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Union Of India And Others v. Onkar Nath Bhalla And Sons .
Factual and Procedural Background
The Engineer-in-Chief (appellant) entered into a contract with the respondent-contractor. The work was completed on 20-9-2002 and a final bill was prepared by the respondent. The respondent received payment of that final bill on 27-3-2001 and signed both the bill and a “no-further-claim” certificate without any protest or reservation.
Approximately two years later, the respondent submitted twenty additional claims. Relying on Condition 65 of IAFW 2249 (General Conditions of Contract), the appellants asserted that no further claims were permissible after submission of the final bill and refused to appoint an arbitrator when requested on 17-8-2003.
The respondent then filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 on 19-9-2003. The matter moved from the Civil Judge (Senior Division), Amritsar, to the District Judge, and ultimately to the Punjab and Haryana High Court. By order dated 26-4-2007, the High Court appointed Justice G.C. Mittal (retired Chief Justice) as sole arbitrator, holding that the appellants had forfeited their right to nominate an arbitrator by not responding within the notice period.
The appellants challenged that order in the Supreme Court. Leave was granted, and the present appeal followed.
Legal Issues Presented
- Whether any live dispute existed for reference to arbitration after the respondent had signed the final bill and a no-further-claim certificate, thereby invoking Condition 65 of the contract.
- Whether the High Court could appoint a retired High Court Judge as sole arbitrator despite Condition 70, which stipulated a “serving officer having a degree in Engineering or equivalent.”
- Whether the appellants had forfeited their contractual right to appoint an arbitrator by not acting within the notice period.
Arguments of the Parties
Appellants’ Arguments
- The respondent had accepted full and final payment on 27-3-2001 and signed the final bill and the no-further-claim certificate without protest; therefore, all subsequent claims were barred by accord and satisfaction as well as by Condition 65.
- Because the agreement expressly required a “serving officer having a degree in Engineering or equivalent” to act as arbitrator (Condition 70), appointing a retired High Court Judge violated the contractual scheme.
- No dispute survived after the final settlement; hence the High Court lacked authority to appoint an arbitrator under Section 11.
- Reliance was placed on P.K. Ramaiah & Co. v. NTPC (1994 Supp (3) SCC 126) for the principle that an unconditional receipt amounts to accord and satisfaction, and on SBP & Co. v. Patel Engg. Ltd. ((2005) 8 SCC 618) concerning the Chief Justice’s duties under Section 11.
The opinion does not record the respondent’s arguments in detail.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| P.K. Ramaiah & Co. v. NTPC, 1994 Supp (3) SCC 126 | Unconditional acceptance of final settlement constitutes accord and satisfaction, extinguishing future claims. | Cited to support the view that the respondent’s signing of the final bill without protest barred further claims. |
| SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618 | Sets out the Chief Justice’s administrative obligations under Section 11 and the need for prima facie satisfaction that conditions for appointment are met. | Relied upon to argue that the High Court should first have examined whether any live dispute existed before appointing an arbitrator. |
Court's Reasoning and Analysis
The Supreme Court observed that:
- The respondent’s execution of the final bill and no-further-claim certificate without reservation created accord and satisfaction under Condition 65, extinguishing any subsequent claims.
- For an appointment under Section 11, two prerequisites exist: (i) a live dispute between the parties and (ii) appointment in conformity with the contractual mechanism. Both were absent here: no dispute survived, and the High Court’s appointment of a retired Judge contravened Condition 70, which required a serving engineering officer.
- Because the appellant’s contractual right to nominate an arbitrator arises only when a live dispute exists, the question of forfeiture of that right did not arise.
Consequently, the Court concluded that the High Court was “not justified in appointing a retired High Court Judge as the sole arbitrator.”
Holding and Implications
Appeal Allowed; High Court order set aside. The appointment of Justice G.C. Mittal as arbitrator is quashed. No order as to costs.
Implications: The decision restores the contractual bar on further claims and re-affirms that courts must respect both (a) accord and satisfaction clauses and (b) the agreed procedure for appointment of arbitrators. No new legal precedent was expressly created beyond application of settled principles.
H.L Dattu, J.— Leave granted. This appeal is directed against the judgment and the order passed by the Punjab and Haryana High Court at Chandigarh in AA No. 193 of 2006 dated 26-4-2007.
2. By the impugned judgment, the High Court has appointed Justice G.C Mittal (retired Chief Justice) as the sole arbitrator.
3. The facts in brief are: the appellant, Engineer-in-Chief, had entered into a contract agreement with the respondent/contractor. The contract was completed on 20-9-2002. A final bill was prepared, settling all claims, by the respondent and was forwarded to the appellants. The respondent after receiving payment of final bill signed the same, without any protest or reservation on 27-3-2001. Again after two years, the respondent submitted a list of twenty claims to the appellants. The appellants in their reply stated that as per Condition 65 of IAFW 2249 (General Conditions of Contract) forming part of CA, no further claim shall be made by the contractor after submission of the final bill and the claim now submitted are deemed to have been waived and extinguished. The respondent then approached the Engineer-in-Chief for appointment of the arbitrator on 17-8-2003. The appellants did not appoint an arbitrator as no dispute existed.
4. The respondent went before the Civil Judge (Senior Division), Amritsar on 19-9-2003. The Civil Judge transferred the same to the District Judge, which was further transferred to the Punjab and Haryana High Court. The High Court allowing the application of the respondent stated that, as per the arbitration clause, as no affidavit has been filed within the stipulated period of the notice invoking the arbitration clause, the appellants have forfeited their right to appoint the arbitrator. Aggrieved by the said order, the appellants are before us by this special leave petition.
5. The learned counsel for the appellants would contend, that the final bill of the work was signed by the applicant on 21-12-2000 and the payment for the same was made to the applicant on 27-3-2001. The applicant signed the final bill and no-further-claim certificate was also signed without any reservation and also got the payment of final bill by signing the same without any protest.
6. It was further contended by the learned counsel for the appellants that when the agreement provided for arbitration by serving officer having degree in Engineering or equivalent, then a retired High Court Judge cannot be appointed as an arbitrator. To support his contentions he would rely on the decision of this Court in P.K Ramaiah & Co. v. NTPC 1994 Supp (3) SCC 126, wherein this Court has held that:
“8. … Admittedly the full and final satisfaction was acknowledged by a receipt in writing and the amount was received unconditionally. Thus there is accord and satisfaction by final settlement of the claims. The subsequent allegation of coercion is an afterthought and a device to get over the settlement of the dispute, acceptance of the payment and receipt voluntarily given. In Russell on Arbitration, 19th Edn., p. 396 it is stated that ‘an accord and satisfaction may be pleaded in an action on award and will constitute a good defence’. Accordingly, we hold that the appellant having acknowledged the settlement and also accepted measurements and having received the amount in full and final settlement of the claim, there is accord and satisfaction.”
7. Learned counsel would also invite our attention to the case of SBP & Co. v. Patel Engg. Ltd. (2005) 8 SCC 618, wherein this Court has observed that:
“142. (i) The function performed by the Chief Justice of the High Court or the Chief Justice of India under sub-section (6) of Section 11 of the Act (i.e the Arbitration and Conciliation Act, 1996) is administrative, pure and simple, and neither judicial nor quasi-judicial.
(ii) The function to be performed by the Chief Justice under sub-section (6) of Section 11 of the Act may be performed by him or by ‘any person or institution designated by him’.
(iii) While performing the function under sub-section (6) of Section 11 of the Act, the Chief Justice should be prima facie satisfied that the conditions laid down in Section 11 are satisfied.”
8. In the present case, the appellants made the full and final payment of the final bill and to which the respondent certified by signing the bill without any protest or reservation. The respondent with the intention of receiving further payments, after two years, raised yet another claim and tried to bring up a dispute. And when the claim was denied by the appellants, the respondent requested to appoint an arbitrator.
9. Condition 65 of the General Conditions of Contract (IAFW 2249) states that no further claim shall be made by the contractor after submission of the final bill and these shall be deemed to have been waived and extinguished. Also Condition 70 states that, all disputes between the parties to the contract shall after written notice by either party to the contract, be referred to the sole arbitration of a serving officer having degree in Engineering or equivalent.
10. While appointing an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996, two things must be kept in mind:
(i) That there exists a dispute between the parties to the agreement and that the dispute is alive.
(ii) Secondly, an arbitrator must be appointed as per the terms and conditions of the agreement and as per the need of the dispute.
11. It is the specific case of the appellants that the respondent could not have raised yet another claim, as the respondent after signing on the final bill without any protest or reservation has waived its right as per the conditions of the contract. The Court without considering that whether any dispute exists between the parties, could not have appointed an arbitrator.
12. Therefore, the Court was not justified in appointing a retired High Court Judge as the sole arbitrator in the present case.
13. In view of the above discussion, the appeal is allowed. The impugned order passed by the High Court is set aside. No order as to costs.
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