O.M.P. No.278.98 Page 1 of 33 * IN THE HIGH COURT OF DELHI AT NEW DELHI Judgment reserved on : April 22, 2009 % Judgment delivered on : May 08 , 2009 + O.M. P. NO.278/1998 M/S JATAN BUILDERS .....Petitioner Through : Mr. B.B. Sawhney, Sr. Advocate with Mr. M. Tarique Siddique, Advocate Versus ARMY WELFARE HOUSING ORGANIATION .....Respondent Through : Mr. A.K. Tewari, Advocate CORAM: HON’BLE MR. JUSTICE VIPIN SANGHI 1. Whether the Reporters of local papers may No. be allowed to see the judgment? 2. To be referred to Reporter or not? Yes. 3. Whether the judgment should be reported Yes. in the Digest? J U D G M E N T VIPIN SANGHI, J. 1. The respondent, Army Welfare Housing Organisation (AWHO) has preferred these objections under Section 34 of the Arbitration and Conciliation Act, 1996 (for short ,the Act) to challenge the arbitration award dated 20.7.1998 made by the Sole Arbitrator in favour of the Petitioner/Contractor/Claimant M/s Jatan Builders. O.M.P. No.278.98 Page 2 of 33 2. The parties entered into a construction contract wherein the petitioner-contractor agreed to construct multi-storeyed residential accommodation for the respondent at Nerul, New Mumbai. Disputes arose between the parties in relation to the said contract which were referred to arbitration in accordance with the arbitration clause contained in the said agreement. 3. Before coming to the award and the objections thereto I may note a few facts. The contract in question was awarded in favour of the petitioner on 8/12.3.1991. The date of completion which was initially fixed as 18.3.1993, was revised to 31.07.1993 upon amendment of the Contract to include within its scope the construction of an additional floor. The time for completion was extended up to 15.09.1993 and thereafter up to 28.02.1994. However, these extensions were granted by the respondent without escalation. Finally, vide Memorandum of Understanding (MOU) dated 24.11.1983 executed between the parties the time for completion was further extended up to 31.03.1994 and the petitioner was granted escalation on the basis of WPI as on 31.08.1993. On 31.3.1994, the consultant architects issued a completion certificate. The final bill was submitted by the petitioner to the respondent on 22.9.1995. 75% amount of the retention money i.e. Rs.20 lakhs in the form of bank guarantee furnished at the behest of the petitioner was released by the respondent on 19.10.1995. Ad hoc payment of Rs. 28 lakhs was also released by the respondent on 15.12.1995. Further performance guarantees of Rs.4.50 lakhs and retention money of Rs. 7.00 lakhs was O.M.P. No.278.98 Page 3 of 33 released on 29.2.1997. On 10.6.1997, the respondent-objector communicated the approval of the final bill after a technical check for a balance amount of Rs.10,13,667.71. The respondent required the petitioner to submit a no claim certificate. The same was submitted by the claimant-petitioner on 11.6.1987. Thereafter the balance amount of final bill was released on 13.6.1997. On 20.6.1997, the petitioner- contractor communicated that on reconciliation of the final bill with the technical check bill, large variation was noticed for which no details were provided by the respondent. While demanding certified true copy of the final bill to enable it to reconcile the accounts, the petitioner withdrew the no claim certificate issued by it. On 6.7.1997, the petitioner forwarded its list of tentative claims and sought the release of the amounts. On 30.7.1997, the petitioner invoked the arbitration agreement contained in clause 134 of the General Conditions of Contract. The Chairman, AWHO accordingly appointed the Arbitrator who had made the impugned award. 4. The submission of Mr. Tewari, learned counsel for the objector, AWHO is that the award is not sustainable since it is in contradiction and in violation of the contractual terms; the Arbitrator has exceeded his jurisdiction; the Arbitrator has, without assigning any reasons concluded that the MOU dated 24.11.1993 and the No Claim Certificate dated 11.06.1997 issued by the petitioner were a result of duress, coercion and undue influence and has therefore disregarded the same; the arbitrator has even disregarded the amendment to the contract in relation to the additional floor and awarded the claim for O.M.P. No.278.98 Page 4 of 33 rates contrary to the contract. He submits that apart from claim nos. 1 to 7, the other claims were barred by virtue of clause 119 or the General Conditions of Contract, since they did not form part of the final bill raised by the petitioner. So far as claim nos. 1 to 7 are concerned, he submits that the difference in the final bill submitted by the petitioner relating to those items, and the technically approved bill of the petitioner was only Rs.4,27,654/-, whereas the Arbitrator had awarded against the said claims Rs.8,73,202/-. It is therefore submitted by him that the entire award is liable to be set aside as the petitioner was bound not only by the MOU dated 24.11.1983, and the amendment to the contract, but also by the no claim certificate dated 11.06.1987 issued by it and there was complete accord and satisfaction between the parties from which the petitioner could not resile. There was no surviving arbitrable dispute which could be arbitrated upon by the Ld. Arbitrator. 5. On the other hand, the submission of Mr. B. B. Sahni, Senior Advocate who appears for the petitioner is that the MOU dated 24.11.1983 and the no claim certificate dated 11.6.1997 were both obtained under duress and coercion. The same cannot therefore come in the way of the petitioner raising its claims in arbitration. He submits that claim nos. 1 to 8 were covered by the final bill as raised by the claimant. The total amount claimed under these eight claims was Rs. 15,03,000/-, as against which the learned Arbitrator had awarded Rs.8,81,798/- under claim nos. 1 to 5 and 7 and 8. No amount was awarded against claim no.6, 11, 12, 18 and 20. Claim no.17 was O.M.P. No.278.98 Page 5 of 33 towards contract tax. The liability to pay contract tax was admitted by the respondent-contractor before the Arbitrator. Claim nos. 9, 10 and 19 were claims towards interest. While claim no.9 was made to claim interest on delayed payment of RA bills, (claimed amount Rs.22,95,108/- and awarded amount of Rs.5,42,326/-), claim no.10 pertained to the claim for interest on delayed payment of final bill which was paid only on 13.6.1997 (The petitioner had claimed Rs.4,25,872/- under this claim and had been awarded Rs.2,90,367/- by the Arbitrator). Claim no.19(a),(b),(c) were claims towards interest for the pre-litigation stage upto September, 1997, pendente lite interest i.e during the pendency of the arbitration proceedings, and post award period respectively. While the petitioner had claimed interest at the rate of 18% p.a. for all these periods, the petitioner was awarded pre- litigation and pendente lite interest at the rate of 15% p.a. and post award interest at the rate of 18% per annum. Claim no.13 was made towards payment due for additional works done by the Contractor which were ordered after the submission of the final bill. This claim was awarded by the Arbitrator for Rs.56,293/-. Consequently the claims for interest and claim no. 13 could not be said to be barred under Clause 119 of the General Conditions of Contract as they could not have been a part of the final bill. Claim no.14 was made towards escalation of labour, material and fuel after 31.8.1993, uptil the completion of the work. This claim was premised on the foundation that the MOU dated 24.11.1993 (which provided that the Contractor shall be paid escalation during the extended period of contract i.e upto O.M.P. No.278.98 Page 6 of 33 31.3.1994 for labour, material, petroleum, oil and lubricants (POL) in terms of the Contract Agreement provisions by freezing the wholesale price index (WPI) on 31.8.1993) was not binding on the petitioner, since it was obtained by duress and coercion. The claimant had contended, and the Arbitrator had accepted the submission of the Petitioner, that the wholesale price index could not have been frozen as on 31.8.1993, for purpose of payment of escalation when the period of the contract had been extended upto 31.3.1994. As against the claim of Rs.24,03,109/-, the Contractor had been awarded Rs.10,51,442.20 against claim no.14. Claim no.15 was made towards higher rate for construction of the additional floor, on the basis that the rate agreed to be paid for the construction of the additional floor (by the amendment to the contract) to the petitioner was lower than the rate agreed to be paid in respect of another similar contract to another Contractor. As against the claim of Rs.10,73,903.11, the Arbitrator had awarded an amount of Rs.5,33,128.00. Claim no.16 was made towards losses due to prolongation of contract. The petitioner had claimed Rs.76,17,122/- against which the Arbitrator had awarded Rs.14,00,760/-. It was submitted that even this claim could not have been raised at the time of raising the final bill, since this claim was not for any amount due towards work done. Therefore, it could not have been billed while raising the final bill, and could have been raised only in arbitration. 6. I may first deal with the finding of the Arbitrator that the MOU dated 24.11.1993 was signed under coercion and duress. A perusal of O.M.P. No.278.98 Page 7 of 33 the award shows that the respondent-objector raised a specific issue whether a party to the contract can retract from the signed MOU. 7. The Arbitrator notes the submissions of the claimant- petitioner that the MOU and the no claim certificate (NCC) were signed under duress and coercion; that AWHO had kept the claimant under pressure from the beginning of the contract; that AWHO delayed obtaining NOC from SIDCO for water connection which was made available in the end of May 1991 whereafter monsoon started; that AWHO issued sub-standard cement and the claimant was asked to demolish and redo the columns; that the claimant asked for payment which was declined; that ultimately AWHO placed the MOU before the claimant for signature; that the claimant had signed the same under extreme duress and coercion. 8. He also notes the submissions of the respondent that the respondent found serious ambiguities in the letter of the petitioner dated 08.07.1993 seeking extension of time as it was lacking particulars; that these ambiguities were notified to the petitioner; that the extension of time could be provided under Clause 91 and compensation for delay could be levied under Clause 102; that the petitioner did not respond to the respondent‟s letter dated 04.06.1993; that consequently the respondent granted extension of time but denied escalation; that the respondent had to bear financial liability as the work was delayed; that the petitioner got the benefit of the MOU, took away the amount and then created the dispute for unjust O.M.P. No.278.98 Page 8 of 33 enrichment. After recording the submissions, the learned Arbitrator proceeded to record his findings, inter alia, on the issue of validity of the MOU in the following manner:- “After considering all aspects brought by both the parties my findings are that- (a) As per clause 134 of contract and provisions on page 74(R) of contract, all disputes are referable to Arbitration. (b) The appointing authority has not excluded any dispute from the jurisdiction of the Arbitrator. AWHO also have not objected to the jurisdiction or Arbitrator in any Civil Court. (c) The MOU has been signed by both AWHO and M/s Jatan Builders, as claimed by both them, under coercion and duress. Further, the NCC has been signed by M/s Jatan Builders under coercion and duress as claimed by them. Hence, the plea of waiver of estoppel, in my view, cannot be taken. (d) Though Indian Evidence Act is not applicable to Arbitration proceedings, Arbitrator has to follow principle of natural justice. (e) I do not agree with AWHO that they had two options of denying extension (and charge compensation) or grant extension (and deny escalation). If there was no ground for extension the only provision in the contract was to deny extension. There is no provision in the contract of denying escalation in the extended period.” (emphasis supplied) 9. From the above extracted and highlighted portion of the award, it is seen that there is absolutely no germane reason given by the Arbitrator for arriving at his finding that the MOU was signed by the O.M.P. No.278.98 Page 9 of 33 parties under coercion or duress. The only “reason” given by the learned arbitrator is that both the petitioner and the respondent claimed that the MOU was a result of coercion and duress. 10. To hold that the petitioner was entitled to be relieved of his obligations under the MOU it was incumbent on the learned arbitrator to conclusively hold that the MOU was signed under coercion and duress exercised by the respondent. It was not enough to hold that as both the parties “claimed” that the MOU had been arrived at by exercise of coercion and duress by the other, the MOU was not binding on both the parties. This is so because a contract induced by coercion or undue influence is only a voidable contract at the option of the party whose consent has been caused by coercion or undue influence, and it is not a void contract. (see Sections 19 and 19A of the Contract Act). However, the learned Arbitrator has proceeded on a fallacious assumption of law that since both parties „claim‟ the exercise of coercion and duress on the other in the execution of the MOU, the same could be held to be signed under coercion and duress. Since it was the petitioner who was seeking to wriggle out of the MOU, it was for the petitioner to establish the exercise of coercion and duress by the respondent in procuring the MOU. Therefore, it was essential for the learned Arbitrator to have determined whether coercion and duress had, as a matter of fact, been exercised by one or the other party, and only if the petitioner had established, and not merely „claimed‟ that the MOU was caused by exercise of coercion and duress by the respondent, the petitioner could have avoided the MOU. The O.M.P. No.278.98 Page 10 of 33 approach of the learned Arbitrator betrays complete lack of appreciation of this fundamental principle of law and the erroneous application of the law has led to a patent error in the award on the aforesaid aspect. 11. At this stage it is necessary to set out the said MOU in extenso, as in my view from a reading thereof and on the application of the principles enunciated by the Supreme Court in the case of National Insurance Co. Ltd V. Boghara Polyfab, 2009(1) SCC 267, it cannot be said that the MOU was a result of coercion and duress exercised by the respondent-objector upon the petitioner. The MOU reads as follows:- “General 1. The work for the construction of Army Welfare Housing Organisation Project at Nerul (New Bombay) is being executed by M/s Jatan Builders. The Accepting Officer approved the extension of time of the subject work upto 28 Feb 94 without payment of escalation during the extended period of completion i.e. after 31 Jul 93. 2. M/s Jatan Builders through their various letters represented to the Accepting Officer for review of the decision on extension of time and payment of escalation during the extended period of completion. 3. Accordingly, a meeting was held between the Managing Director, AWHO and Shri MK Agarwal, Partner of M/s Jatan Builders on 01 Nov 93 and 23 Nov 93. 4. Shri M K Agarwal brought out during the discussion that there has been unprecedented rise in the prices of all commodities since the acceptance of work with very steep rise during the Gulf War. He also explained that the progress of work suffered due to various O.M.P. No.278.98 Page 11 of 33 factors in the past which were beyond his control. Points Discussed 5. Shri M K Agarwal brought out the following issues during the discussion:- (a) Escalation during extended period – It was brought out that the delays in the completion of work for which extension of time has been granted were beyond his control, and he should be paid escalation as per the provisions of contract. (b) Additional time for completion of work – It was contended that the extension of time granted may not be adequate for completion of balance works for which additional two months may be necessary. (c) Provision of final cost of painting/polishing just prior to handing over of DUs – It was contended that final coat of painting/polishing and polishing of floor shall be carried out just prior to the handing over of DUs to the allottees to give neater appearance. Also, to guard against likely thefts, the costly fittings like CP fittings etc. should be fitted only at the time of handing over of DU‟s. It was requested that the completion certificate should be issued with above stipulations. (d) Delay in completion of certain works on account of connected works by other agencies being not completed in time – It was brought out that certain items of work may not be completed by extended date of completion, as other agency/agencies are working on connected items. It was suggested that completion certificate should be issued with the condition these shall be completed later after the connected works are completed by other agency/ agencies. Decisions Arrived 6. All the points were discussed in detail and following were mutually agreed: - (a) The work shall be completed in all respects by 31 Mar 94. O.M.P. No.278.98 Page 12 of 33 (b) All works not connected or interfering with the works executed by other agency/agencies shall be completed in all respect by 31 Mar 94 except for fixing of fittings like CP fittings etc. which is likely to be stolen. (c) The Project Manager will issue completion certificate if the works stated in sub para (b) above is completed before 31 Mar 94 with the list of balance works lying incomplete. The incomplete works shall be completed within two weeks of the site of the incomplete works becoming available. (d) The contractor shall be paid escalation during the extended period of completion i.e. upto 31 Mar 94 for labour, material and POL in terms of Contract Agreement provisions by freezing the wholesale Price Index on 31 Aug 93. (e) The escalation becoming payable as a result of agreement at sub para (d) above shall be released as under: - (i) Seventy percent of the amount of escalation becoming due till 06 Nov 93 shall be released alongwith the running bills whenever they are preferred. The balance thirty percent amount shall be released after the issue of completion certificate. (ii) Escalation becoming due for the period after 07 Nov 93 till 31 Mar 94 shall be released in full as worked out in terms of sub para (d) above alongwith the running bills whenever preferred. 7. Shri M K Agarwal appreciated the gesture of Managing Director AWHO and accepted the same as additional help and agreed that all issues regarding the payment of escalation and completion of works stands fully resolved and he will have no claims whatsoever on this account in future. 8. Whereever there are conflicting provisions in this Memorandum of Understanding an provisions of Contract Agreement, the provisions contained in this Memorandum of Understanding shall take O.M.P. No.278.98 Page 13 of 33 precedence and if there are any clarification if necessitated due to any reason whatsoever, the decision of Managing Director AWHO shall be find and binding. 9. This Memorandum of Understanding has been discussed, examined and signed by both the parties without any pressure, duress and with free will. Signed on 24th day of November 1993 at New Delhi.” 12. A perusal of the above MOU shows that under the original contract there was no specific provision for either grant or the denial of escalation in rates during the extended period of the contract. The respondent had granted extension beyond 31.07.1993 and up to 28.02.1994 while specifically denying escalation to the petitioner. The petitioner-contractor had represented for a review of this aspect in the contract by demanding escalation during the extended period of completion. The petitioner-claimant had urged that there was unprecedented rise in the price of all commodities. He had also explained that the progress of the work had suffered due to various factors in the past which were beyond his control. 13. After mutual discussion, the parties agreed that the period of the contract be extended up to 31.03.1994 and that the Contractor shall be paid escalation during the extended period of completion i.e. upto 31.3.1994 for labour, material and POL in terms of the Contract Agreement provisions by pegging down the wholesale price index as on 31.8.1993. The manner of release of the escalation amount was also agreed under sub clause (e) of Clause 6. Clause 7 records the O.M.P. No.278.98 Page 14 of 33 appreciation and acceptance by the petitioner of the agreement regarding payment of escalation and further recorded that all issues regarding payment of escalation and completion of works stands fully resolved and that the claimant-petitioner shall have no claims whatsoever on this account in future. The terms of the MOU were to prevail over the contractual terms wherever there was any conflict. 14. Consequently it would be seen that though there was a claim for larger escalation made by the Contractor-petitioner on account of the rise in prices, the parties upon their mutual agreement agreed for 31st August 1993 as the date to freeze the wholesale price index for computing the escalation during the entire extended period upto 31.3.1994. This means that the escalator to be applied was determined by the parties as a fixed and definite percentage/ratio which was known to the parties when they entered into the MOU on 24.11.1993. It is not that under the MOU no escalation was to be granted for work done beyond 31.8.1993. The same was to be paid for the work done during the extended period i.e beginning 01.08.1993 upto 31.3.1994. Full escalation was agreed to be payable upto 31.08.1993. For the work done after 31.08.1993, if there ws any further escalation on account of increase in the W.P.I., after 31.08.1993, the same was restricted to escalation admissible on the basis of W.P.I as on 31.08.1993. It is therefore clear that the MOU was arrived at after negotiations between the parties. There was mutual give and take. It was not the case of the respondent-claimant that the Petitioner had altogether denied its claim for escalation and used the O.M.P. No.278.98 Page 15 of 33 extension of time upto 31.03.1994 as a lever to compel the respondent to give up its claim for escalation during the extended period completely. 15. In National Insurance Company Ltd.(supra), the Supreme Court considered the various situations in which a full and final discharge voucher or no claim certificate would bind the issuing party and in which cases it would not. After a comprehensive review of earlier decisions of the same court, in para 52, a few illustrations were given by the Supreme Court. Para 52 of the said decision reads as follows:- “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 or 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