IN THE HIGH COURT AT CALCUTTA
ORIGINAL SIDE
(Intellectual Property Rights Division)
BEFORE:
The Hon'ble Justice Ravi Krishan Kapur AO-COM/14/2024
IA NO: GA-COM/1/2024
RAJPATH CONTRACTORS AND ENGINEERS LTD.
VS
THE UNION OF INDIA
For the petitioner : Mr. Sakya Sen, Sr. Adv. Mr. Priyankar Saha, Adv.
Ms. Srijani Mukherjee, Adv.
For the respondent : Mr. Dhiraj Kr. Trivedi, Sr. Adv., DI, S.G. Mr. Shailendra Kumar Mishra, Adv.
Judgment on : 19.08.2024
Ravi Krishan Kapur, J.:
1. This appeal under section 37 of the Arbitration and Conciliation Act, 1996 is directed against an order dated 13 May, 2024 passed under section 16 of the Act dismissing the claim of the petitioner.
2. In or about, 2007-08, a tender was issued by the respondent Railways for "construction of New Major Bridge No. 172 over river Brahamani with pile foundation in 1980 station of the Eastern Railways." Pursuant to the above tender, the petitioner participated in the same and emerged as the successful bidder. By a letter of acceptance, the petitioner was awarded the entire works which was to be completed within a period of 16
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months. The parties also entered into a contract dated 5 January, 2009. Subsequently, the petitioner commenced the works and duly completed the same after extensions were granted under the contract.
3. Disputes and differences having arisen between the parties, the petitioner was compelled to issue a notice of demand on 3 May, 2023, inter alia, raising claims pertaining to the above contract. The petitioner also filed an application under section 11 of the Act. By an order dated 6 October, 2023, it was recorded that there were existing disputes between the parties and an Arbitral Tribunal was constituted. A preliminary hearing was held by the Arbitral Tribunal on 17 November, 2023 when the parties were directed to file their pleadings. The first hearing was held on 22 January, 2024 when the time for filing of the Statement of Defence was extended. The Statement of Defence was ultimately filed on
3 February, 2024.
4. Upon completion of the pleadings, the Arbitral Tribunal suo moto took a point under section 16 of the Act and held that the petitioner having furnished a No Claim Certificate, the entire claim was barred on the ground that the same was an excepted matter and fell within the scope of clause 43(2) read with clause 63 of the General Conditions of the Contract.
5. For convenience, clauses 43(2), 63 and the relevant portion of clause 64 of the General Conditions of Contract are set out hereinbelow:
"43.(2) Signing of "No Claim" Certificate: The Contractor shall not be entitled to make any claim whatsoever against the Railway under or by virtue of or arising out of this contract, nor shall the Railway entertain or consider any such claim, if made by the Contractor, after he shall have signed a "No Claim Certificate in favour of the Railway, in such form as
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shall be required by the Railway, after the works are finally measured up. The Contractor shall be debarred from disputing the correctness of the items covered by "No claim" certificate or demanding a clearance to arbitration in respect thereof.
63. Matters finally determined by the Railway :- All disputes and differences of any kind whatsoever arising out of or in connection with the contract, whether during the progress of the work or after its completion and whether before or after the determination of the contract shall be referred by the contractor to the Railway and the Railway shall within 120 days after receipt of the contractor's representation make and notily decisions on all matters referred to by the contractor in writing provided that matters for which provision has been made in clauses 8, 18, 22 (5), 39, 43 (2), 45 (a), 55, 55-A (5), 57, 57A, 61(1), 61(2), and 6211) to (xii) (B) of General conditions of contract or in any clause of the special conditions of the contract shall be deemed as "excepted matters" and decisions of the Railway authority thereon shall be final and binding on the contractor provided further that "excepted matters" shall stand specifically excluded from the purview of the arbitration clause and not be referred to arbitration.
64. (1) (i) Demand for Arbitration - In the event of any dispute or difference between the parties here to as to the construction or operation of this contract, or the respective rights and liabilities of the parties on any matter in question, dispute or difference on any account or as to the withholding by the Railway of any certificate to which the contractor may claim to be entitled to, or if the Railway fails to make a decision within 120 days, then and in any such case, but except in any of the 'excepted matters' referred to in clause 63 of these conditions, the contractor. after 120 days but within 180 days of his persenting his final claim on disputed matters, shall demand in writing that the dispute or difference be referred to arbitration.
64. (1) (ii) The denand for arbitration shall specify the matters which are in question or subject of the dispute or difference as also the amount of claim itemwise. Only such dis-pute (s) or difference (s) in respect of which the demand has been made, together with counter claims or set off shall be referred to arbitration and other matters shall not be included in the reference.
6. On behalf of the petitioner, it is contended that the impugned order is unsustainable inasmuch as the same has been passed contrary to the decision of the Hon'ble Supreme Court in Union of India vs. Parmar Construction Company (2019) 15 SCC 682. In particular, it is submitted that the question of arbitrability vis-a-vis excepted matters should have
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been examined at the stage of trial. This was not an open and shut case where the Arbitral Tribunal ought to have suo motu taken the point of jurisdiction and rejected the claim of the petitioner on the ground that the same fell with the category of an excepted matter. This point had not been raised at the stage of hearing of the application under section 11 of the Act. In addition, no point of jurisdiction nor arbitrability had been raised by the respondent Railways before the Arbitral Tribunal. The decision in Harsha Constructions vs. Union of India and Others (2014) 9 SCC 246 relied on by the Arbitral Tribunal is distinguishable and inapposite. The case did not deal with a No-Claim Certificate. In support of such contention, the petitioner also relied on the decision in SBI General Insurance Co. Ltd. vs. Krish Spinning (2024) SCC Online SC 1754.
7. On behalf of the respondent Railways, it is submitted that in view of the No-Claim Certificate filed by the petitioner, there was no question of any of the disputes raised being adjudicated by the Arbitral Tribunal. On the contrary, such disputes fell within the ambit of excepted matters and the Arbitral Tribunal could not have adjudicated upon the same. The failure to take this point either at the stage of the section 21 notice or the section 11 stage or the pleadings was irrelevant and did not prevent the Arbitral Tribunal from adjudicating upon the same.
8. Admittedly, the question of jurisdiction under section 16 of the Act had not been raised by the respondent before the Arbitral Tribunal. No application of any kind had been filed under section 16 of the Act. This issue had neither been raised in the Statement of Defence. The proceedings were at a nascent stage before the Arbitral Tribunal. It is
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true that there is no embargo in the Arbitral Tribunal raising the question of jurisdiction suo moto. Nevertheless, in the absence of an application and there being no pleadings in support of such contention, it was prudent to have an application on record or at least take this point in the pleadings. This would also have afford an opportunity to the petitioner to specifically address the issue of jurisdiction i.e. whether the claims raised by the petitioner fell within the category of excepted claims or not.
9. "Excepted matters" go to the root of any contract. There are different stages when this question may arise for consideration i.e. under sections 8, 11, 16 or 34 of the Act. Matters which have been excepted by the parties from the scope of arbitration cannot be adjudicated upon by an Arbitrator. Any such adjudication would be in excess of jurisdiction and is liable to be set aside. It is relevant to note that such 'excepted matters' must be specifically excluded by the contract. Ultimately, it is essentially a question of construction in each case whether a clause operates to except certain matters from the consideration of the Arbitrator. This primarily involves a question of fact and is ascertained from the contract or the contractual documents. [General Manager, Northern Railway and Anr. vs. Sarvesh Chopra (2002) 4 SCC 45]. An award adjudicating claims which are excepted matters is excluded from the scope of arbitration and violative of sections 34 (2) (a) (iv) and 34 (2) (b) of the Act. [J.G. Engineers
(P) Ltd. v. Union of India, (2011) 5 SCC 758].
10. A reading of the Statement of Claim would suggest that the claims which the petitioner had raised were in relation to price escalation (Claim No.
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1), wrongful and arbitrary/unilateral deduction (Claim No. 2), non- payment for extra works (Claim No. 3), loss of anticipated profit (claim No. 4), financial loss (Claim No. 5), reimbursement of GST (Claim No. 6), loss of interest (Claim No. 7). Significantly, none of these claims were in relation to the final claim of the measured work which had been carried out by the petitioner in terms of the contract. As a consequence, whether the claims raised were covered or not within the items covered by the "No Claim Certificate" required consideration of the pleadings, construction of the terms of the contract and evidence of the parties to decide whether such claims actually were "excepted matters" or not.
11. In Union of India versus Parmar Construction Company (2019) 15 SCC 682, the Hon'ble Supreme Court held as follows:
36. The respondents are the contractors and attached with the railway establishment in the instant batch of appeals are claiming either refund of security deposits/bank guarantee, which has been forfeited or the escalation cost has been reduced from final invoices unilaterally without tendering any justification. It is manifest from the pleadings on record that the respondent contractors who entered into contract for construction works with the railway establishment cannot afford to take any displeasure from the employer, the amount under the bills for various reasons which may include discharge of his liability towards the bank, financial institutions and other persons, indeed the railway establishment has a upper hand. A rebutable presumption could be drawn that when a no claim has been furnished in the prescribed format at the time of final bills being raised with unilateral deductions made even that acceptable amount will not be released, unless no claim certificate is being attached to the final bills. On the stated facts, para 52(iii) referred to by this Court in National Insurance Company Limited Vs. Boghara Polyfab Private Limited(supra) indeed covers the cases of the present contractors with whom no option has been left and being in financial duress to accept the amount tendered in reference to the final bills furnished and from the discharge voucher which has been taken to be a defence by the appellants prima facie cannot be said to be voluntary and has resulted in the discharge of the contract by accord and satisfaction as claimed by the appellants. In our considered view, the arbitral dispute subsists and
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the contract has not been discharged as being claimed by the appellants employer(s) and all the contentions in this regard are open to be examined in the arbitral proceedings. (emphasis added)
12. One of the questions raised before the Hon'ble Supreme Court in the above decision was whether the arbitration agreement stood discharged on acceptance of the amount and signing of a no claim/ discharge certificate. It was on such facts, that the Hon'ble Supreme Court after considering the relevant facts held that the demand for escalation costs and interest due to breach of obligation and beyond the schedule date of completion were the basis of the claim raised by the petitioner. Clause 43 in that decision was also similar to the clause in this case. In this background, the Hon'ble Supreme Court held as follows:
21. As per clause 43(2), the contractor signs a "No claim" certificate in favour of the railway in the prescribed format after the work is finally measured up and the contractor shall be debarred from disputing the correctness of the items covered under the "No Claim" certificate or demanding a clearance to arbitration in respect thereof. Each of the respondent has to attach no claim certificate with final bills in the prescribed format to be furnished in advance before the final bills are being examined and measured by the railway authorities. Although it has been seriously disputed by the appellants but that is the reason for which even after furnishing no claim certificate with the final bills being raised, it came to be questioned by the respondent(contractor) by filing an application to refer the matter to arbitration invoking clause 64(3) of the conditions of contract as agreed by the parties.
23. It is also not disputed that when the request of the respondent contractors was rejected by the appellants on the premise of the no claim certificate being furnished, arbitral dispute does not survive which is to be sent to arbitration, each of the respondent contractor approached the High Court by filing an application under Section 11(6) of the Act for appointment of an arbitrator for settling their disputes/differences arising from the terms of contract as agreed between the parties.
29. The thrust of the learned counsel for the appellants that submission of a no claim certificate furnished by each of the respondent/contractor takes
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away the right for settlement of dispute/difference arising in terms of the agreement to be examined by the arbitrator invoking Clause 64(3) of the conditions of the contract. The controversy presented before us is that whether after furnishing of no claim certificate and the receipt of payment of final bills as submitted by the contractor, still any arbitral dispute subsists between the parties or the contract stands discharged.
13. On the contrary, the decision relied on by the Arbitral Tribunal in Harsha Constructions vs. Union of India and Others (2014) 9 SCC 246, dealt with
"rate of an extra work not in the schedule to contract". (Clause 39). The point being that a clear case must be made out for excepting or excluding the claim within the four corners of "excepted matters".
14. In SBI General Insurance Co. Ltd. vs. Krish Spinning 2024 SCC Online SC 1754, while adjudicating whether the execution of a discharge voucher towards the full and final settlement between the parties would operate as a bar to invoke arbitration it was held as follows:
"40. A contract between parties can come to an end by the performance thereof by both the parties, that is, by the fulfilment of all the obligations in terms of the original contract. This is referred to as discharge by performance. Alternatively, the contract may also be discharged by substitution of certain new obligations in place of the obligations contained in the original contract, and subsequent performance of the substituted obligations. The substituted obligations are referred to as 'accord' and the discharge of the substituted obligations is referred to as 'satisfaction'. It is referred to as discharge by "accord and satisfaction" or by "full and final settlement" in common parlance.
45. To answer the aforesaid contention of the appellant, the question that needs to be considered is whether the "full and final settlement" of claims arising under a contract, is by itself sufficient to preclude any future arbitration in respect of such settled claims?
47. However, whether there has been a discharge of contract or not is a mixed question of law and fact, and if any dispute arises as to whether a contract has been discharged or not, such a dispute is arbitrable as per the mechanism prescribed under the arbitration agreement contained in the underlying contract."
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15.The decisions in Ambica Construction vs. UOI, (2006) 13 SCC 475 and SBI General Insurance v. Krish Spinning, (2024) SCC OnLine SC 1754 hold that if there was any scope for enquiring into whether the NCC or discharge voucher had been furnished under duress or coercion, then irrespective of the merits of the challenge, the dispute had to be referred to arbitration.
16. In a recent decision, Union of India through Divisional Engineer-I Northern Railway vs. B.S. Sangwan (2024) SCC OnLine Del 6734, the issue raised related to the validity and effect of a 'No Claim Certificate'. After reviewing a number of authorities , the Court held as follows:
"80. Thus, the thread that runs through the above decisions is that submission or tendering of a final discharge voucher, or a no claim certificate, by the contractor to the employer, is not determinative of the dispute between them. It is always open to the contractor to establish that the discharge voucher or NCC was provided under duress, coercion or economic compulsion. It is only where no such factors exist and the discharge voucher, or NCC, is found to have been tendered voluntarily that the contractor would not be permitted to resile therefrom and raise a belated claim. The Court - or the arbitrator - is required to take all factors into consideration while arriving at a decision as to whether the discharge voucher or NCC had, or had not, been voluntarily tendered. While examining the aspect of economic duress, the Court, or the Arbitrator, can take into account the fact that the bills of the contractor may have remained unpaid, or that the payment, which was certified by the contractor as being in full and final settlement of his claims, was actually made after the NCC was issued. Such factors would go to indicate that the NCC was not voluntarily tendered."
17. In the above background, the finding of the Arbitral Tribunal that the entire claim of the petitioner fell within the category of an excepted matter on the ground that a No-Claim Certificate had been signed and filed by the petitioner was a mixed question of fact and law and required further examination. The issue being whether on the basis of the facts
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before the Arbitral Tribunal a case of duress had been made out under which the No Claim Certificate was furnished or not? This was not an aspect which should have been summarily rejected without an application and without granting an opportunity to the petitioner to controvert the specific question of jurisdiction i.e. whether its claim was barred on the ground that the petitioner had executed a No Claim Certificate or not. The impugned order is absolutely silent on this plea. Admittedly, the merits of the claim had not been adverted to. The question of duress which had been raised by the petitioner also required examination. The validity of the No Claim Certificate was specifically raised as an issue in the Statement of Claim. [National Insurance Co. Ltd vs Boghara Polyfab, 2008 SCC Online SC 1422.] Consequently, regardless of the merits or demerits of the plea of coercion, the Arbitral Tribunal was bound to at least to consider the aspect as to whether there was any coercion or not. [Ambica Construction vs. Union of India (2006) 13 SCC 475]. The finding that this aspect could only have been adjudicated by the Civil Court and is not arbitrable is erroneous and unsustainable. The fact that the claim raised was not in respect of the measured works has also not been given any weightage at all by the Arbitral Tribunal. Similarly, whether the claim for GST dues raised by the petitioner was one of the items covered by the No Claim Certificate in terms of clause 43(c) of the General Conditions of Contract has not even been adverted to.
18. In the above facts and circumstances, the mere execution of a No Claim Certificate by the petitioner was not per se determinative of whether
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disputes raised were an excepted matter or not. With the greatest respect, the suo motu exercise taken by the Arbitral Tribunal to summarily decide whether the disputes involved fell within the category of excepted matters required a judicial determination and after consideration of the evidence. In such circumstances, the impugned order is ex facie perverse and is set aside.
19. There shall be an order in terms of prayers (a) and (b) of the Notice of Motion. With the above directions, AO-COM/14/2024 stands allowed.
20. The connected application being IA No. GA-COM/1/2024 also stands disposed of as infructuous.
(RAVI KRISHAN KAPUR, J.)
Arsad, AR(CR)