Full Judgment Text
‘REPORTABLE’
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 3441-3442 OF 2015
UNION OF INDIA & ORS. Appellant(s)
VERSUS
M/S. BHARAT ENTERPRISE Respondent(s)
J U D G M E N T
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.
Signature Not Verified
The respondent it would appear made several reminders
Digitally signed by
Nidhi Ahuja
Date: 2023.06.06
14:37:14 IST
Reason:
regarding the non-payment of the final bill for a
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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 respondent 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,
thereafter, 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
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Conciliation Act, 1996 (hereinafter referred to as
‘Act’ for brevity) for appointment of an arbitrator.
The same was allowed. 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 claims. 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 the Act came to be allowed by the
District Judge. It is this order passed by the
District Judge under Section 34 which stands
overturned by the impugned order in an appeal under
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Section 37 of the Act.
2) We have heard Col. R. Balasubramanium, learned
senior counsel for the appellants, and Ms. Praveena
Gautam, learned counsel for the respondent.
3) The only controversy which we are called upon to
resolve is 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
followed 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
outside 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
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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 raised. 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
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the premise of the Arbitrator’s jurisdiction failed.
It is pointed out that the said decision has not
been challenged under Section 37 of the Act. It is
also pointed out 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
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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 physical completion of the Works to the
satisfaction of the Engineer-in-Charge. In
respect of works orders arising out of unit
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 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
charges properly preferred under the
Conditions of Contracts for 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
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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 and 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 there 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
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contemplated essentially in sections 15 to 18 of the
Indian Contract Act, 1872. In other words, where
the 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 judicial
approach is what essentially arise for our
consideration.
10) In Bharat Coking Coal Ltd. v. A nnapurna 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
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the final bill, 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 stands on a different footing, namely,
that the arbitrator while passing the award
in relation to some items failed and/or
neglected to take into 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
1
reported in PSA SICAL Terminate (P) Ltd.
11) On the other hand, is the decision reported in Master
2
Construction Company .
12) We must notice the following facts:
Firstly, the case arose under Section 11 of the
Act.
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 Company (2011) 12 SCC
349
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Upon completion of the work in question, the
completion certificate was issued and this was
followed by the contractor furnishing 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) declined to entertain
the claims on the ground that the final bill was
accepted by the 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 established prima facie.
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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.”
3
13) In National Insurance Company Limited 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 dispute or
difference shall arise as to the quantum to be
paid under this policy (liability being
otherwise admitted) such difference 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
3 National Insurance Company Limited v. Boghara Polyfab Private Limited
(2009) 1 SCC 267
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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 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 the parties and where the parties under
the terms of the contract 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 of the contract. Far
from putting an end to the arbitration clause,
they 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 the rights and obligations of
the parties, the arbitration clause 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. As 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
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substitute in its place a new contract or alter
the original contract in such a way 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,—
( a ) an arbitration clause which forms part of a
contract shall be treated as an agreement
independent of the other terms of the 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 to decide.
22.1. The issues (first category) which the
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Chief Justice/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 party to such an
agreement.
22.2. The issues (second category) which the
Chief Justice/his 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 Justice/his designate should leave
exclusively to the Arbitral Tribunal are:
( i ) Whether a claim made falls within the
arbitration clause (as for example, a matter
which is reserved for final decision of a
departmental authority and excepted or excluded
from arbitration).
( 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.
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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 categories, 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 Conciliation (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
insisting 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
receipt and the payment is released long
thereafter, the receipt acknowledging the
amount as having been received on a much
earlier date will be absurd and meaningless.
Therefore, undated receipts are taken so that
it can be used in respect of subsequent
payments by incorporating the appropriate
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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,
statutory corporations and government
companies for issue of undated “no-dues
certificates” or “full and final settlements
vouchers” 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 settlement, as
a condition for releasing an admitted lesser
amount, is unfair, irregular and illegal and
requires to be deprecated.
50. 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 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 the
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.”
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15)
Before we proceed to finally rule on the issues
which have been raised, we must notice the rationale
of the High 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 dispute 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
pecuniary disadvantage of the Contractor, then
it would appear not to 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
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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, 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
economic 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 which 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
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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 wholly
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.”
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
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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
say 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
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the expression "public policy" or
"opposed to public policy". From the
very nature of things, such expressions
are incapable of precise definition.
Public policy, however, is not the
policy of a particular 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 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
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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 made promptly and delay in
payment alone should constitute a separate
ground for submission of the bills by the
Contractor on closer 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
those pressed in the original claim petition
on the materials on record 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
23
CA Nos. 3441-3442/ 2015
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 appointed
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 accordingly 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 that
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
the 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
24
CA Nos. 3441-3442/ 2015
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
appellants 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
parties have agreed that they shall stand waived.
These are the clauses which are binding 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 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
25
CA Nos. 3441-3442/ 2015
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 agreement,
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
26
CA Nos. 3441-3442/ 2015
that the final bill dated 13.02.2002 was not paid
and is signed under protest. Subsequently, it would
appear 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 arbitration. By
order dated 12.11.2007, the High Court proceeding
under Section 11 of the Act appointed an Arbitrator.
During the course of the arbitration, 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 appellants under Section 16 on the basis
of the order dated 12.11.2007 passed by the 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
27
CA Nos. 3441-3442/ 2015
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.
21) Learned counsel for the respondent would point out
that the order dated 04.03.2009 passed by the
Arbitrator under Section 16 had 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 award 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.
28
CA Nos. 3441-3442/ 2015
(3) No second appeal shall lie from an
order passed in appeal under this
section, but nothing in this section
shall affect 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 order 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 be 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
29
CA Nos. 3441-3442/ 2015
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 challenging the
Award. This is the scheme of the Act. This is
apparently to confine a right to appeal to those
cases where accepting 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 has 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. We 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 dispute that the final bill was
presented within the time prescribed. Clauses
65 and 65A, though set a boundary on the
30
CA Nos. 3441-3442/ 2015
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
31
CA Nos. 3441-3442/ 2015
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.
25) It is no doubt true that the salutary principle which
has been enunciated by this Court in Central Inland
4
Water Transport Corporation 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 seeks 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
4 Central Inland Water Transport Corporation & Anr. v. Brojo Nath Ganguly AIR
1986 SC 1571
32
CA Nos. 3441-3442/ 2015
bill cannot be overridden by 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
5
Transport Corporation . It is not the case of the
contractor that when the contract was entered into, it
was in circumstances which attracted the principles
laid down therein.
26) If the clauses operate, the inevitable result is the
arbitrator 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
5 Central Inland Water Transport Corporation & Anr. v. Brojo Nath Ganguly AIR
1986 SC 1571
33
CA Nos. 3441-3442/ 2015
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 therefore, 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 amounts in question are fairly meagre
and the final bill remained unpaid 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 principles for the exercise of
jurisdiction in an appeal generated under Article
136 of the Constitution even after the grant of leave
34
CA Nos. 3441-3442/ 2015
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 equitable
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
35
CA Nos. 3441-3442/ 2015
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.
……………………………………………………., J.
[ K.M. JOSEPH ]
……………………………………………………., J.
[ KRISHNA MURARI ]
……………………………………………………., J.
[ B.V. NAGARATHNA ]
New Delhi;
March 23, 2023.
36