IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE ANTONY DOMINIC WEDNESDAY, THE 6TH JANUARY 2010 / 16TH POUSHA 1931 AR.No. 18 of 2003() ------------------- APPLICANT (S): -------------------- VIJAY CONSTRUCTIONS, ENGINEERS & CONTRACTORS, MYKULANGARA, KINGINIMATTOM.P.O., KOLENCHERY - 682 311. BY ADV. SRI.RAJIV ABRAHAM GEORGE SRI.EAPEN ABRAHAM GEORGE RESPONDENT(S): --------------- 1. THE GOVERNOR OF THE STATE OF KERALA REPRESENTED BY THE SECRETARY TO GOVERNMENT, PUBLIC WORKS DEPARTMENT, GOVERNMENT SECRETARIAT, TRIVANDRUM. 2. THE PROJECT DIRECTOR (S.E.), NATIONAL HIGHWAY (ADB) CIRCLE, EDAPPALLY, COCHIN - 682 024. MR.K.R.GANESH, SR. GOVERNMENT PLEADER THIS ARBITRATION REQUEST HAVING BEEN FINALLY HEARD ON 06/01/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ANTONY DOMINIC, J. ------------------------- A.R. No.18 of 2003 --------------------------------- Dated, this the 6th day of January, 2010 O R D E R This is an application filed under Section 11(6) & (8) of the Arbitration and Conciliation Act, 1996 praying for the appointment of an Arbitrator to arbitrate on the disputes raised by the applicant against the respondents. 2. Briefly stated, the facts of the case are that the work of “NH 49 Madhura-Kochi Road - Special Repairs Crash Programme - improving riding quality and strengthening the BT surface by providing 50 mm BM and 25 mm SDBC between km 184/000 to 194/000” was awarded to the applicant by letter of acceptance dated 07/09/2000 from the 2nd respondent. Thereafter a formal agreement was entered into between the parties on 26/09/2000, the relevant clause of which providing for settlement of dispute by Arbitration is Annexure 3. The PAC of the contract was Rs.1,29,74,355/- and the work should have been completed before 31/12/2000. A.R.No.18/2003 -2- 3. The applicant commenced work and though belatedly completed the work on 30/04/2001. Payment in terms of part bills were made and the final bill was paid on 23/01/2002. Thereafter Annexure 1 notice was issued by the applicant on 19/08/2002 raising certain claims against the respondents and demanding payment of the amount mentioned therein. There was no response, and thereupon, the applicant issued Annexure 2 notice dated 26/10/2002 to the Director General requesting for the appointment of an Arbitrator to resolve the disputes raised by them. There was no response to Annexure 2 as well. It was thereupon that this application was filed invoking the power of this Court under Section 11(6) and (8) of the Arbitration and Conciliation Act, 1996 for appointment of an Arbitrator. Parties entered appearance, the matter was heard and by order dated 19/12/2003, the application was dismissed upholding the contention of the respondents that there was no arbitration clause in the agreement between the parties. The other contentions raised by the respondents were not gone into. 4. Aggrieved by the said order, a writ petition was filed before this Court. During the pendency of the writ petition, a A.R.No.18/2003 -3- Constitution Bench of the Apex Court rendered judgment in S.B.P.& Co. v. Patel Engineering Ltd. and another (2005(8) SCC 618), holding the writ petition not maintainable. In view of the above judgment, the writ petition was dismissed reserving the right of the applicant to move the Apex Court. Accordingly, the applicant filed SLP No.11119/2006. Leave was granted and the appeal was numbered as Civil Appeal No.4155/2009. By judgment in M.K.Abraham & Co. v. State of Kerala (2009(7) SCC 636) rendered on 07/07/2009, the Apex Court held that there is an arbitration agreement between the parties. However, taking note of the other disputes raised by the respondents in the Civil Appeal, the Apex Court held as follows:- “15. We find from the record that the respondent, apart from contending that there was no arbitration agreement at all, had also contended that the appellants had given full and final settlement receipt with a no claim undertaking in regard to the respective contract and therefore no dispute much less arbitral disputes can exist. On the other hand, appellants had contended that such certificates have been obtained by coercion and pressure. Whether no claim certificate were obtained by coercion or by applying pressure is a question of fact that will have to be considered in the proceedings under Section 11 of the Act. The High Court while deciding the petitions under Section 11, considered only the question whether there is an arbitration A.R.No.18/2003 -4- agreement or not. As it held that there was no arbitration agreement, it did not examine the further objection of the respondents that there was a full and final settlement and consequently there is no arbitral dispute. In the absence of any material on that issue, we are not in a position to decide the same. 16. We therefore allow these appeals and set aside the order of the High Court, holding that there is an arbitration agreement between the parties in both appeals. We remand the matter to the High Court to consider and decide the other objections raised by the respondents in accordance with law.” 5. It is accordingly that the matter is coming up again for consideration. When the matter was taken up for hearing, arguments raised by both sides were confined to the question as to whether there was any arbitrable dispute, in view of Annexure R2(f), the undertaking given by the applicant while receiving final payment. 6. The facts which led to Annexure R2(f) undertaking, according to the applicant, are that after completing the work on 30/04/2001, in terms of the agreement, though they were entitled to be paid the final bill amount within one month thereafter, payment was not made. It is stated that in view of the non-payment explaining their financial crisis and the necessity for immediate payment, Annexure 4 to 8 letters produced along with the reply A.R.No.18/2003 -5- affidavit were issued, requesting for immediate payment. It is stated that finally, the 2nd respondent issued Annexure 9 communication to the Executive Engineer, which inter alia reads as under : “Considering the directions of the court and the Contractor's grievances he may be paid the final bill at his agreed rates without any loss to Government. It may be noted that if the new rates proposed for the BM and SDBC are approved by Chief Engineer the total cost of the work executed based on the revised rate would be at a stage requiring a Revised Estimate which would further delay the payment to the Contractor. An undertaking from the contractor in stamp paper to the effect that he will not be claiming any additional amount on account of this work also may be obtained.” 7. It is stated that as the applicant was facing severe financial crisis and under economic duress, Annexure R2(f) undertaking was furnished on 23/01/2002. It is stated that immediately thereafter on 02/02/2002, the applicant issued Annexure 10 notifying the respondents that the undertaking furnished was under coercion, that the same is of no legal effect and reserving their right to raise their legitimate claims in accordance with law. It is in this background, the applicant seeks to avoid Ext.R2(f) undertaking furnished by them. A.R.No.18/2003 -6- 8. On the other hand, in the counter affidavit filed by the respondents, what they contended is that though the contractor, completed the work on 30/04/2001, final bill was raised by the contractor only on 24/10/2001. It is stated that the delay has occurred on account of the fact that the final levels had to be taken manually for the entire stretch of 10 KM. It is stated that in the meanwhile, the contractor had demanded revised rate of BM and BC due to change in the mix design and that complaining that payment was not effected, he moved this Court by filing O.P.No.38819/01. That original petition was disposed of by judgment dated 21/12/2001 with a direction to the respondents to pay the admitted amount due in accordance with the priority laid down by the Full Bench of this Court. It is stated that after the judgment was rendered, on 21/01/2002 the Contractor voluntarily issued Annexure R2(d) letter demanding payment at the original agreement rate, and giving up his demand for the revised rate due to change in the mix design. It is stated that on 21/01/2002 itself, again on his own, the Contractor issued Annexure R2(e) letter, where he reiterated his plea for payment at the original rate. It is stated that on receipt of these letters, which were voluntarily written by the A.R.No.18/2003 -7- contractor, Annexure 9 letter dated 23/01/2002 was issued by the Project Director directing the Executive Engineer to obtain an undertaking in the manner stated therein. It is stated that on 23/01/2002 itself, Annexure R2(f) undertaking in stamp paper of Rs.50/- was furnished by the applicant and on its receipt, cheque for Rs.13,97,248/- was delivered to the applicant on 23/01/2002. According to the respondents, it was thereafter that by Annexure 10 letter dated 02/02/2002, the applicant conveyed his belated protest. According to the respondents, there was no coercion or duress from their side enabling the applicant to wriggle out of Annexure R2(f) undertaking and therefore, the claim of the applicant having been settled as demanded by them entirely to their satisfaction, there is no dispute requiring the appointment of an Arbitrator. On this basis, they seek dismissal of the Arbitration Request. 9. As already seen, the direction of the Apex Court as contained in paragraph 15 of the judgment referred to above, requires this Court to decide whether the no claim certificate was obtained by coercion or pressure, which is a question of fact. Both sides have not requested for adducing any oral evidence and A.R.No.18/2003 -8- therefore, this question of fact will have to be decided based on the documents produced by the parties. 10. As already stated, the work was completed by the applicant on 30/04/2001. Thereafter he approached this Court by filing O.P.No.38819/2001 complaining of non-payment of the bill amount. That original petition was disposed of by judgment rendered on 21/12/2001 directing that admitted amount be paid in terms of the priority as laid down by the Full Bench of this Court. Subsequently, he wrote Annexures 4 to 8 letters explaining his financial crisis and requesting for payment. It was thereafter that he wrote Annexure R2(d) & R2(e) letters, both dated 21/01/2002. Annexure R2(d) letter, to the extent it is relevant, reads as under:- “As the revised rate of BM and SDBC is not yet finalised and supplementary agreement is not executed, the revised rate finalisation takes further time. To avoid further delay in payment of the bill, I request you to kindly settle my final bill with the original agreement rate though it is heavy loss to me to the extent of Rs.2 lakhs (approx.). However, considering the interest on the amount blocked up, and the pressure from my suppliers, I have no other alternative other than to accept original contract agreement rate. Hence, I request you to kindly give directions to the Executive Engineer, N.H., Muvattupuzha, to close my final bill with the original contract agreement rate.” Annexure R2(e) also reads as under: A.R.No.18/2003 -9- “As the revised rates of BM and SDBC is not yet finalised and supplementary agreement not executed, I request you to kindly issue necessary direction to the Executive Engineer to settle my final bill at the rates provided in the original agreement which is acceptable to me.” 11. Even the applicant has no case that either Annexures R2 (d) or R2(e) was issued on account of any threat, coercion or duress exerted by any of the respondents. A reading of these two letters, which were voluntarily written, show that despite its claim for revised rate, the applicant has voluntarily given up its claim for enhanced rate and agreed for original agreement rate, in view of their pressing needs. It was acting upon Annexures R2(d) and R2(e), the claim of the applicant was processed and Annexure 9 requiring the applicant to give an undertaking was issued. On receipt of Annexure 9, without expressing any protest or raising any challenge either before the respondents themselves or any legal forum, the applicant willingly furnished Annexure R2(f) undertaking, which again is a voluntary act on its behalf. Acting upon the undertaking so furnished, on the same date, they were paid the amount that was due. It was thereafter that, for the first time, the applicant expressed its protest by Annexure 10 dated 02/02/2002. In my A.R.No.18/2003 -10- view, by any stretch of imagination can this Court, on the materials produced, conclude that Annexure R2(f) undertaking was obtained by coercion or duress, enabling the applicant to avoid the consequences. 12. The learned counsel for the applicant relied on the judgments of the Apex Court in M/s.Associated Construction v. Pawanhans Helicopters Pvt.Ltd. (AIR 2008 SC 2911) and National Insurance Co.Ltd v. M/s.Boghara Polyfab Pvt.Ltd. (AIR 2009 SC 170). 13. A reading of the judgment in M/s.Associated Construction v. Pawanhans Helicopters Pvt.Ltd. (AIR 2008 SC 2911) shows that unlike in this case, the awarder had demanded for a No Claim Certificate, even for entertaining the request made by the contractor for payment. Therefore, the facts of the case dealt with by the Apex Court is totally different and can have no assistance to the applicant. 14. In the decision in National Insurance Co.Ltd v. M/s.Boghara Polyfab Pvt.Ltd. (AIR 2009 SC 170) the Apex Court has, in paragraph 28 thereof, illustrated certain circumstances when claims are arbitrable inspite of giving a No Claim Certificate. A.R.No.18/2003 -11- Paragraph 28 reads as under :- “28. Some illustrations (not exhaustive) as to when claims are arbitrable and when they are not, when discharge of contract by accord and satisfaction are disputed to round up the discussion on this subject: (i) A claim is referred to a conciliation for a pre-litigation Lok Adalat. The parties negotiate and arrive at a settlement. The terms of settlement are drawn up and signed by both the parties and attested by the Conciliator or the members of the Lok Adalat. After settlement by way of accord and satisfaction, there can be no reference to arbitration. (ii) A claimant makes several claims. The admitted or undisputed claims are paid. Thereafter negotiations are held for settlement of the disputed claims resulting in an agreement in writing settling all the pending claims and disputes. On such settlement, the amount agreed is paid and the contractor also issues a discharge voucher/no claim certificate/full and final receipt. After the contract is discharged by such accord and satisfaction, neither the contract nor any dispute survives for consideration. There cannot be any reference of any dispute to arbitration thereafter. (iii) A contractor executes the work and claims payment of say Rupees Ten Lakhs as due in terms of the contract. The employer admits the claim only for Rupees six lakhs and informs the contractor either in writing or orally that unless the contractor gives a discharge voucher in the prescribed format acknowledging receipt of Rupees Six Lakhs in full and final satisfaction of the contract, payment of the admitted amount will not be released. The contractor who is hard pressed for funds and keen to get the admitted amount released, signs on the dotted line either in a printed form or otherwise, stating that the amount is received in A.R.No.18/2003 -12- full and final settlement. In such a case, the discharge is under economic duress on account of coercion employed by the employer. Obviously, the discharge voucher cannot be considered to be voluntary or as having resulted in discharge of the contract by accord and satisfaction. It will not be a bar to arbitration. (iv) An insured makes a claim for loss suffered. The claim is neither admitted nor rejected. But the insured is informed during discussions that unless the claimant gives a full and final voucher for a specified amount (far lesser than the amount claimed by the insured), the entire claim will be rejected. Being in financial difficulties, the claimant agrees to the demand and issues an undated discharge voucher in full and final settlement. Only a few days thereafter, the admitted amount mentioned in the voucher is paid. The accord and satisfaction in such a case is not voluntary but under duress, compulsion and coercion. The coercion is subtle, but very much real. The 'accord' is not by free consent. The arbitration agreement can thus be invoked to refer the disputes to arbitration. (v) A claimant makes a claim for a huge sum, by way of damages. The respondent disputes the claim. The claimant who is keen to have a settlement and avoid litigation, voluntarily reduces the claim and requests for settlement. The respondent agrees and settles the claim and obtains a full and final discharge voucher. Here even if the claimant might have agreed for settlement due to financial compulsions and commercial pressure or economic duress, the decision was his free choice. There was no threat, coercion or compulsion by the respondent. Therefore, the accord and satisfaction is binding and valid and there cannot be any subsequent claim or reference to arbitration.” 15. The facts of this case, as explained in the foregoing A.R.No.18/2003 -13- paragraphs, will show that the illustration pointed out by the Apex Court in paragraph 28(v) is more appropriate to the facts of this case. Therefore, I do not think that this judgment will help the applicant in any manner. It may be that the applicant was acting foolishly in having furnished Ext.R2(f) undertaking, but on the materials available, there is nothing to conclude that the undertaking was involuntary and as the applicant has acted with full comprehension of what they were doing, this Court cannot interfere the exercise of their volition. Since the applicant has not succeeded in establishing that Ext.R2(f) undertaking was issued under coercion or duress, I should uphold the objection raised by the respondents that the applicant has voluntarily given the undertaking, received payment and therefore, no case has been made out for appointment of an Arbitrator. The Arbitration Request will, therefore, stand dismissed. (ANTONY DOMINIC, JUDGE) jg