The Oriental Insurance Co. Ltd. & Anr. v. Dicitex Furnishing Ltd.
S. RAVINDRA BHAT, J.
1. Leave granted. With the consent of counsel, the appeal was
heard finally. The Oriental Insurance Co. Ltd (hereafter “the insurer” or
“the appellant”) appeals the decision of a single judge of t he Bombay
High Court, who allowed the respondent’s application under Section 11(6)
of the Arbitration and Conciliation Act, 1996 (hereafter “the Act”) and
appointed an arbitrator. The insurer’s objection about maintainability of
the application on the ground that the respondent (hereafter “Dicitex”)
had signed the discharge voucher and accepted the amount offere d,
thus, signifying accord and satisfaction, which in turn meant that there
was no arbitrable dispute, was rejected.
2. The relevant facts in this appeal are that on 17.09.2011, Dicitex
obtained a Standard Fire and Special Peril Policy; it was issued by the
appellant to cover the stocks of goods lying in its three separate godowns
located at Thane, Maharashtra, by three separate endorsem ents. The
total sum insured was @ ` 13 crores. Clause 13 of the terms and conditions
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of the said policy contained an arbitration clause. On 25.05.2012, a fire
broke out at night on the ground floor of the building occupied by RFCL,
which fire spread to the first floor of the building and completely engulfed
all of the appellant’s three godowns which had stored its goods. All the
stocks in all the three godowns were completely destroyed. Dic itex
informed the appellant on 26.05.2012, about the fire and the consequential
loss. The appellant appointed M/s. C.P. Mehta & Co. as Surveyors and
Assessors to survey the loss suffered by Dicitex and to rep ort on the
claim to be lodged upon the insurer-appellant, by the said company. Dicitex
lodged a total and final claim upon the appellant f or a sum of
` 14,88,14,327/- comprising ` 13,52,85,752/- towards cost of the materials
destroyed and ` 1,35,28,575/- as overheads. Dicitex claims also to have
submitted comprehensive documentary evidence and detailed work sheets
in support of the claim made to the insurer. On 14.08.2012, after visiting
Dicitex’s factory and the godowns, and after scrutinizing the materials
submitted by it in support of its claim, the Surveyor ap pointed by the
insurer filed a Final Survey Report recommending that the claim be settled
for an amount of ` 12,93,26,704.98/- and that after deducting an amount
of 5% towards compulsory deduction for excess, a net amount of
` 12,28,60,369/- be paid over to Dicitex. The latter alleged that a copy of
this survey report was not supplied to it, by the insurer, or the surveyor.
3. On 20.09.2012, Dicitex addressed a letter to the appellant’ s
chairman, informing him of the financial distress that it was facing,
requesting for settlement of the claim on priority basis. Dicitex also
informed him about a temporary loan obtained -to the tune of 10 crores-
from Union Bank of India for 3 months at a high rate of interest which
was due for repayment in September 2012 and requested him t hat it
would be a great financial help if its claim could be settled on pri ority
basis which would mitigate their hardship. Again, on 25.10.2012, Dicitex
informed the insurer that the sale value of the goods destroye d was
above ` 19 crores and that it had not only lost its goods but also i ts
profits. Dicitex informed that it had already submitted all the documentary
evidence supporting the claim to the Surveyor, M/s. C.P. Mehta & Co.,
yet another letter was addressed to the appellant’s chairman on 31.10.2012
placing on record that it had understood from the surveyor M/s. C.P .
Mehta & Co. that the Head Office of the appellant asked for some
more information in connection with the claim. Dicitex stated that
compiling, organizing and sending various documents totalling around
35,000 in number, entailed voluminous work. It was stated that the
THE ORIENTAL INSURANCE CO. LTD. & ANR. v. DICITEX
FURNISHING LTD. [S. RAVINDRA BHAT, J.]
surveyor had already gone through those documents and had picked up
at random, sample of various concerned records. Dicitex stated that it
was arranging to compile the documents and agreed to send them to the
surveyor as soon as possible. In other letters (dat ed 10.01.2012,
28.01.2013), again requests were made to the insurer to releas e the
amounts. Apparently, the appellant appointed a Chartered Accountant
(M/s Naveen Jhand & Associates) to carry out a resurvey of the claim
made by it (Dicitex). The latter had already furnished 37,700 documents
physically, which showed the exact quantity of furnishing fabrics in meters.
Dicitex brought to the notice of the Chairman-cum-Managing Director
that the new surveyors had asked for large number of documents again
and such documents could not be supplied. On 09.02.2013, addressing
the new surveyor M/s Naveen Jhand, Dicitex submitte d 37,700
documents and submitted further documents to the said new surveyor.
It submitted that since the previous 9 months, it had been pro viding
different documents/information to different people and submitted
whatever was requested by the new surveyor in broader for m and
requested them to submit their report at the earliest.
4. In accordance with the format sent by the insurer and af ter
obtaining Dicitex’s signature, a cheque for ` 3.5 crores was handed
over to it. Dicitex signed the discharge voucher on 04.03.2013, when the
insurer paid the said sum of ` 3.5 crores to Dicitex as ‘on account
payment’ in the matter of its claim. Union Bank of India e ndorsed the
said discharge voucher. According to Dicitex, all d ata that was
requisitioned by the new surveyor, was provided by it. Several meetings
took place between the representatives of the new surveyor, the appellant
and Dicitex. Dicitex, mentioned several letters to the appellant, and the
surveyor, in 2013 regarding the release of the amounts. Dicitex had also
stated that it felt strongly that the new surveyor was j ust not satisfied
with whatever was provided by it though all the data it su bmitted had
proved its genuine claim and the intention of the new surveyor was to
somehow reduce the claim. In other letters (such as t he one dated
21.02.2014), Dicitex informed the appellant that the surveyor was refusing
to commit to any fixed date within which they would be submitting their
report and also the appellant’s officials had no answers to its questions
with regard to when its claim would be settled. Dicitex reque sted the
General Manager to set a deadline to settle their claim at the earliest. It
wrote several letters to the appellant’s officers about the huge financial
losses suffered by it due to delay in settlement of the cl aim. Dicitex
informed the General Manager to settle the claim within 15 days.
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5. On 27 th May, 2014, Dicitex received an email from the appellant
stating that a discharge voucher for the balance amount of t he claim
payable as described was being enclosed. It was request ed to execute
the voucher along with the bank’s discharge on the space earmarked on
the left side and send the scanned copy back. By the em ail dated
28.05.2014, Dicitex replied to the email of 27.05.2014 and referred to
the discharge voucher sent by the appellant to it for signature. D icitex
placed on record that its total claim was approximately ` 15 crores and
the surveyor had assessed the same at approximately ` 12.93 crores.
Dicitex stated that the basis for arriving at the figure of ` 7.16 crores
was not explained (by the appellant). It requested the Regional Manager
of the appellant to provide the claim assessment working for their
understanding to enable Dicitex to take up the matter with their Board
of Directors for consideration. The appellant, by email dated 29.05.2014,
alleged that M/s. C. P. Mehta & Co. had initially assess ed the loss at
` 12,28,60,369/-. However, it had certain issues on the cost ing; it,
therefore, appointed M/s. Naveen Jhand and Associates to have another
look at the costing aspect and reconfirm/verify the costing for loss
assessment purpose. According to the said report su bmitted by
M/s. Naveen Jhand and Associates, the assessment wo rked to
` 7,16,30,148/- and accordingly, the competent authority had granted the
claim. The appellant enclosed the working of the claim and requested
Dicitex to go through it and send an unconditional discharge vouche r
duly signed by it and the bankers. Dicitex, the insured did not do so and
informed the appellant that it had noticed that what was given was just a
statement of calculation, without explanation/basis, that adjustments had
resultant deductions in Dicitex’s claim by more than 50% a s assessed
by the surveyor appointed by the appellant. Dicitex stated that since the
appellant had taken 2 years to offer the final settlement of the claim, it
(Dicitex) was suffering from a huge financial constraint and had to pay
bank interest and installments, salaries and wages, hence, i t was left
with no alternative but to accept the offer of the appellant
reluctantly and was accordingly sending the voucher duly discharged by
Dicitex and their bankers for doing the needful. Dicitex alle ged that
since the appellant did not relent, and insisted that any further payment
would be made only if the discharge voucher was executed exact ly at
the time and in the form and manner as required by it as we ll as the
letter dated 31.05.2014 was withdrawn. Dicitex stated that as it was in
urgent need of funds to meet its mounting liabilities, it wa s coerced
into withdrawing its earlier letter of 31.05.2014 and in executing
THE ORIENTAL INSURANCE CO. LTD. & ANR. v. DICITEX
FURNISHING LTD. [S. RAVINDRA BHAT, J.]
the discharge voucher exactly as dictated by the respondent s. By the
letter dated 06.06.2014, addressed to the Regional Manager, Dicitex
withdrew the letter dated 31.05.2014 submitted along with the discharge
voucher for a full and final settlement of their claim. I t requested the
appellant to remit the claim amount immediately. The discharge voucher
was on the letter head of the appellant, duly endorsed by Dici tex’s
bankers. In the discharge voucher, it was recorded that it acce pted a
sum of ` 3,66,30,148/- in full and final settlement of its claim. It was also
recorded that Dicitex voluntarily gave discharge receipt in full and final
settlement of their claim, present or future, arising directly/indirectly in
respect of the said loss/accident and subrogated all the ir rights and
remedies to appellant in respect of the loss/damage s. Further
correspondence ensued whereby Dicitex informed the appellant tha t
since there was a huge difference between the total amount claimed by
it, and the final claim settlement amount by the appellant, the same was
required to be discussed and resolved, failing which Dicitex would be
required to invoke the arbitration, as per clause 13 of the term s and
conditions attached to the policy. The appellant, by the lett er dated
17.07.2014 addressed to Dicitex, informed that it was surprised by the
proposal to invoke arbitration after the clean discharge voucher was
signed for the sum of ` 7,16,30,148/- in full and final settlement of the
said loss. The respondents denied that there existed any dispute of
quantum in respect of the said claim and contended that the amount due
to Dicitex arising out of indemnity, arising from the policy was duly verified
and assessed based on the documents submitted by Dicitex. The appellant
did not agree to Dicitex’s request for any differential amount or request
for proceeding for arbitration under the policy. On 24.07.2014, by a letter
addressed to the appellant, Dicitex denied that the amount received by it
was a clean discharge voucher in full and final settlement of their claim
and reiterated that it suffered a major loss of ` 14,16,94,329/-. The
surveyor, M/s. C.P. Mehta & Co. had submitted their report as sessing
the loss at ` 12.93 crores. Dicitex also placed on record that as against
approximately the claim of ` 14.70 crores, the appellant released only `
3.50 crores on 04.03.2013 i.e. almost 10 months after the los s had
occurred, and after a lapse of 27 months, the appellant made “a take it
or leave it” offer of ` 7.16 crores towards full and final settlement of
their claim, the discharge was accepted reluctantly by it. Dicitex alleged
that upon meeting the appellant’s officers, it was instructed to withdraw
the letter of protest and accept the claim settlement unconditionally which
was a proof of coercion.
397
6. The position taken by the appellant was that Dicitex was paid
` 7,16,30,148/- in a clean discharge and full and final settlement of their
claim and there existed no dispute with regard to the quantum of claim
and refused to appoint any arbitrator. In these circumstances, Dicitex
approached the Bombay High Court under Section 11(6) of the Act, for
appointment of an arbitrator. Dicitex relied on the assessment of
M/s C.P. Mehta & Co., which had assessed the loss at ` 12.93 crores.
It contended that the appellant released only ` 3.50 crores on 4.03.2013
i.e. almost 10 months after the loss suffered by Dicitex due to fire, and
only after a lapse of 27 months made “a take it or leave it” offer of
` 7.16 crores towards full and final settlement of their claim. D icitex
stated that it had taken a loan of a substantial amount and h ad to bear
the extra burden of high interest and found itself defaulting on ti mely
loan repayments. It was further submitted that Dicitex was unable to
pay income tax on time, as a result of which, it had to pay a sum of
` 23.90 lacs in the year 2012-2013 and a sum of ` 11.10 lakhs in the
year 2013-2014 towards interest for the delayed payments of i ncome
tax. It was also argued, on behalf of Dicitex, that it was subjected to
economic duress and coercion which resulted in the signin g of the
discharge voucher, which could not preclude its invocatio n of the
arbitration agreement.
7. The appellant resisted the application, contending that Dicitex
had not demonstrated whether the second discharge voucher signed by
it was under economical or financial duress under the arbitration
agreement. It was urged that since Dicitex had signed the dis charge
voucher and accepted the payment made by the respon dents
unconditionally and confirmed that the said payment was received in full
and final settlement of their claim, present or fut ure, arising
directly/indirectly in respect of the said loss/accident and subrogated all
their rights and remedies to the appellant in respect of the loss/damages,
there exists no dispute between the parties which can be re ferred to
arbitration. It was argued that Dicitex having signed th e discharge
voucher for ` 7,16,30,148/- in full and final settlement due to alleged loss
suffered by Dicitex, the arbitration application was not maintainable. It
was submitted that the appellant had replied to the letter dated 21.06.2014
stating that Dicitex had withdrawn only discharge vou cher dated
31.05.2014. The appellant also stated that in the arbitration agreement
itself, Dicitex had to explain the exact correctness of the allegation of
coercion and duress with details and particulars about signing the
THE ORIENTAL INSURANCE CO. LTD. & ANR. v. DICITEX
FURNISHING LTD. [S. RAVINDRA BHAT, J.]
discharge voucher. It was further contended that though the p ayment
was received by Dicitex on 09.06.2014, it raised pr otest only on
21.06.2014. Even in the letter dated 21st June 2014, Dicitex referred to
the discharge voucher dated 31.05.2014 which was not admittedly acted
upon by the insurer. Dicitex did not resile from the discharg e voucher
dated 31.05.2014, and thus on that ground also, this arbitration application
is not maintainable.
8. The appellant relied on some decisions of this court ( New Indian
Assurance Co. Ltd v Genus Power Infrastructure Ltd. (2015) 2 SCC
424. National Insurance Co. Ltd v Boghara Polyfab Pvt Ltd (2009) 1
SCC 267; Union of India (UOI) and Ors. v Master Construction Co.
(2011) 12 SCC 349 etc.
9. In the impugned judgment, while allowing the application, the
single judge analysed the decisions of this court, including Boghara
Polyfab (supra). It was noted that a perusal of the correspond ence
prima facie indicated that the first surveyor appointed by the insurer
had recommended the payment of more than ` 12 crores in favour of
Dicitex. For some reasons, the appellant did not accept the said rep ort
submitted by their own surveyor and instead appointed M/s Nav een
Jhand and Associates to re-compute the costings. It was also held that
Dicitex had furnished more than 37,700 documents to the surveyor for
their appraisal for submitting the report. Dicitex had placed on record
from time to time, documents to show that it had taken loans from the
banks who were pressurising it for repayment of those loans and interest.
The account of Dicitex with those banks had drawn the excess amount.
The final amount was sanctioned by the respondents only after 27 months
of the fire having taken place, which caused loss to Dicitex. Dicitex had
produced about 11 letters addressed by the banks to Dicitex, calling
upon Dicitex to regularize their bank accounts and showing the excess
amount drawn by it in various accounts. Dicitex had also pl aced on
record, the conduct of the second surveyor, who was, according to it,
demanding several other documents which were unwarranted and/or
already submitted by it. The learned judge noticed that prima facie,
Dicitex was facing financial distress and economical duress and in view
of its various urgent business liabilities, it apparently signed the said
discharge voucher reluctantly. It is not in dispute that the appellant refused
to accept such discharge voucher signed by Dicitex with letter of protest.
Therefore, a few days later, a discharge voucher was signed by Dicitex.
399
It was, however, Dicitex’s case that the appellant had insisted upon it to
sign a clean discharge voucher and to withdraw the letter of pr otest
addressed by it, failing which, the insurer would not release the amount,
even that was reflected in the discharge voucher. Dicitex t hereafter
withdrew the letter dated 31.05.2014, and signed another dischar ge
voucher. After signing another discharge voucher, Dicitex p laced on
record their objection that the same was signed due to press ure of the
respondents.
10. In view of the analysis made, the single judge allowed the
application, observing as follows:
“57. On perusal of the large number of corresponden ce
exchanged between Dicitex and the respondents which were
not disputed by the respondents, in my prima facie view, it
indicates that Dicitex was facing the financial constraint and
economical and financial duress on the part of the respondents
in not sanctioning and paying the final claim for 27 months
from the date of fire. Dicitex having faced pressure f rom their
bankers and suffering from other business liabilities incl uding
the demand of income tax department, Dicitex was under the
economical and financial duress and the said discha rge
voucher thus, in my prima facie view, cannot be consid ered
as an unconditional discharge voucher thereby Dicitex giving
up their claim in future arising out of the said di scharge
voucher.
58. In my view, if Dicitex would not have signed such discharge
voucher acknowledging the payment of the lesser amount than
what was alleged to be due to Dicitex after 27 months of th e
loss suffered, the respondents would not have release d even
the said amount mentioned in the discharge voucher. In my
view, if according to the respondents, Dicitex was not e ntitled
to recover the amount as claimed by Dicitex, but the lesser
amount, the respondents could have released the amount as
payable according to the respondents, but could not have
insisted for execution of a discharge voucher as a pre-
condition before releasing such payment.
59. Learned counsel for the respondents could not re fer to
any provision in the insurance policy or any other provisi on
THE ORIENTAL INSURANCE CO. LTD. & ANR. v. DICITEX
FURNISHING LTD. [S. RAVINDRA BHAT, J.]
of law in support of their claim that the responden ts were
entitled to insist for execution of such discharge voucher
before releasing any payment in favour of Dicitex w ith a
confirmation not to make any claim in future arising out of
the said claim. The Supreme Court has already depre cated
the practice followed by the government departments ,
statutory corporations and government companies for
obtaining such undated discharge voucher as the con dition
for releasing lesser amount and has held that the s aid
procedure is unfair, irregular and illegal. Though th e Chief
Justice or his designate is empowered to decide the issue as
to whether the parties had concluded the contract b y
recording satisfaction of their mutual rights and oblig ations
thereby receiving the final payment without objecti on based
on the affidavits and the pleadings or can leave the said issue
to be decided by the arbitral tribunal, in my view, it wo uld be
appropriate if the issue raised by the respondents that Dici tex
had signed such discharge voucher unconditionally and t he
issue raised by Dicitex that the same was under dure ss and
coercion is conclusively decided by the arbitral tribunal an d
if necessary, by leading oral evidence. The learned designat e
of the Chief Justice in case of M/s.Yasho Industries Pv t. Ltd.
Vs. The New India Assurance Company Limited in Arbitration
Petition No.314 of 2014 decided on 24th June 2015 which is
relied upon by one of the party has taken a similar view.
Special Leave Petition against the said order is reje cted.
60. In so far as the issue of arbitrability of the claim raised
by the respondents on the ground that Dicitex propo sed to
make the claim amount higher than the insured sum i s
concerned, if any claim higher than the insured sum is made
by Dicitex before the arbitral tribunal, the respond ents can
raise such issue of arbitrability and the same can be decided
by the arbitral tribunal. The issue of arbitrability of claim on
such ground cannot be decided in these proceedings.
61. Clause 13 of the arbitration agreement of the policy whi ch
provides that if any dispute or difference shall arise as to the
quantum to be paid under the policy, such difference shall be
referred to the decision of a sole arbitrator to be appointed
401
in writing by the parties or if they cannot agree upon a s ingle
arbitrator within 30 days of any party invoking arbitrat ion,
the same shall be referred to a panel of three arbi trators.
Since the respondents have refused to appoint any arbitrator
out of the names suggested by Dicitex in their lett er dated
14th July 2014 and had not suggested any other name, this
application filed under Section 11 (6) of the Arbitrat ion Act
is maintainable. In my view, the arbitration agreement ex ists
between the parties.”
11. The appellant urges that the impugned judgment is erroneous.
It is pointed out that the effect of the decisions in Boghara Polyfab,
Master Construction and Genus Power Infrastructure (supra) and
having regard to the facts and circumstances of this case, th ere can be
no question that any arbitrable dispute existed between the parties. Having
accepted the proffered amounts, and having withdrawn the reservation
and protest, Dicitex could not have argued that it was subj ected to
coercion or that the appellant forced it to sign the final discharge voucher.
Emphasis is placed on Dicitex’s letter dated 06.06.2014, whereby it
withdrew the previous letter dated 31.05.2014, which had contained
reservations about the amount offered in full settlement.
12. Counsel for Dicitex urges that this court should not interfere
with the impugned judgment. It was urged that the material in the form
of the record, particularly the consistent trend of letters, prior to the
letter of 06.06.2014 as well as the correspondence after that, cle arly
reveal that Dicitex was undergoing severe financial crisis and that the
prolonged process of settlement claim constrained it to issue the said
letter of 06.06.2014. However, the fact remained that at the rele vant
time, it faced a crisis of existence. Its acceptance was under financial
compulsion which amounted to economic coercion. Therefore, the learned
single judge very properly analysed all these material s and held that
prima facie, there was no full and final settlement or discharge.
Analysis & Conclusions
13. The main theme of the appellant’s argument in this c ase is
that Dicitex could not have invoked the arbitration clause, since it had
fully and finally accepted the amount offered (i.e..) and withdraw n its
protests and reservations, by the letter dated 06.06.2014. It cites the
decisions in Boghara Polyfab, Master Construction and Genus Power
(supra) in this regard.
THE ORIENTAL INSURANCE CO. LTD. & ANR. v. DICITEX
FURNISHING LTD. [S. RAVINDRA BHAT, J.]
14. The issue of the court’s jurisdiction to examine whether a
dispute is arbitrable, in the context of no objection certificates or discharge
vouchers, was examined in Boghara Polyfab for the first time. This
court in the context of an application under Section 11(6) dealt with the
issue, holding that if there was accord and satisfaction due to a no dues
certificate, a reference under Section 11 was not maintainable. It held,
inter alia, that:
“51. Let us consider what a civil court would have done in a
case where the defendant puts forth the defence of accord
and satisfaction on the basis of a full and final d ischarge
voucher issued by the plaintiff, and the plaintiff allege s that
it was obtained by fraud/coercion/undue influence a nd
therefore not valid. It would consider the evidence as to
whether there was any fraud, coercion or undue influence. If
it found that there was none, it will accept the vo ucher as
being in discharge of the contract and reject the claim wi thout
examining the claim on merits. On the other hand, if it found
that the discharge voucher had been obtained by fraud/undue
influence/coercion, it will ignore the same, examine whether
the plaintiff had made out the claim on merits and decide the
matter accordingly. The position will be the same even wh en
there is a provision for arbitration.
52. Some illustrations (not exhaustive) as to when claims ar e
arbitrable and when they are not, when discharge of contract
by accord and satisfaction are disputed, to round u p the
discussion on this subject:
(i) A claim is referred to a conciliation or a pre-litigati on 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 t he Lok
Adalat. After settlement by way of accord and satis faction,
there can be no reference to arbitration.
(ii) A claimant makes several claims. The admitted or
undisputed claims are paid. Thereafter negotiations are he ld
for settlement of the disputed claims resulting in an a greement
in writing settling all the pending claims and disp utes. On
such settlement, the amount agreed is paid and the contractor
403
also issues a discharge voucher/no claim certificate/ful l and
final receipt. After the contract is discharged by such a ccord
and satisfaction, neither the contract nor any dispute surviv es
for consideration. There cannot be any reference of any dispute
to arbitration thereafter.
(iii) A contractor executes the work and claims pay ment of
say Rupees Ten Lakhs as due in terms of the contrac t. The
employer admits the claim only for Rupees six lakhs and
informs the contractor either in writing or orally that u nless
the contractor gives a discharge voucher in the pre scribed
format acknowledging receipt of Rupees Six Lakhs in ful l 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 amou nt
released, signs on the dotted line either in a printed form or
otherwise, stating that the amount is received in full and fi nal
settlement. In such a case, the discharge is under eco nomic
duress on account of coercion employed by the emplo yer.
Obviously, the discharge voucher cannot be considered to be
voluntary or as having resulted in discharge of the c ontract
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 i nformed
during discussions that unless the claimant gives a full and
final voucher for a specified amount (far lesser th an the
amount claimed by the insured), the entire claim wi ll be
rejected. Being in financial difficulties, the clai mant agrees
to the demand and issues an undated discharge voucher in
full and final settlement. Only a few days thereaft er, the
admitted amount mentioned in the voucher is paid. The accord
and satisfaction in such a case is not voluntary bu t 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 dispute s
to arbitration.
(v) A claimant makes a claim for a huge sum, by way of
damages. The respondent disputes the claim. The cla imant
who is keen to have a settlement and avoid litigati on,
THE ORIENTAL INSURANCE CO. LTD. & ANR. v. DICITEX
FURNISHING LTD. [S. RAVINDRA BHAT, J.]
voluntarily reduces the claim and requests for settlement. T he
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 compulsion s and
commercial pressure or economic duress, the decisio n was
his free choice. There was no threat, coercion or compulsion
by the respondent. Therefore, the accord and satisf action is
binding and valid and there cannot be any subsequent claim
or reference to arbitration.
52. Let us now examine the receipt that has been taken in thi s
case. It is undated and is in a pro forma furnished by the
appellant containing irrelevant and inappropriate statem ents.
It states: “I/we hereby assign to the company, my/our right to
the affected property stolen which shall, in the event of t heir
recovery, be the property of the company”. The claim was not
in regard to theft of any property nor was the clai m being
settled in respect of a theft claim. We are referri ng to this
aspect only to show how claimants are required to sign on the
dotted line, and how such vouchers are insisted and taken
mechanically without application of mind.”
15. In Master Construction (supra) , this Court held that:
“20. The Bench in Boghara Polyfab Private Limited i n
paragraphs 42 and 43, with reference to the cases cited be fore
it, inter alia, noted that there were two categories of the cited
cases; (one) where the Court after considering the facts f ound
that there was a full and final settlement resulting in a ccord
and satisfaction, and there was no substance in the allegations
of coercion/undue influence and, consequently, it w as held
that there could be no reference of any dispute to arbitration
and (two) where the court found some substance in t he
contention of the claimants that `no dues/claim cert ificates’
or `full and final settlement discharge vouchers’ were i nsisted
and taken (either in printed format or otherwise) as a condition
precedent for release of the admitted dues and thereby givi ng
rise to an arbitrable dispute.
21. In Boghara Polyfab Private Limited, the consequences of
discharge of the contract were also considered. In para 25
405
(page 284), it was explained that when a contract has been
fully performed, then there is a discharge of the con tract by
performance and the contract comes to an end and in regard
to such a discharged contract, nothing remains and there
cannot be any dispute and, consequently, there cann ot be
reference to arbitration of any dispute arising fro m a
discharged contract. It was held that the question whether
the contract has been discharged by performance or not is a
mixed question of fact and law, and if there is a dis pute in
regard to that question, such question is arbitrable. The Court,
however, noted an exception to this proposition. The exceptio n
noticed is that where both the parties to a contract confirm i n
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 ref er any
subsequent claim or dispute to arbitration. Yet ano ther
exception noted therein is with regard to those case s where
one of the parties to the contract issues a full an d final
discharge voucher (or no-dues certificate, as the c ase may
be) confirming that he has received the payment in f ull and
final satisfaction of all claims, and he has no out standing
claim. It was observed that issuance of full and final discharge
voucher or no-dues certificate of that kind amounts to
discharge of the contract by acceptance or performance an d
the party issuing the discharge voucher/certificate cannot
thereafter make any fresh claim or revive any settled claim
nor can it seek reference to arbitration in respect of any claim.
22. In paragraph 26 (pages 284-285), this Court in Boghara
Polyfab Private Limited held that if a party which has execut ed
the discharge agreement or discharge voucher, alleg es that
the execution of such document was on account of fr aud/
coercion/undue influence practiced by the other party, and if
that party establishes the same, then such discharge voucher
or agreement is rendered void and cannot be acted upon and
consequently, any dispute raised by such party woul d be
arbitrable.
23. In paragraph 24 (page 284) in Boghara Polyfab Private
Limited, this Court held that a claim for arbitration cannot be
THE ORIENTAL INSURANCE CO. LTD. & ANR. v. DICITEX
FURNISHING LTD. [S. RAVINDRA BHAT, J.]
rejected merely or solely on the ground that a sett lement
agreement or discharge voucher has been executed by the
claimant. The Court stated that such dispute will have to be
decided by the Chief Justice/his designate in the procee dings
under Section 11 of the 1996 Act or by the Arbitral Tribunal.
24. In our opinion, there is no rule of the absolute kind. In a
case where the claimant contends that a discharge vouc her
or no-claim certificate has been obtained by fraud, coercion ,
duress or undue influence and the other side contes ts the
correctness thereof, the Chief Justice/his designate mu st look
into this aspect to find out at least, prima facie, w hether or
not the dispute is bona fide and genuine. Where the dispute
raised by the claimant with regard to validity of the disc harge
voucher or no-claim certificate or settlement agreement, p rima
facie, appears to be lacking in credibility, there may not be
necessity to refer the dispute for arbitration at all. It cannot
be overlooked that the cost of arbitration is quite huge - most
of the time, it runs in six and seven figures. It m ay not be
proper to burden a party, who contends that the dis pute is
not arbitrable on account of discharge of contract, with huge
cost of arbitration merely because plea of fraud, c oercion,
duress or undue influence has been taken by the claimant. A
bald plea of fraud, coercion, duress or undue influ ence is
not enough and the party who sets up such plea must prima
facie establish the same by placing material before the C hief
Justice/his designate. If the Chief Justice/his desi gnate finds
some merit in the allegation of fraud, coercion, duress or undue
influence, he may decide the same or leave it to be decided
by the Arbitral Tribunal. On the other hand, if suc h plea is
found to be an after-thought, make-believe or lacki ng in
credibility, the matter must be set at rest then and there.”
16. In Genus Power (supra), the relevant observations of this
court are as follows:
“8. It is therefore clear that a bald plea of fraud, coercion,
duress or undue influence is not enough and the party w ho
sets up a plea, must prime facie establish the same by placing
material before the Chief Justice/his designate. Vie wed thus,
407
the relevant averments in the petition filed by the Respo ndent
need to be considered, which were to the following effec t:
************** *************
(g) That the said surveyor, in connivance with the Respondent
Company, in order to make the Respondent Company escape
its full liability of compensating the Petitioner o f such huge
loss, acted in a biased manner, adopted coercion un due
influence and duress methods of assessing the loss and for ced
the Petitioner to sign certain documents including the Claim
Form. The Respondent Company also denied the just clai m
of the Petitioner by their acts of omission and com mission
and by exercising coercion and undue influence and made
the Petitioner Company sign certain documents, including a
pre-prepared discharge voucher for the said amount in
advance, which the Petitioner Company were forced to do so
in the period of extreme financial difficulty which prevailed
during the said period. As stated aforesaid, the Pe titioner
Company was forced to sign several documents includi ng a
letter accepting the loss amounting to Rs. 6,09,55,4 06/- and
settle the claim of Rs. 5,96,08,179/- as against the actual l oss
amount of Rs. 28,79,08,116/- against the interest o f the
Petitioner company. The said letter and the aforesa id pre-
prepared discharge voucher stated that the Petition er had
accepted the claim amount in full and final settlem ent and
thus, forced the Petitioner company to unilateral acce ptance
the same. The Petitioner company was forced to sign the said
document under duress and coercion by the Responden t
Company. The Respondent Company further threatened the
Petitioner Company to accept the said amount in full and final
or the Respondent Company will not pay any amount toward
the fire policy. It was under such compelling circumst ances
that the Petitioner company was forced and under duress was
made to sign the acceptance letter.
9. In our considered view, the plea raised by the Respon dent
is bereft of any details and particulars, and canno t be
anything but a bald assertion. Given the fact that th ere was
no protest or demur raised around the time or soon after the
THE ORIENTAL INSURANCE CO. LTD. & ANR. v. DICITEX
FURNISHING LTD. [S. RAVINDRA BHAT, J.]
letter of subrogation was signed, that the notice d ated
31.03.2011 itself was nearly after three weeks and t hat the
financial condition of the Respondent was not so precarious
that it was left with no alternative but to accept the te rms as
suggested, we are of the firm view that the dischar ge in the
present case and signing of letter of subrogation w ere not
because of exercise of any undue influence. Such disc harge
and signing of letter of subrogation was voluntary an d free
from any coercion or undue influence. In the circumst ances,
we hold that upon execution of the letter of subrogation, there
was full and final settlement of the claim. Since our answer to
the question, whether there was really accord and satisfaction ,
is in the affirmative, in our view no arbitrable dispute ex isted
so as to exercise power Under Section 11 of the Act. T he High
Court was not therefore justified in exercising pow er Under
Section 11 of the Act.”
17. In Velugubanti Hari Babu v. Parvathini Narasimha Rao &
Anr. (2016) 14 SCC 126 , the line of judgments in Boghara Polyfab
(supra) was followed . Later, in ONGC Mangalore Petrochemicals
Ltd. v ANS Constructions Ltd. and Anr. (2018) 3 SCC 373 , the court
held as follows:
“24. From the materials on record, we find that the contractee-
Company had issued the “No Dues/No Claim Certificate” on
21.09.2012, it had received the full amount of the fin al bill
being Rs. 20.34 crores on 10.10.2012 and after 12 d ays
thereafter, i.e., only on 24.10.2012, the contractee- Company
withdrew letter dated 21.09.2012 issuing “No Dues/No Claim
Certificate”. Apart from it, we also find that the Final Bill has
been mutually signed by both the parties to the Con tract
accepting the quantum of work done, conducting fina l
measurements as per the Contract, arriving at final va lue of
work, the payments made and the final payment that was
required to be made. The contractee-Company accepted t he
final payment in full and final satisfaction of all its claims.
We are of the considered opinion that in the presen ts facts
and circumstances, the raising of the Final Bill and mut ual
agreement of the parties in that regard, all claims, rig hts and
obligation of the parties merge with the Final Bill and n othing
409
further remains to be done. Further, the Appellant-Contractor
issued the Completion Certificate dated 19.06.2013 pursua nt
to which the Appellant-Contractor has been discharg ed of
all the liabilities. With regard to the issue that the “No- Dues
Certificate” had been given under duress and coerci on, we
are of the opinion that there is nothing on record to prove
that the said Certificate had been given under dure ss or
coercion and as the Certificate itself provided a clearance of
no dues, the contractee could not now turn around and say
that any further payment was still due on account of the losse s
incurred during the execution of the Contract. The story about
duress was an afterthought in the background that the loss es
incurred during the execution of the Contract were not
visualised earlier by the contractee. As to financial duress or
coercion, nothing of this kind is established prima facie. Mere
allegation that no-claim certificates have been obtained unde r
financial duress and coercion, without there being any thing
more to suggest that, does not lead to an arbitrable disput e.
The conduct of the contractee clearly shows that “n o-claim
certificate” was given by it voluntarily; the contr actee
accepted the amount voluntarily and the contract wa s
discharged voluntarily.
Conclusion:
25. Admittedly, No-Dues Certificate was submitted b y the
contractee-Company on 21.09.2012 and on their reque st
Completion Certificate was issued by the Appellant-
Contractor. The contractee, after a gap of one month, that is ,
on 24.10.2012, withdrew the No Dues Certificate on the
grounds of coercion and duress and the claim for lo sses
incurred during execution of the Contract site was made vide
letter dated 12.01.2013, i.e., after a gap of 3 1/2 (three and a
half) months whereas the Final Bill was settled on 10.10.201 2.
When the contractee accepted the final payment in fu ll and
final satisfaction of all its claims, there is no point in raising
the claim for losses incurred during the execution of the
Contract at a belated stage which creates an iota of doubt as
to why such claim was not settled at the time of sub mitting
Final Bills that too in the absence of exercising d uress or
THE ORIENTAL INSURANCE CO. LTD. & ANR. v. DICITEX
FURNISHING LTD. [S. RAVINDRA BHAT, J.]
coercion on the Contractee by the Appellant-Contract or. In
our considered view, the plea raised by the contrac tee-
Company is bereft of any details and particulars, and cannot
be anything but a bald assertion. In the circumstances, ther e
was full and final settlement of the claim and there was r eally
accord and satisfaction and in our view no arbitrable dispute
existed so as to exercise power Under Section 11 of th e Act.
The High Court was not, therefore, justified in exercising power
Under Section 11 of the Act.”
18. It is clear that in Boghara Polyfab (supra),no rule of universal
application was indicated. No doubt, subsequent jud gments which
followed it, were in the context of the facts as were pre sented to the
court. Proposition (iii) of the conclusions recorded in Boghara Polyfab
(supra) visualize duress or coercion on account of wit hholding of
payments due. The court – in more places than one, recognized that an
aggrieved party can be the victim of economic coercion which results in
its signing a document which discharges the other party of its obligations.
Master Construction (supra) placed the matter in perspective, when
the court enunciated the principle in the following terms:
“In our opinion, there is no rule of the absolute k ind. In a
case where the claimant contends that a discharge vouc her
or no-claim certificate has been obtained by fraud, coercion ,
duress or undue influence and the other side contes ts the
correctness thereof, the Chief Justice/his designate mu st look
into this aspect to find out at least, prima facie, w hether or
not the dispute is bona fide and genuine. Where the dispute
raised by the claimant with regard to validity of the disc harge
voucher or no-claim certificate or settlement agreement, p rima
facie, appears to be lacking in credibility, there may not be
necessity to refer the dispute for arbitration at all.”
Likewise, in Genus Power (supra), the court cautioned that a
“bald plea” of coercion, without any supporting material is insufficient
for a court to hold that the accord/satisfaction or no dues certificate was
involuntarily given.
19. A close look at the facts in the present case would show that
though the pleadings in the initial application under Section 1 1(6) are
weak, nevertheless, the materials on the record, in the form of copies of
411
the inter se correspondence of the parties – which span over 2 years,
clearly show that Dicitex kept repeatedly stating that i t was facing
financial crisis; it referred to credits obtained for it s business and the
urgency to pay back the bank. It is a matter of record that the Surveyor’s
report, dated 14.08.2014, recommended payment of ` 12,93,26,704.98/-
to Dicitex. Equally, it is a matter of record that the appellant referred the
matter to a chartered accountant’s firm, to verify certain inventory and
sales figures. It went by the report of the latter, who sta ted that the
estimate of loss could not be more than ` 7,16,30,148/-. This is what
was offered to Dicitex, by May, 2014. Dicitex’s application under Section
11(6) is replete with references to the number of letter s written to the
appellant, seeking release of amounts; it also averred to inability to pay
its income tax dues, the pressure from bankers (in support of which,
copies of letters of bankers were produced along with the application).
20. The averments by Dicitex, regarding the circumstances which
led it to execute the no objection discharge voucher, are reproduced
below:
“31. The Respondents did not pay anything to the Petitioner
after the submission of its letter, dated 31 st May, 2014 and
the submission of its letter, dated 31 st May, 2014 and therefore
several telephonic calls were made on behalf of the Petitioner ,
to the Respondent’s Regional Office at Mumbai in an ef fort
to persuade the Respondents to increase the settlement amo unt
so as to include the differential amount of about Rs. 7 crores.
The Petitioner also specifically requested the Resp ondents
not to, in any event, insist on the execution of the Discharg e
Voucher strictly as prescribed as a condition prece dent for
the payment of any part of the balance amount of claim.
32. Since, on the one hand, the Respondents did not show
any inclination to relent on any count and instead continued
to insist continued to insist that any further payme nt would
be made to the Petitioner if and only if the Discharge Vouc her
was executed exactly at the time and in the form and manner
as required by the Respondents as well as the letter dated 31 st
May, 2014 withdrawn and, on the other hand, the Petitioner
was in urgent need of funds to meet its mounting li abilities
the Petitioner was forced to withdraw its earlier lette r dated
31 st May, 2014 and coerced into executing the Discharge
THE ORIENTAL INSURANCE CO. LTD. & ANR. v. DICITEX
FURNISHING LTD. [S. RAVINDRA BHAT, J.]
Voucher exactly as dictated by the Respondents. Accordingly,
the Petitioner wrote a letter dated 6 th June, 2014 to the
Respondent No. 2 stating therein that it was withdrawing i ts
letter dated 31 st May, 2-14 and also enclosing the duly
executed discharge Voucher. The Petitioner also req uested
that the claim amount be paid over to it, immediately.”
The averments in the application, later are that the appellant paid
the amount. Dicitex, nevertheless later, by three letters questioned the
basis of reduction of the amount of claim. It later alleged that it wrote a
letter “dated 14 th July, 2014 to the respondents stating therein, inter
alia, that since they were forced to accept the offered amount and
that since there was a dispute on the quantum of cl aim settlement
paid to the Petitioner, the Petitioner was invoking arbitration
proceedings under Clause 13 of the said Policy to r ecover the
differential amount.”
21. An overall reading of Dicitex’s application (under Section 11(6))
clearly shows that its grievance with respect to the involuntary nature of
the discharge voucher was articulated. It cannot be disputed, that several
letters – spanning over two years- stating that it was fac ing financial
crisis on account of the delay in settling the claim, were addressed to the
appellant. This court is conscious of the fact that an applicat ion under
Section 11(6) is in the form of a pleading which merely seeks an order of
the court, for appointment of an arbitrator. It cannot be conclusive of the
pleas or contentions that the claimant or the concerned party can ta ke,
in the arbitral proceedings. At this stage, therefore, the court- which is
required to ensure that an arbitrable dispute exists, has to be prima
facie convinced about the genuineness or credibility of the ple a of
coercion; it cannot be too particular about the nature of the plea, which
necessarily has to be made and established in the substa ntive (read:
arbitration) proceeding. If the court were to take a contr ary approach
and minutely examine the plea and judge its credibility or reasonableness,
there would be a danger of its denying a forum to the applicant altogether,
because rejection of the application would render the finding (about the
finality of the discharge and its effect as satisfaction) final, thus, precluding
the applicant of its right event to approach a civil court. There are
decisions of this court ( Associated Construction v Pawanhans
Helicopters Ltd. (2008) 16 SCC 128 and Boghara Polyfab (supra)
upheld the concept of economic duress. Having regard to the facts and
413
circumstances, this court is of the opinion that the reasoni ng in the
impugned judgment cannot be faulted.
22. In view of the foregoing discussion, the appeal is held to be
unmerited; it is dismissed, without order as to costs.
Divya Pandey Appeal dismissed.
THE ORIENTAL INSURANCE CO. LTD. & ANR. v. DICITEX
FURNISHING LTD. [S. RAVINDRA BHAT, J.]