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1975 DIGILAW 219 (PAT)

Hindustan Steel Works Construction Ltd. v. R. K. Mehta

1975-12-12

HARI LAL AGRAWAL

body1975
JUDGMENT H.L. Agrawal, J. This application arises out of an arbitration matter. The relevant facts are as follows: 2. The petitioner company and opposite party No.1 (hereinafter referred to as the ‘contractor’) entered into a contract with the petitioner company for construction of certain works in accordance with the standard form of agreement of the Company, known as “General Conditions of Contract (for construction works) “under taking to complete the work within a stipulated period of four months. The contractor failed to execute the work within the stipulated period and prayed for extension. By a notice dated 11.8.1971, the petitioner company, on the other hand, asked the contractor to resume the work within a week. It is said that instead of resuming his work, the contractor surrendered the work and at his request the final measurements were recorded on 3.11.1971 in which he endorsed no claim certificate", Which is the controversial factor for consideration. The contractor, however, inspite of endorsing the “no claim certificate”, made a claim against the petitioner company for Rs. 1,37,349/- as damages, alternatively claiming for enforcement of the arbitration clause. The Company, however, refused the demand and then the contractor by a letter dated 8.8.1972 referred the matter to arbitration and nominated opposite party No.2 as his arbitrator. The Company also, thereupon, nominated opposite party No.3 as their arbitrator, but without prejudice to their right to challenge the reference itself. It is not necessary to refer to the action taken by the arbitrators for appointment of an umpire and giving notice to the parties, etc. for the point in issue in this case. 3. On the 20th of February 1973, the Company filed a petition in the Court below under section 33 read with Section 35 of the Arbitration Act, against the contractor and the two arbitrators with a prayer "to determine the effect of the Contract Agreement PM/l65/71 dated 2.2.71 and to hold that the arbitration clause as embodied in Clause 108 (1) (a) of the General Conditions of Contract is not attracted to the instant case... “and” to further hold that the contract having been extinguished on the signing of the 'no claim certificate' by the opposite party No.1, the arbitration clause had been extinguished along with the same "and, therefore, the reference of the alleged dispute to arbitration was illegal and unwarranted. 4. “and” to further hold that the contract having been extinguished on the signing of the 'no claim certificate' by the opposite party No.1, the arbitration clause had been extinguished along with the same "and, therefore, the reference of the alleged dispute to arbitration was illegal and unwarranted. 4. Objection was filed to this petition of the Company by the contractor. One of the questions that was raised by the contractor, and which alone has been gone into by the court below and has been argued at some length by the learned Counsel appearing for the parties before me, was that “no claim certificate” itself was obtained from the contractor under duress or undue influence etc, and the effect of the grant of that certificate could be examined by the arbitrators themselves, and not by the Court. The learned Subordinate Judge has accepted the objection and by the impugned order has held that the contract still subsists and it would be the arbitrators themselves who were competent to decide as to whether the “no claim certificate” was voluntary or involuntary, obtained under undue influence or coercion etc. The trial Court put reliance upon four unreported decisions: one of the Supreme Court in the case of Hindustan Steel Ltd. Bhillai VS M/S. Dalip Construction Co. in Civil Appeal No. 1236 (N) of 1968 decided on the 3rd April, 1969, the other of the Calcutta High Court in the case of Jadavji Wallamji vs. Union of India in Special Suit No. 13 of 1970 decided on the 13th September, 1971, and the remaining two of the Delhi High Court in Union of India vs. Shri Naruin Das (P.A.O. No. 221–D of 1965) decided on the 26th April, 1971, and the General Manager, Northern Railway and others vs. Shri Jia tal Mehra (F.A.O. (O.S.) No. 21 of 1972) decided on the 8th August, 1972. Before discussing the matter and the cases relied upon by the contractor in the Court below as well as before this Court, it would be necessary to refer to the relevant terms of the General Conditions of Contract in question, that is term No. 108. Before discussing the matter and the cases relied upon by the contractor in the Court below as well as before this Court, it would be necessary to refer to the relevant terms of the General Conditions of Contract in question, that is term No. 108. Where as Clause 1 (a) of that term prescribes that “all questions, disputes or difference of any kind, what-so-ever, arising out, or in connection with, the Contract, at any time, whether during the progress of the work or after its completion or whether before or after the determination of the Contract---”wil1 be settled by arbitration, Clause (b) specifically exempted inter alia, a matter” for which the Contractor has given no claim certificate” from the purview of the scope of arbitration. 5. The learned Advocate General on the basis of the above specific clause in the arbitration agreement in question, vehemently contended that the Court below has overlooked the effect of this on the right of the contractor to make a reference. According to him, on account of the existence of specific stipulation in the arbitration clause of the contract, the contractor was debarred or estopped from making a reference of any such dispute for which he had granted the certificate in question for settlement by the arbitrators. He attacked the impugned order of the learned Subordinate Judge on the ground that he has followed the aforesaid four decisions of the different High Courts and the Supreme Court without appreciating the effect of this specific term of the agreement governing the parties in this case. Developing his contention, the learned Advocate General submitted that the effect of the grant of the “no claim certificate” was taking out the matter relating to the dispute out of the arbitration clause itself, which was a jurisdictional fact for making the reference. In other words, he contended that the moment the “no claim certificate” was given, the contractor agreed that any dispute in relation to the matters covered by the certificate would not be determined by the domestic forum, ie, by an arbitration proceeding. The learned Advocate General, however, did not dispute the right of the contractor to challenge the validity of the "no claim certificate" on any of the grounds urged on his behalf by an appropriate proceeding. 6. Mr. The learned Advocate General, however, did not dispute the right of the contractor to challenge the validity of the "no claim certificate" on any of the grounds urged on his behalf by an appropriate proceeding. 6. Mr. Ram Nandan Sahai Sinha relying upon the aforesaid four decisions, which I would refer to hereinafter, contended that in as much as the foundation of the argument regarding the jurisdiction of the arbitrators being the “no claim certificate”, which was itself under challenge on the grounds of duress and undue influence, the jurisdiction of the arbitrators still remained unaffected. 7. It is not possible to accept the contention of the learned counsel for the contractor as according to the terms of the contract between the parties, the moment the "no claim certificate" was given, it immediately took away the dispute covered by the certificate outside the purview of the arbitration clause. The question as to whether the certificate was obtained under duress, coercion or the like would not be a matter falling within the authority of the arbitration and was independent of the dispute which could be a matter, of a reference, and as such the arbitrators could not entertain a question which by itself was a jurisdictional fact; To make my point more clear, suppose the arbitrators ultimately bold that the “no claim certificate;” was obtained in regular course of, business and Was not invalidated on account of duress of undue influence, they would cease to have any jurisdiction to enter upon the reference. In my opinion, therefore, to permit this question to be decided and determined by the arbitrators would result in a very inoccuous position. The contractor has got a regular forum available to him for getting his claim decided in an appropriate proceeding. 8. Now coming to the decisions : In none of the decisions, there was any such clause in the contract between the parties that on account of the acceptance of the amount under a clear certificate Or on grant of a “no claim certificate”, the matter was expressly taken out of the arbitration proceeding and the arbitration clause would cease to have any application to those matters. Learned counsel for the contractor failed to point out any such stipulation as existing in the case in band, in any of the four decisions referred to above and relied upon by him in this Court. Learned counsel for the contractor failed to point out any such stipulation as existing in the case in band, in any of the four decisions referred to above and relied upon by him in this Court. All that was indicated in the aforesaid decisions was that if a party has accepted any amount without protest or has granted any "no claim certificate", which is under challenge by him later on, as having been obtained otherwise than in regular course of business: the matter was still at large to be examined by the arbitrators as it pertained still to a dispute covered by the arbitration clause of the agreement governing the relationship of all those parties. The learned Advocate General is, therefore, right in his submission that the ratio of the decisions has been wrongly applied to the facts of the present case without keeping in mind' the specific terms of the contract in question. I have already stated above that as a matter of proposition he conceded that had there been such clause in the contract governing the relationship between the parties in the present case, the contractor might be entitled to get the dispute referred to the arbitrators who could examine as to whether the "no claim certificate" was operative or was in any way invalid, as alleged by him. 9, In Civil Appeal No. 1236 (N) of 1968 (Hindustan Steel Ltd., Bhillai Vs. M/S Dalip Construction Co,), the contractor firm had entered into a contract with the Company for certain masonary work. After the completion of the work, a dispute arose over the final bill. Thereupon the firm invoked arbitration clause. One of the pleas of the Company was that I in view of the acceptance of the finality of the measurements by the firm, there was no dispute left for decision of the arbitrators, who had no jurisdiction to re-open the question as the measurements were already accepted by the firm. To this objection, the stand of the firm was that they had accepted the measurements under misrepresentation, pressure and undue influence upon them. A question then was raised as to whether the question that the acceptance of the measurements was in any way vitiated or could be gone into by the arbitrators, and it was held by the Supreme Court that such question could be gone into by the arbitrators. A question then was raised as to whether the question that the acceptance of the measurements was in any way vitiated or could be gone into by the arbitrators, and it was held by the Supreme Court that such question could be gone into by the arbitrators. In Special suit No. 13 of 1970 (Jadavji Wallamji Vs. Union of India) decided by the Calcutta High Court, “no claim certificate” grunted by the contractor was challenged by him to have been signed under duress and coercion. The question that fell for decision in this case was the effect of the execution of the “no claim certificate” by the plaintiff, namely, whether it had taken away his right to claim the amount by arbitration or otherwise? The learned Judges with reference to the contract between the parties took the view that the validity and enforceability, estoppel, abandonment, etc., of the "no claim certificate" was a question to be decided by the arbitrator, and not by the Court. The learned Judges, if I may say so with great respect, took a precaution in observing as follows ; “The arbitration clause is in the widest possible terms to include such a dispute which has been raised by the defendant in this case.” and rejected the plea of the defendant that on the grant of the certificate the• claim of the plaintiff ceased to be subsisting. In both the cases of the Delhi High Court also, namely, Union of India Vs. Shri Narain Das (F.A.O. No. 219–D of 1965 ) and Union of India Vs. Shri Jia Lal Mehra [F.A.O. (O.S.) No. 21 of 1972], on the signing of the "no claim certificate", it was held that the plaintiff was not estopped from raising any c1aim against the defendant on the mere grant of the "no claim certificate" and it could not be argued that there was no claim subsisting in terms of the said "no claim certificate". The only clause that was interpreted in the agreement governing the contract in question was that on signing the "no claim certificate", the contractor would not be entitled to make any claim what-soever. 10. The only clause that was interpreted in the agreement governing the contract in question was that on signing the "no claim certificate", the contractor would not be entitled to make any claim what-soever. 10. In my opinion, therefore, the ratio of all the aforesaid cases is that on the grant of the "no claim certificate" Or acceptance of any account as final, the contractor is not estopped and it is still open to him to raise a dispute covering the subject matter of the grant of the certificate or the like. The very fact that inspite of the grant of the certificate or having earlier accepted the accounts as final the contractor was entitled to raise a dispute, it was held that such dispute which was still permissible to be raised by him was certainly covered by the arbitration clause of the agreement in question. The decisions referred to above do not go further. As already indicated earlier, this proposition is not being challenged on behalf of the petitioner as well. The distinguishing feature in the present, however, is that the dispute, even if it may be said to be arising inspite of the grunt of the 'no claim certificate", it is expressly taken out of the arbitration clause and, therefore, such dispute cannot be referred to the arbitrators.As already pointed out earlier, the dispute can certainly be tried in ordinary Civil Court of competent jurisdiction. 11. Having taken the aforesaid view of the matter, it is apparent to me that the learned Subordinate Judge has committed an apparent error of jurisdiction in refusing to decide the effect of the grant of the "no claim certificate". Section 33 of the Arbitration Act, provides that any party to the arbitration agreement desiring to challenge the existence or validity of an arbitration agreement or to have the effect of either determined, must apply to the Court and the Court shall decide the question. By a regular application the petitioner company, therefore, applied before the Court below to decide the question as to whether on account of giving of the "no claim certificate", there still existed any valid arbitration agreement within the meaning of the arbitration clause which could be referred to the arbitrators. 12. Mr. By a regular application the petitioner company, therefore, applied before the Court below to decide the question as to whether on account of giving of the "no claim certificate", there still existed any valid arbitration agreement within the meaning of the arbitration clause which could be referred to the arbitrators. 12. Mr. Ram Nandan Sahai Sinha also contended that the "no claim certificate" did not cover the whole of the dispute raised by him and he attempted to press this point with reference to Annexure 2 of the petition filed by the Company in the Court below. As no such argument was made in the Court below, nor there is any such discussion, I refrain to take notice of this point and leave it open to the parties to argue this question, if so advised, in a proper form before the learned Subordinate Judge himself. For the sake of clarity, however, I would like to observe that if the learned Subordinate Judge comes to a conclusion that the "no claim certificate" did not cover the whole of the dispute raised by the petitioner, that part of the dispute which was out side the span of the certificate would certainly be governed by the arbitration clause and could still be the subject matter of the domestic forum, namely, arbitration. 13. In the result, this application succeeds and the order of the Court below is set aside. The matter is remanded back to the Court below for a fresh hearing and decision to the extent indicated, in accordance with law and in the light of the observations made above. On the facts and in the circumstances of the case, there will be no order as to costs. Application allowed.