Case: Chairman &amp; M.D., N.T.P.C Vs. M/S. Reshmi Constructions,Builders&amp;Cont

2. The parties to this appeal entered into an agreement for a project at Kayamkulam. Upon completion of the work the respondent herein submitted final bill which was allegedly not accepted by the appellant, whereafter they themselves prepared the final bill and forwarded the same along with a printed format being a "No Demand Certificate". The said "No Demand Certificate" was signed by the respondent herein which is in the followingThis is to certify that we have received all payment in full and final settlement of the supplied and services rendered and/ or all work performed by us in respect of the above referred LOA/Contract and we have no other claims whatsoever final or otherwise outstanding against NTPC. We further confirm that we shall have no claim/demands in future in respect of this contract of whatsoever nature, final or otherwise.We would now request you to please release our security deposit contract performance Guarantee.However, on the same day a letter dated 20.12.1990 was written by the respondent to the appellanthave completed the aforementioned work in the Kayamkulam Super Thermal Power Projects temporary township area at Nangiarkulangara by the end of November 1990 itself. We had submitted a pre-final bill in November itself but the authorities denied the bill and insisted final bill. But when the alleged final bill was prepared the authorities insisted that a "No Demand Certificate" should be executed by us in favour of the Corporation. They served us with a printed specimen of the document and insisted that it should be typed in our own letterhead and submitted to the N.T.P.C. We refused to submit such a document.But the authorities of NTPC threatened that unless and until we execute the said document in favour of the Corporation, the N.T.P.C. would not effect payment of our bill. More than six lakhs or Rupees is pending for payment vide the alleged final bill. We have incurred huge losses in the execution of the work purely due to the latches and lapses of the corporation. More over lakhs and lakhs of rupees has to be paid to our Bankers, creditors suppliers, workers, truck owners etc. etc. Under such a situation we have no other way other than budging to the coercion of the authorities of NTPC Ltd. to get whatever they give merely for the necessity of our survival. We have to comply with the instructions of authorities of NTPC Ltd. out of our helplessness in order to receive payment. Hence this letter.The certificates, undertakings, etc. as aforesaid have been executed without prejudice to our rights and claims whatsoever on account or the alleged final bill.The money invested in the work comprises loans from the Federal Bank Ltd., private financiers, etc. as well the Firms own funds. Those additional sums raised by loans have to be paid to the Bank, financiers, etc. hence under duress, coercion and under undue influence we are signing the bill and execute such documents as aforesaid to receive payment. Under such coercive circumstances the alleged final bill cannot be constructed as final bill. We are signing the alleged final bill under coercion, under undue influence and under protest only without prejudice to our rights and claims whatsoever. There is no accord and satisfaction between the contracting parties.You are therefore, requested to kindly pass the final bill incorporating all the measurements of the items such as sinkage, in and under water execution of works, compensation for suspension of works, reimbursement of cost escalation due to price hike of petroleum products, cost of idling, enhanced rates for quantities executed beyond the contractual period, market rate for excess quantities, extra additional items etc. besides the losses and damages by way of idling of tools and plants, workmen, staff, establishment costs, capital outlay, interest etc. as per actuals. We hope and request that your goodself may do the needful in thesupplied)4. The respondent thereafter invoked the arbitration clause by reason of a letter through his advocate dated 21.12.91 wherein the claims under several heads as enumerated in clause (a) to (p) thereof. Therein a request was made to refer all the disputes and differences to a sole arbitrator for adjudication with a direction to make and publish the award within the statutory period.5. The appellant herein thereafter discussed the matter at the company level and in its proceedings it wasIn case of M/s. Reshmi Constructions, Trivandrum Kerala (1(C) above) and M/s. C.S. Prakash, 1(d) above) of Porumbavoor, Kerala, the total payment for the works done were effect, the final bills have been settled without protest and the no-dues certificates in the standard proforma have been submitted by the contractors.5.0 To seek legal opinion in the matter, we have approached Mr. B.S. Krishnan, a leading advocate from Cochin. On detailed study of the claims of the agencies and considering legal conditions, the advocate has advised us to appoint arbitrator/s nominated by CMD of NTPC, immediately. According our advocate has written suitable replies to the contractors advocate Shri NT John, of Trivandrum, informing them that they will hear from NTPC regarding appointment of an arbitrator in terms of the contract conditions.6.0 Submitted to appoint arbitrator/s for the four contract packages at para 1.0 above, please.The appellant thereafter by its letter dated 13th February, 1992 replied theretoclient acting upon the notice, though defective, takes it that all your claims are disputed ones and hence are to be resolved by Arbitration. Please note that the reference to arbitration does not mean that there is admission that the disputes are arbitrable. Many of the claims raised are beyond the terms of the contract and the Arbitrator will have not jurisdiction to deal with them. This is a matter which has to be taken to later and not at the stage of appointment of an Arbitrator.As appointing authority, my client refrains from commenting upon in any manner, on the merits or otherwise of the disputes which your notice has set out.It may be noticed that your client has already taken the final bill and has issued no dues certificate. This is not merely accord and satisfaction, but bringing the contract to an end.Your client will hear from my client as regards the appointment of the Arbitrator in terms of the contract conditionssupplied)7. A purported correction in the said notice was issued by the advocate of the appellantCorrection in the notice is issued by way of Reply notice is signed on behalf of M/s. Rashmi Constructions, Trivandrum - reg.Ref: My Regd. Notice No. P3-G1/92/582 dt. 13.2.92.Under instructions from my clients, the Chairman & Managing Director, National Thermal Power Corporation Ltd. NTPC Bhavan, New Delhi-110 003, I issue the following notice:In the reply notice issued by me under reference number cited above, it was stated that the notice issued by you on behalf of your clients M/s. Rashmi Constructions, Trivandrum was returned since it was not signed by you and that the notice is sent back as the same was signed on your behalf by your client. On scrutiny I find that the notice is returned by you after the same is signed by you and not by your client on your behalf. In paragraph 2 of the reply notice, I stated that the notice is defective. It was so stated because of the mistaken impression that the notice is signed by your client and not by you. I stated that the mistake is in advert at and the same is regretted. I would like to bring to your notice one more fact which was omitted to be stated in the reply notice sent earlier. I have already stated that your client has issued no dues certificate. The final bill is accepted by your client without any protest. This is further followed up by your client receiving the security deposit released on 21.1.92; that is after the expiry of the stipulated period reckoned from the date when the contract came to an end.In all other respects the reply notice earlier sent stands.The respondent herein filed an application under Section 20 of the Arbitration Act, 1940 before the Honble Subordinate Judges Court Mavelikkara and in terms of a judgment and order dated 30.6.1994 the said application was dismissed. Aggrieved the respondent herein preferred an appeal before the High Court of Kerala which was allowed by reason of the impugned order.

Court's reasoning:
16. The issues are required to be determined having regard to the facts as which arise for consideration whether by reason of the act of the parties the old contract was substituted by a new contract. Only in the event a new contract came into being, the arbitration agreement cannot be invoked.We, however, may observe that the quotation from Russell on Arbitration may not be apt inasmuch as at the stage of reference what would be a good defence is not a matter to be taken into consideration.25. Yet again, in Nathani Steels Ltd. (supra) the disputes and differences were amicably settled by and between the parties and in that view of the matter it was held that unless and until the statement is set aside, the arbitration clause cannot be invoked. Such is not the position here.The appellant herein did not raise a question that there has been a novation of contract. The conduct of the parties as evidenced in their letters, as noticed hereinafter, clearly go to show that no only the final bill submitted by the respondent was received but another final bill was prepared with a printed format that a "No Demand Certificate" has been executed as other final bill would not be paid. The respondent herein, as noticed hereinbefore, categorically stated in its letter dated 20.12.1990 that as to under what circumstances they were compelled to sign the said printed letter. It appears from the appendix appended to the judgment of the learned Trial Judge that the said letter was filed even before the trial court. It is, therefore, not a case whether the respondents assertion of under influence or coercion" can be said to have been taken by way of an afterthought.27. Even when rights and obligations of the parties are worked out the contract does not come to an end inter alia for the purpose of determination of the disputes arising thereunder, and, thus, the arbitration agreement can be invoked. Although it may not be strictly in place but we cannot shut out eyes to the ground reality that in the cases where a contractor has made huge investment, he cannot afford not to take from the employment the amount under the bills, for various reasons which may include discharge of his liability towards the banks, financial institutions and other persons. In such a situation, the public sector undertakings would have an upper hand. They would not ordinarily release the money unless a No Demand Certificate is signed. Each case, therefore, is required to be considered on its own facts.We may, however, hasten to add that such a case has to be made out and proved before the Arbitrator for obtaining an award.The fact situation in the present case, would lead to the conclusion that the arbitration agreement subsists because;(i) Disputes as regard final bill arose prior to its acceptance thereof in view the fact that the same was prepared by the respondent but was not agreed upon in its entirety by the appellant herein;(ii) The appellant has not pleaded that upon submission of the final bill by the respondent herein any negotiation or settlement took place as a result whereof the final bill, as prepared by the appellant, was accepted by the respondent unequivocally and without any reservation therefor;(iii) The respondent herein immediately after receiving the payment of the final bill, lodged its protest and reiterated its claims.(iv) Interpretation and/ or application of clause 52 of the agreement would constitute a dispute which would fall for consideration of the arbitrator.(v) The effect of the correspondences between the parties would have to be determined by the arbitrator, particularly as regard the claim of the respondent that the final bill was accepted by it without prejudice.(vi) The appellant never made out a case that any novation of the contract agreement took place or the contract agreement was substituted by a new agreement. Only in the event, a case of creation of new agreement is made out the question of challenging the same by the respondent would have arisen.(vii) The conduct of the appellant would show that on receipt of the notice of the respondent through its advocate dated 21.12.1991 the same was not rejected outright but existence of disputes was accepted and the matter was sought to be referred to the arbitration.(viii) Only when the clarificatory letter was issued the plea of settlement of final bill was raised.(ix) The finding of the High Court that a prima facie in the sense that there are triable issues before the Arbitrator so as to invoke the provisions of Section 20 of the Arbitration Act, 1940 cannot be said to be perverse or unreasonable so as to warrant interference in exercise of extraordinary jurisdiction under Article 136 of the Constitution of India.(x) The jurisdiction of the arbitrator under the 1940 Act although emanates from the reference, it is trite, that in a given situation the arbitrator can determine all questions of law and fact including the construction of the contract agreement. (See Pure Helium India Pvt. Ltd. vs. Oil and Natural Gas Commission reported in 2003(8) SCALE 553).(xi) The cases cited by the learned counsel for the appellant (P.K. Ramaiah and Company (supra) and Nathani Steels (supra) would show that the decisions therein were rendered having regard to the finding of fact that the contract agreement containing the arbitrator clause was substituted by another agreement. Such a question has to be considered and determined in each individual case having regard to the fact situation obtaining therein.