears the signatures of the petitioner's representative but does not contain any protest. A perusal of letters addressed by the petitioner, particularly letter Anneure R-9, in my considered opinion, establishes, the voluntary nature of offer, made by the petitioner, for settlement of the dispute and his acceptance of the penalty of Rs.15 lacs. The petitioner has clearly stated that it accepts Rs.35,11,374/- in full and final settlement of the dispute, for all purposes. It was only after receiving payment, did the petitioner, turn around and address a letter that the settlement was extracted under coercion and duress. The petitioner, in my considered opinion, has failed to establish, by reference to any prima-facie material that his offer for settlement of the dispute was the result of any duress or coercion. The petitioner offered to settle the matter finally and thereafter accepted the penalty. The petitioner received the balance amount without protest. The letters dated 23.07.2007, 24.07.2007 and 11.08.2007, clearly establish that the petitioner was not under any coercion or duress, while addressing these letters. The first letter (Annexure R-9) offering a settlement was willfully concealed by the petitioner and only came to light when the respondent appended it with its reply. The petitioner may have made this offer, as a strategic ploy to get his money released but this alone does not raise an inference of duress or coercion. The fact that there was some ill-will between parties Arbitration Case No.163 of 2008 -11- before the settlement, cannot by itself raise an inference, that the settlement was the result of coercion or duress. In view of the absence of any prima-facie evidence to establish coercion, duress or undue influence on the part of the respondent and the dispute having been settled, in accordance with the offer made by the petitioner, the petition for appointment of an Arbitrator is not maintainable and is dismissed, but with no order as to costs. October 5th, 2011 (RAJIVE BHALLA) nt JUDGE