Union of India & Ors. v. M/S. Bharat Enterprise
K. M. JOSEPH, J.
1. A contract was entered into between the parties for the repair
of bathrooms and other allied works on 02.07.2001. It would appear that
time was extended up to 19.01.2002. The respondent- Contractor
submitted final bill on 13.02.2002. It contained a No Claims Certificate.
The said amount claimed by the respondent apparently was not paid
immediately. The respondent it would appear made several re minders
regarding the non-payment of the final bill for a period of one year.
Following many reminders by the respondent regarding the non payment
of the final bill, according to the respondent, it sent a list of additional
claims on 25.02.2003 and in the said letter, claimed that the letter and the
Final bill should be considered as under protest. The respondent signed
affidavit dated 24.05.2003 which according to the responde nt was
prepared by the appellant and which provided for the withdrawal of the
letter dated 25.02.2003. An undertaking was also got signed from the
respondent on 12.09.2003. Thereafter, respondent on 14.11.2003 revoked
the affidavit and undertaking on account of non payment of the bill and
purported to give the final notice invoking the arbitration clause contained
in the contract for the non payment of claims due. It is, the reafter, on
25.11.2003, that the appellant made payment of Rs.100358/-. This was
followed by letter dated 08.09.2004 by which the respondent sought to
invoke the arbitration clause and appointment of arbitrator. Later, on
12.11.2007, a petition was moved under Section 11(6) of the Arbitration
and Conciliation Act, 1996 (hereinafter referred to as ‘Act’ for brevity)
for appointment of an arbitrator. The same was allo wed. A fresh
agreement for arbitration was entered into on 22.11.2007 providing for
appointment of a new Arbitrator. Suffice it to notice that a former District
and Sessions Judge came to be appointed as sole arbitrator. The appellant
filed an application under Section 16 for dismissal of the cl aims. The
appellant invoked clauses 65 and 65A of the contract. This application,
no doubt, was rejected on 04.03.2009 by the Arbitrator. Thereafter, the
Arbitrator entered upon the merits of the matter and passed Award dated
16.07.2009. There were a total of 10 claims. The Arbitrator disallowed
seven out of the ten claims while it allowed three claims. The claims
were allowed with rate of interest which we need not notice at this
stage. The petition filed by the appellant under Section 34 of th e Act
came to be allowed by the District Judge. It is this order passed by the
UNION OF INDIA & ORS. v. M/S. BHARAT ENTERPRISE
District Judge under Section 34 which stands overturned by the impugned
order in an appeal under Section 37 of the Act.
2. We have heard Col. R. Balasubramanium, learned s enior
counsel for the appellants, and Ms. Praveena Gautam, learned counsel
for the respondent.
3. The only controversy which we are called upon to resolve i s
whether the impugned order is sustainable having regard to clauses 65
and 65A of the Contract.
4. The contention of the learned senior counsel for the appellants
is that the impugned order is in the teeth of law laid down by this Court
in Bharat Coking Coal Ltd. vs. Annapurna Construction (2003) 8
SCC 154. He also points out that the said view has been follow ed in
PSA SI CAL Terminate (P) Ltd. v. Board of Trustees of V.O.
Chidambranar Port Trust Tuticorin 2021 SCC Online SC 508. In a
nutshell, the argument is as follows:
5. He contends that the Arbitrator cannot travel out side the
boundaries of the contact. In fact, he is fully bound by the terms of the
contract. In the terms of the contract which are apposite in the context
of the dispute before us, there is a prohibition against the Contractor
supplementing the claims in the final bill by including claims which are
not found in the final bill. In the facts of this case, he would submit that
this is precisely what has happened by pointing out the final bill which
was submitted on 13.02.2002 and the claims allowed are later rai sed.
He would submit that the High Court was clearly in error in tiding over
this insuperable barrier in law and granting relief. The reasoning which
has weighed with the High court is sought to be brought under a cloud as
being unsustainable in the teeth of the judgments rendered by this Court
referred to hereinbefore.
6. Per contra , Ms. Praveena Gautam, learned counsel for the
respondent, lays store by the law laid down by this Court in Union of
India and Others v. Master Construction Company (2011) 12 SCC
349 and the judgment in Union of India v. Parmar Construction
Company (2019) 15 SCC 682. She would point out that there was a
long delay in signing the final bill and the Arbitrator has only awarded the
amounts which were found due. It is further contended that an attempt
made under Section 16(2) of the Act to shake the pre mise of the
Arbitrator’s jurisdiction failed. It is pointed out that the said decision has
811
not been challenged under Section 37 of the Act. It is also pointed o ut
that in the facts of this case, at any rate, the Court may not exercise its
jurisdiction based on an appeal generated by the State filed under Article
136 of the Constitution.
ANALYSIS
7. Clauses 65 and 65A of the Contract read as follows:
“CONDITION NO.”65.
Final Bill (Applicable only to Measurement and LumpSum
Contracts).- The Final Bills shall be submitted by the Contractor
on I.A.F.W.-2262 in duplicate within three months of physical
completion of the Works to the satisfaction of the Engineer-in-
Charge.
It shall be accompanied by all abstracts, vouchers,etc.,
supporting it and shall be prepared in the manner prescribed
by the G.E.
No further claims shall be made by Contractor after
submission of the Final Bill and these shall be deemed to have
been waived and extinguished.
The Contractor shall be entitled to be paid the final sum
less the value of payments already made on account, subject
to the certification of the final bill by the G.E.
No charges shall be allowed to the Contractor on
account of the preparation of the final bill.”
CONDITION NO.”65-A.
Final Bill (Applicable only to Term Contracts). - The
Final Bill shall be submitted by the Contractor on I.A.F.W.2262
in duplicate, accompanied by all supporting abstracts, vouchers,
etc., except I.A.F.W.- 2158 and 1833 prepared in the manner
prescribed by the G.E. within three months of physi cal
completion of the Works to the satisfaction of the Engineer-in-
Charge. In respect of works orders arising out of u nit
requisitions or M.E.S. inspections for maintenance and repairs,
any portion of such an order which remains uncompleted at
the date of the next subsequent requisition or inspection may,
purely to facilitate payment of completed Work and without
UNION OF INDIA & ORS. v. M/S. BHARAT ENTERPRISE
[K. M. JOSEPH, J.]
prejudice to any other right or remedy of Government in respect
of any such delay, be deleted and the Works Order, as so
amended forthwith, billed for final payment.
No further claims shall be made by the Contractor after
submission of a Final Bill and these shall be deemed to have
been waived and extinguished. The Contractor shall be entitled
to be paid the full measured value of the Works Order, less the
value of payments made on account and of any charge s
properly preferred under the Conditions of Contracts fo r
Government Stores, etc. supplied on repayment, subject to the
certification of the final bill by the G.E.
When fractions of a rupee occur in the totals of bills,
fractions less than half a rupee shall be disregarded and half a
rupee and over taken as a rupee.
No charges shall be allowed to the Contractor on
account of the preparation of a final bill.”
8. The Arbitrator comes on the scene as a result of the agreement
between the parties. Not unnaturally, the fundamental a nd primary
foundation for the Arbitrator to settle the dispute is the contract between
the parties. An Arbitrator is a creature, in other words, of the parties and
the contract. It is elementary that as Arbitrator he cannot stray outside
the contours of the contract. He is bound to act within its confines . A
disregard of the specific provisions of the contract would incur the wrath
of the Award being imperiled. This position cannot be in the region of
dispute.
9. There is another scenario. This relates to a claim that ther e is
accord and satisfaction. On the one hand, it is sought to be rebuffed by
the case of the contractor that the accord and satisfaction was brought
about by vitiating factors which are contemplated essentially in sections
15 to 18 of the Indian Contract Act, 1872. In other words, where t he
case of the contractor that a No Claim Certificate is given under duress
or coercion, this may be the subject matter of inquiry by the Arbitrator. It
may be open to the Arbitrator to find merit in the complaint of the
contractor and to reject the case of accord and satisfaction and to proceed
to examine the merits of the claim of the contractor and to award
compensation in accordance with law in a given case. These distinct
streams of cases and therefore differences in the judicia l approach is
what essentially arise for our consideration.
813
10. In Bharat Coking Coal Ltd. v. Annapurna Construction
(2003) 8 SCC 154, this Court considered inter alia the effect of an
Arbitrator failing to consider the relevant clauses of the contract. It is on
the said premise that the Court proceeded to hold inter alia as follows:
“Findings
9. Only because the respondent has accepted the final bil l, the
same would not mean that it was not entitled to raise any claim. It
is not the case of the appellant that while accepting the final bill,
the respondent had unequivocally stated that he would not raise
any further claim. In absence of such a declaration, the respondent
cannot be held to be estopped or precluded from raising any claim.
We, therefore, do not find any merit in the said submission of Mr
Sinha.
40. However, as noticed hereinbefore, this case stan ds on a
different footing, namely, that the arbitrator while passing the award
in relation to some items failed and/or neglected to take i nto
consideration the relevant clauses of the contract, nor did he take
into consideration the relevant materials for the purpose of arriving
at a correct fact. Such an order would amount to misdirection in
law.”
In the same vein is the judgment of this Court reported in PSA
SICAL Terminate (P) Ltd. 1
11. On the other hand, is the decision reported in Master
Construction Company 2.
12. We must notice the following facts:
Firstly, the case arose under Section 11 of the Act.
Upon completion of the work in question, the completion certificate
was issued and this was followed by the contractor furnishi ng a No
Claim Certificate. The final bill was signed. Thereafter, the payment of
the final bill was made within a period of little over a month. Thereafter,
it would appear that the contractor wrote to the appellant withdrawing
the No Claim Certificate. The employer (the appellant) dec lined to
entertain the claims on the ground that the final bill was accepted by the
1 PSA SI CAL Terminate (P) Ltd. v. Board of Trustees of V.O. Chidambranar Port Trust
Tuticorin 2021 SCC Online SC 508.
2 Union of India and Others v. Master Construction C ompany (2011) 12 SCC 349.
UNION OF INDIA & ORS. v. M/S. BHARAT ENTERPRISE
[K. M. JOSEPH, J.]
contractor after furnishing the No Claim Certificate. It was in the context
of the said facts that this Court after an exhaustive review of earlier
case law which we must notice included the judgment of this Court
reported in National Insurance Company Limited v. Boghara Polyfab
Private Limited (2009) 1 SCC 267 went on to hold as follows:
“23. The present, in our opinion, appears to be a case falling in the
category of exception noted in Boghara Polyfab (P) Ltd. [(2009)
1 SCC 267 : (2009) 1 SCC (Civ) 177] (p. 284, para 25). As to
financial duress or coercion, nothing of this kind is establish ed
prima facie. Mere allegation that no-claim certificates have been
obtained under financial duress and coercion, without there being
anything more to suggest that, does not lead to an arbitrable dispute.
The conduct of the contractor clearly shows that “no -claim
certificates” were given by it voluntarily; the contractor accepted
the amount voluntarily and the contract was discharged voluntarily.”
13. In National Insurance Company Limited 3 this Court inter
alia held as follows:
“The questions for consideration
15. In this case existence of an arbitration clause in the contract
of insurance is not in dispute. It provides that “if any di spute or
difference shall arise as to the quantum to be paid under this policy
(liability being otherwise admitted) such differenc e shall,
independently to all other questions be referred to the decision of
a sole arbitrator”. The rival contentions give rise to the following
question for our consideration:
In what circumstances, a court will refuse to refer a dispute
relating to quantum to arbitration, when the contract specifically
provides for reference of disputes and differences relating to the
quantum to arbitration? In particular, what is the position when a
respondent in an application under Section 11 of the Act, resists
reference to arbitration on the ground that the petitioner has issued
a full and final settlement discharge voucher and the petitioner
contends that he was constrained to issue it due to coercion, undue
influence and economic compulsion?
17. The decision in Kishorilal Gupta [AIR 1959 SC 1362 : (1960)
1 SCR 493] was followed and reiterated in several decisions
including Naihati Jute Mills Ltd. v. Khyaliram Jagannath [AIR
815
1968 SC 522] , Damodar Valley Corpn. v. K.K. Kar [(1974) 1
SCC 141] and Indian Drugs & Pharmaceuticals Ltd. v. Indo
Swiss Synthetics Gem Mfg. Co. Ltd. [(1996) 1 SCC 54] In
Damodar Valley Corpn. [(1974) 1 SCC 141] this Court observed
: (SCC p. 145, para 7)
“7. … A contract is the creature of an agreement between t he
parties and where the parties under the terms of the co ntract
agree to incorporate an arbitration clause, that clause stands apart
from the rights and obligations under that contract, as it has been
incorporated with the object of providing a machinery for the
settlement of disputes arising in relation to or in connection with
that contract. The questions of unilateral repudiation of the rights
and obligations under the contract or of a full and final settlement
of the contract relate to the performance or discharge o f the
contract. Far from putting an end to the arbitration clause, t hey
fall within the purview of it. A repudiation by one party alone does
not terminate the contract. It takes two to end it, and hence it
follows that as the contract subsists for the determination of th e
rights and obligations of the parties, the arbitration c lause also
survives. This is not a case where the plea is that the contract is
void, illegal or fraudulent, etc. in which case, the entire contract
along with the arbitration clause is non est, or voidable. A s the
contract is an outcome of the agreement between the parties it is
equally open to the parties thereto to agree to bring it to an end or
to treat it as if it never existed. It may also be open to the parties
to terminate the previous contract and substitute in its place a
new contract or alter the original contract in such a wa y that it
cannot subsist. In all these cases, since the entire contract is put
an end to, the arbitration clause, which is a part of it, also perishes
along with it.”
18. Section 16 of the Act bestows upon the Arbitral Tribunal, the
competence to rule on its own jurisdiction. Sub-section (1) of the
section reads thus:
“16. Competence of Arbitral Tribunal to rule on its
jurisdiction.—(1) The Arbitral Tribunal may rule on its own
jurisdiction, including ruling on any objections with respect to the
existence or validity of the arbitration agreement, and for that
purpose,—
UNION OF INDIA & ORS. v. M/S. BHARAT ENTERPRISE
[K. M. JOSEPH, J.]
(a) an arbitration clause which forms part of a contract sha ll be
treated as an agreement independent of the other terms of t he
contract; and
(b) a decision by the Arbitral Tribunal that the contract is null and
void shall not entail ipso jure the invalidity of the arbitration clause.”
22. Where the intervention of the court is sought for appointment
of an Arbitral Tribunal under Section 11, the duty of the Chief
Justice or his designate is defined in SBP & Co. [(2005) 8 SCC
618] This Court identified and segregated the preliminary issues
that may arise for consideration in an application under Section 11
of the Act into three categories, that is, (i) issues which the Chief
Justice or his designate is bound to decide; ( ii) issues which he
can also decide, that is, issues which he may choose to decide ;
and (iii) issues which should be left to the Arbitral Tribunal t o
decide.
22.1. The issues (first category) which the Chief Justi ce/his
designate will have to decide are:
(a) Whether the party making the application has approached the
appropriate High Court.
(b) Whether there is an arbitration agreement and whether the
party who has applied under Section 11 of the Act, is a par ty to
such an agreement.
22.2. The issues (second category) which the Chief Justice/hi s
designate may choose to decide (or leave them to the decision of
the Arbitral Tribunal) are:
(a) Whether the claim is a dead (long-barred) claim or a live
claim.
(b) Whether the parties have concluded the contract/transaction
by recording satisfaction of their mutual rights and obligation or
by receiving the final payment without objection.
22.3. The issues (third category) which the Chief Justic e/his
designate should leave exclusively to the Arbitral Tribunal are:
(i) Whether a claim made falls within the arbitration cla use (as
for example, a matter which is reserved for final decisio n of a
departmental authority and excepted or excluded from arbitration).
817
(ii) Merits or any claim involved in the arbitration.”
14. We may notice that this is a judgment which was rendered in
the regime which was put in place by the larger Bench decision of this
Court reported in SBP & Co. v. Patel Engineering Ltd. and Another
(2005) 8 SCC 618. In fact, it is also a case arising under Section 11 of
the Act. The Court went on to deal with the question of non-arbitrability
of disputes. It categorises the cases broadly into three c ategories, as
can be seen from paragraphs 22.1 to 22.3. We must notice that following
the insertion of Section 11(6A) by the Arbitration and Conc iliation
(Amendment) Act, 2016, with effect from 2015, there has been a change
in law but we need not be detained by the said aspect as that may not be
fully apposite for the purposes of the case. We may notice the following
statements as well in National Insurance (supra):
49. Obtaining of undated receipts-in-advance in regard to regular/
routine payments by government departments and corporate sector
is an accepted practice which has come to stay due to administrative
exigencies and accounting necessities. The reason for insisti ng
upon undated voucher/receipt is that as on the date of execution
of such voucher/receipt, payment is not made. The payment is
made only on a future date long after obtaining the receipt. If the
date of execution of the receipt is mentioned in the rece ipt and
the payment is released long thereafter, the receipt acknowledging
the amount as having been received on a much earlier date wil l
be absurd and meaningless. Therefore, undated receipts are taken
so that it can be used in respect of subsequent paym ents by
incorporating the appropriate date. But many a time, matters are
dealt with so casually that the date is not filled even when payment
is made. Be that as it may. But what is of some concern is the
routine insistence by some government departments, statuto ry
corporations and government companies for issue of undated “no-
dues certificates” or “full and final settlements v ouchers”
acknowledging receipt of a sum which is smaller than the claim in
full and final settlement of all claims, as a condition precedent for
releasing even the admitted dues. Such a procedure requiring the
claimant to issue an undated receipt (acknowledging receipt of a
sum smaller than his claim) in full and final settlemen t, as a
condition for releasing an admitted lesser amount, is unfair, irregular
and illegal and requires to be deprecated.
UNION OF INDIA & ORS. v. M/S. BHARAT ENTERPRISE
[K. M. JOSEPH, J.]
50. Let us consider what a civil court would have done in a case
where the defendant puts forth the defence of accor d and
satisfaction on the basis of a full and final discharge voucher issued
by the plaintiff, and the plaintiff alleges that it was obtained by
fraud/coercion/undue influence and 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 voucher as being in discharge of the contract and reject t he
claim without 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 when there
is a provision for arbitration.”
15. Before we proceed to finally rule on the issues which have
been raised, we must notice the rationale of the Hig h Court in the
impugned judgment. We deem it appropriate to set down the following
reasoning in this regard. After referring to the clauses which we have
already extracted viz., clauses 65 and 65A, we find the following:
“The contract terms and conditions require submission of the final
bill within three months of physical completion of the works to the
satisfaction of the Engineer-in-Charge. There is no dis pute that
the final bill was presented within the time prescribed. Clauses 65
and 65-A, though set a boundary on the Contractor to submit its
bill, but does not speak of the time within which the final bill is to
be discharged by the employer. Admittedly, when the dispute was
referred to Arbitration, the Contractor made further claims before
the arbitrator which were adjudicated in arbitral proceedings after
hearing the employer and the claims were by and large allowed.
If the final bill was presented on 13.2.2002, and payment of the
same was made belatedly on 25.11.2003 to the pecunia ry
disadvantage of the Contractor, then it would appear not to lie in
the mouth of the Engineer-in-Charge/employer to invoke a n
exclusionary clause as is found embedded in Clause 65-A. If such
a clause were to operate, then it would even take aw ay the
Arbitrator’s discretion and jurisdiction to award interest pendente
lite and future interest etc. which the law permits and such a
claim would also constitute a valid claim which can be awarded.
In any case, such a clause I am inclined to think would be opposed
819
to public policy and operate unfairly, and should be understood in
the light of what the Supreme Court enunciated in Central Inland
Water Transport Corporation & Anr. vs. Brojo Nath Ganguly, AIR
1986 SC 1571, thus expanding the sphere of the law of contracts
and subjecting it to the test of reasonableness or fairness of a
clause in a contract where there is inequality of bargaining power.
Extracts from the judgment can be profitably quoted:-
“Article 14 of the Constitution guarantees to all persons equality
before the law and the equal protection of the laws. This
principle is that the Courts will not enforce and will, when called
upon to do so, strike down an unfair and unreasonable contract,
or an unfair and unreasonable clause in a contract entered into
between parties who are not equal in bargaining power. The
above principle will apply where the inequality of bargaining
power is the result of the great disparity in the econo mic
strength of the contracting parties. It will apply where the
inequality is the result of circumstances, whether of the creating
of the parties or not. It will apply to situations in w hich the
weaker party is in a position in which he can obtain goods or
services or means of livelihood only upon the terms imposed
by the stronger party or go without them. It will also apply
where a man has no choice, or rather no meaningful choice,
but to give his assent to a contract or to sign on the dotted line
in a prescribed or standard form or to accept a set of rules as
part of the contract, however, unfair unreasonable or
unconsionable a clause in that contract or form or rules may
be. This principle will not apply when the bargaining power of
the contracting parties is equal or almost equal. mis principle
may not apply where both parties are businessmen and the
contract is a commercial transaction. In today’s complex world
of giant corporations with their vast infrastructural organisations
and with the State through its instrumentalities and agencies
entering into almost every branch of industry and commerce,
there can be myriad situations which result in unfair and
unreasonable bargains between parties possessing wholl y
disproportionate and unequal bargaining power. The Court must
judge each case on its own facts and circumstances when
called upon to do so by a party under section 31(1) of the
Specific Relief Act, 1963.”
UNION OF INDIA & ORS. v. M/S. BHARAT ENTERPRISE
[K. M. JOSEPH, J.]
Then further;
“In the vast majority of cases, however, such contracts with
unconscionable term are entered into by the weaker party under
pressure of circumstances, generally economic, which results
in inequality of bargaining power, Such contracts will not fall
within the four corners of the definition of “undue influence”
as defined by section 16(1) of the Indian Contract Act. The
majority of such contracts are in a standard or prescribed form
or consist of a set of rules. They are not contracts between
individuals containing terms meant for those individuals alone.
Contracts in prescribed or standard forms or which embody a
set of rules as part of the contract are entered into by the party
with superior bargaining power with a large number of persons
who have far less bargaining power or no bargaining power at
all. Such contracts which affect a large number of persons or
a group or groups of persons, if they are unconscionable, unfair
and unreasonable are injurious to the public interest. To s ay
such a contract is only voidable would be to compel each person
with whom the party with superior bargaining power had
contracted to go to Court to have the contract adjudged voidable.
This would only result in multiplicity of litigation which no Court
should encourage and also would not be in public interest. Such
a contract or such a clause in a contract ought, therefore, to be
adjudged void under section 23 of the Indian Contract Act, as
opposed to public policy,”
And still further;
“The Indian Contract Act does not define the expression “public
policy” or “opposed to public policy”. From the very nature of
things, such expressions are incapable of precise definit ion.
Public policy, however, is not the policy of a part icular
government. It connotes some matter which concerns the public
good and the public interest. The concept of what is for the
public good or in the public interest or what would be injurious
or harmful to the public good or the public interest has varied
from time to time. As new concepts take the place of old,
transactions which were once considered against public policy
are now being upheld by the courts and similarly where there
has been a well-recognized head of public policy, the courts
821
have not shirked from extending it to new transactions and
changed circumstances and have at times not even flinched
from inventing a new head of public policy. The principles
governing public policy must be and are capable on proper
occasion, of expansion or modification. Practices which were
considered perfectly normal at one time have today become
abnoxious and oppressive to public conscience. If there is no
head of public policy which covers a case, then the court must
in consonance with public conscience and in keeping with public
good and public interest declares such practice to be opposed
to public policy. Above all, in deciding any case which may not
be covered by authority Indian Courts have before them the
beacon light of the Preamble to the Constitution. Lacking
precedent, the Court can always be guided by that light and
the principles underlying the Fundamental Rights and the
Directive Principles enshrined in our Constitution.”
It is not the case that the payment of the final bill was m ade
promptly and delay in payment alone should constitute a separate
ground for submission of the bills by the Contractor on close r
scrutiny of his claims to make fresh claims which may have escaped
contractor’s notice at the time of presentation of the final bill. In
human affairs, such situations can and do arise and the courts can
and should make an allowance for them to be accommodated for
adjudication on the merits of such claims. Therefore, I find myself
unable to subscribe to the reasoning adopted by the learned District
Judge, Chandigarh in non-suiting the petitioner and shutting out
his case for examination of the ‘further claims’ beyond thos e
pressed in the original claim petition on the materials on rec ord
and that too only by virtue of oppressive exclusion in Clause 65-
A. Delay in payment of dues would itself give rise to an actionable
claim for interest accruing by virtue of default in payment of final
bills, keeping money beyond reasonable time in the pocket of the
employer.”
16. Thereafter, the High Court also proceeds to refer to the
subsequent agreement, the order by which the Arbitrator was appointed,
the agreement which is entered into and finally, it is found as follows:
“Mr. Manohar Lall, learned counsel appearing for the appellant
points out that the Arbitrator in the present case was ap pointed
UNION OF INDIA & ORS. v. M/S. BHARAT ENTERPRISE
[K. M. JOSEPH, J.]
under Section 11 of the Act by the Chief Justice of this Court
exercising jurisdiction under the Act by order dated 12.11.2007
after recognizing and identifying the dispute and difference which
had arisen between the parties that demanded resolution through
arbitration process in terms of the arbitration clause signed by the
parties. This jurisdictional issue was pressed before the Arbitrator
by the employer itself and a preliminary issue was accordi ngly
framed and answered in favour of the appellant and Clause 65-A
was duly noticed and interpreted in a manner which appeals to
this court as a correct exposition of the law. Besides, the Arbitrator
in his award dated 4.3.2009 (Annexure A-3) found from the
agreement dated 22.11.2007 that dispute still exists between the
parties, which is evident from the recitals in the agreement, which
reads as follows:
“The new arbitrator shall decide all the disputes between the
parties”
The award ought not to have been tinkered with by the
Learned District Judge, Chandigarh for the reason t hat
jurisdiction stood denuded by operation of the offending part
of Clause 65 and 65-A cannot be read as waiver or
extinguishment of right of a contractor, much less by deeming
fiction as Clause 65-A does, to lay further claims after t he
presentation of the final bill if money or interest is demonstrably
owed by the offer or of the contract to the contractor. Thus,
these two clauses justly deserve to be read against the offer or
of the works contract in the light of the well established doctrine
of contra proferentum applicable to the law of contracts.
For the foregoing reason, this appeal is allowed and the
impugned judgment dated 10.7.2013 passed by the learned
District Judge, Chandigarh is set aside.”
17. The clauses which have been relied upon by the appellant s
are clear and unambiguous. What they interdict is the submission of a
new claim after the submission of the final bill. If there are any claims
left after the submission of the final bill, the partie s have agreed that
they shall stand waived. These are the clauses which are bi nding not
only on the parties but also on the Arbitrator. Going against the terms of
clauses 65 and 65A would indeed render the Award vulnerable on the
823
basis that it is illegal being contrary to the contract and, therefore, without
jurisdiction.
18. There may be cases where a final bill may be submitted and
the contention is taken that the final bill was submitted under duress. In
such a case, it may be open to the claimants to urge and the Arbitrator to
find that the final bill was itself vitiated on account of the fact that it was
brought about by duress or any other vitiating factors under law. If such
an event had taken place then that may have been sufficient to non-suit
the appellants. In other words, if under the terms of the a greement,
there is an embargo against the Arbitrator embarking upon and attempting
to find merit in any claim which is not part of the final bill, an award so
countenancing a claim would be illegal. However, on the other hand, if
the case is that the final bill itself should not be given life as it was born
out of coercion or any other vitiating factor and the Arbitrator renders a
finding on material as is sufficient in law then the Award of the Arbitrator
may not be attacked on the ground that he travels beyond the contractual
provisions. Bearing in mind these principles, we will examine the matter
with reference to the facts which are not in dispute in this case.
19. On 13.02.2002, the respondent has indeed submitted a final
bill. It is a year thereafter on 25.02.2003, that the respondent sent a
letter inter alia urging that the final bill dated 13.02.2002 was not paid
and is signed under protest. Subsequently, it would appea r that the
respondent has filed an affidavit on 24.05.2003. It is ignoring all this that
notice was sent for referring the matter to arbitrati on. By order dated
12.11.2007, the High Court proceeding under Section 11 of the Act
appointed an Arbitrator. During the course of the a rbitration, on
03.08.2008, the appellants filed an application under Section 16 of the
Act invoking clauses 65 and 65A of the Contract. The said application
came to be rejected on 04.03.2009.
20. We have scanned the contents of the said order. The Arbitrator
has proceeded to reject the application filed by the appel lants under
Section 16 on the basis of the order dated 12.11.2007 passed by t he
High Court. The Arbitrator further draws inspiration from the fact that
the application seeking modification of the order dated 12.11.2007 was
dismissed on 04.12.2007. The Arbitrator further found that the agreement
entered into between the parties subsequent to the order dated 12.11.2007
would indicate that disputes indeed exist. What is, however, conspicuous
by its absence is any finding by the Arbitrator, that the final bill dated
13.02.2002 was the result of duress or any other vitiating factors.
UNION OF INDIA & ORS. v. M/S. BHARAT ENTERPRISE
[K. M. JOSEPH, J.]
21. Learned counsel for the respondent would point out that the
order dated 04.03.2009 passed by the Arbitrator under Section 16 h ad
attained finality as the same was not impugned under Section 37 of the
Act. Section 37 of the Act reads as follows:
“37.Appealable orders.—(1) An appeal shall lie from the following
orders (and from no others) to the Court authorised by law to
hear appeals from original decrees of the Court passing the order,
namely:—
(a) refusing to refer the parties to arbitration under section 8;
(b) granting or refusing to grant any measure under section 9;
(c) setting aside or refusing to set aside an arbitral a ward under
section 34.]
(2) Appeal shall also lie to a court from an order of the arbitral
tribunal—
(a) accepting the plea referred to in sub-section (2) or sub-section
(3) of section 16; or
(b) granting or refusing to grant an interim measure under section
17.
(3) No second appeal shall lie from an order passed in ap peal
under this section, but nothing in this section shall af fect or
takeaway any right to appeal to the Supreme Court.”
22. An appeal lies to the Court from an order of the Arbitral Tribunal
accepting the plea referred to in sub-sections (2) and (3) of Section 16.
This means that an appeal can be preferred against the or der of the
Arbitral Tribunal allowing the plea that the Arbitral Tribunal does not
have jurisdiction. Similar is the case with reference to an order which is
rendered appealable under Section 16(3) of the Act. Thereunder also, it
is the plea that the Arbitral Tribunal is exceeding the scope of its authority
which is allowed which is rendered appealable. In this case, by order
dated 04.03.2009, the Arbitral Tribunal has not allowed the plea b e it
under section 16(2) or under Section 16(3). On the other hand, the Tribunal
has rejected admittedly the plea of the appellants. Therefore, no appeal
could have been filed under Section 37 against the order dated 04.03.2009.
An order passed by the Arbitral Tribunal rejecting the plea under Section
16(2) or 16(3) being part of the Award itself, it is open to the parties to
challenge the same when a petition is filed under Section 34 of the Act
825
challenging the Award. This is the scheme of the Act. This is apparently
to confine a right to appeal to those cases where accept ing a plea of a
party would bring the arbitration to a halt. In fact, we notice that the
order dated 04.03.2009 has been referred to in the Award and it h as
been treated as part of the Award.
23. It is thereafter that in a proceeding that the District Court has
allowed the petition filed under Section 34 by the appellants. W e may
notice that the High Court, in the impugned order, while dealing with the
plea under clauses in question has, inter alia, held as follows:
“The contract terms and conditions require submission of the final
bill within three months of physical completion of the works to the
satisfaction of the Engineer-in-Charge. There is no disput e that
the final bill was presented within the time prescribed. Clauses 65
and 65A, though set a boundary on the Contractor to submit its
bill, but does not speak of the time within which the final bill is to
be discharged by the employer. Admittedly, when the dispute was
referred to Arbitration, the Contractor made further claims before
the arbitrator which were adjudicated in arbitral proceedings after
hearing the employer and the claims were by and allowed. If the
final bill was presented on 13.02.2002, and payment of the same
was made belatedly on 25.11.2003 to the pecuniary disadvantage
of the Contractor, then it would appear not the lie in the mouth of
the Engineer-in-Charge/employer to invoke an exclusionary clause
as is found embedded in Clause 65-A. If such a clause were to
operate, then it would even take away the Arbitrator’s discretion
and jurisdiction to award interest pendente lite and future interest
etc. which the law permits and such a claim would also constitute
a valid claim which can be awarded. In any case, such a clause I
am inclined to think would be opposed to public policy and operate
unfairly, and should be understood in the light of what the Supreme
Court enunciated in Central Inland Water Transport Corporation
& Anr. vs. Brojo Nath Ganguly & A1R1986 SC 1571, thus
expanding the sphere of the law of contracts and subjecting it to
the test of reasonableness or fairness of a clause in a contract
where there is inequality of bargaining power.”
24. It is thereafter that the High Court has referred to the judgment
of this Court in Central Inland Water Transport Corporation & Anr.
v. Brojo Nath Ganguly AIR 1986 SC 1571 as noticed by us.
UNION OF INDIA & ORS. v. M/S. BHARAT ENTERPRISE
[K. M. JOSEPH, J.]
25. It is no doubt true that the salutary principle which has been
enunciated by this Court in Central Inland Water Transport
Corporation4 being in accord with constitutional principles must receive
due consideration. However, it cannot be torn out of context. More
importantly, as we have already noticed when a contractor se eks to
wriggle out of a final bill or a ‘no claims due certificate’ which he has
submitted, as in a civil Court so before the Arbitrator, he must establish
a case that a final bill or a certificate of no further claims was the result
of any of the vitiating factors under the law. Sans such finding, the final
bill would stand. If the final bill cannot be overridden b y any factors
known to law then the clauses relied upon by the appellants in this case
would operate. There is no finding by the Arbitrator that the final bill and
the no claims certificate were vitiated. The clauses in the contract were
binding on the respondent. It cannot be departed from invoking the
principle in Central Inland Water Transport Corporation 5. It is not
the case of the contractor that when the contract was ente red into, it
was in circumstances which attracted the principles laid down therein.
26. If the clauses operate, the inevitable result is the a rbitrator
could not have traveled outside of the contractual prohibition and passed
an award allowing claims which were submitted after the submission of
the final bill.
27. We cannot be entirely unmindful, however, of the fact that
after submission of the final bill on 13.02.2002, the said bill was settled
only after long delay of over an year. While it may be true that there is
no finding that the final bill was the product of any duress or coercion,
the respondent did have a case that the final bill was the result of the
pressure on account of non-payment of her claims and therefor e, the
respondent agreed to receive the undisputed amounts. But at the same
time, there is no finding as such.
28. While we cannot subscribe to the reasoning adopted by the
High Court, we cannot also lose sight of the fact that the amoun ts in
question are fairly meagre and the final bill remained unpa id for long
period of time. It was apparently the long delay in the payment of the
final bill amount which led to the raising of the new claims. Perhaps, if
the final bill itself was not kept pending for such a long time, the entire
dispute may not have arisen at all. We cannot lose sight of another aspect
also. This Court has, in the judgment reported in Tahera Khatoon (D)By
LRs. v. Salambin Mohammad (1999) 2 SCC 635 laid down the guiding
827
principles for the exercise of jurisdiction in an appeal generated under
Article 136 of the Constitution even after the grant of leave under Article
136. We may notice in this regard, the following paragraphs:
19. We may in this connection also refer to Municipal Board,
Pratabgarh v. Mahendra Singh Chawla [(1982) 3 SCC 331 :
1983 SCC (L&S) 19] wherein it was observed that in such cases,
after declaring the correct legal position , this Court might still
say that it would not exercise discretion to decide the case on
merits and that it would decide on the basis of equ itable
considerations in the fact situation of the case and “ mould the
final order ”.
20. In view of the above decisions, even though we are now dealing
with the appeal after grant of special leave, we are not bound to
go into merits and even if we do so and declare the law or point
out the error — still we may not interfere if the justice of the case
on facts does not require interference or if we feel that the relief
could be moulded in a different fashion.”
29. Having regard to all the facts and circumstances, while we
are inclined to set aside the impugned order, we also feel that the interests
of justice would require that the respondent is paid a lumpsum amount in
full and final satisfaction of all his claims. Accordingly, the appeals are
allowed. The impugned judgment is set aside. However, we direct that
the appellants will pay a global sum of Rs.3 lakhs (Rupees Three Lakhs
only) to the respondent which will be in full and final settlement of the
claims of the respondent. The said payment of the amount of Rs.3 lakhs
shall be effected within a period of six weeks from today.
No orders as to costs.
Divya Pandey Appeals allowed.
(Assisted by : Roopanshi Virang, LCRA)
UNION OF INDIA & ORS. v. M/S. BHARAT ENTERPRISE
[K. M. JOSEPH, J.]