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CASE NO.: Appeal (civil)  5093 of 2006

PETITIONER: M/s. Ambica Construction

RESPONDENT: Union of India

DATE OF JUDGMENT: 20/11/2006

BENCH: Dr. AR. Lakshmanan & Altamas Kabir

JUDGMENT: J U D G M E N T

(Arising out of SLP ) No.2753/2005) WITH CIVIL APPEAL NO. 5097 OF 2006 (Arising out of SLP ) No.19237 of 2005) M/s.Ambica Construction                                 ... Appellant Versus Union of India                                                  ... Respondent

ALTAMAS KABIR, J.

       Delay condoned in S.L.P.(c) No.19237/2005.

       Leave granted in both the Special Leave Petitions which  have been taken up together for disposal, since SLP (c)  No.19237 of 2005 is directed against the main judgment  and  Order dated 16th March, 2004, passed by the Calcutta High  Court allowing the appeal of the Union of India and SLP (C)  No.2753 of 2005 arises out of the order dated 23rd September,  2004 passed by the said High Court   on a Review Petition in  respect of the main judgment.           Pursuant to a Tender Notice, issued by the respondent  for certain new works, additions, alterations, repair and  maintenance works in the Mancheswar Complex, the  appellant submitted its tender on 2nd September, 1992.  The  appellant’s tender was duly accepted by a letter dated 14th  September, 1992 with the stipulation that the work was to be  completed in all respects by 30th June, 1993.  It was also  indicated that the work orders were to be issued within 7 days  from the date of receipt of the acceptance letter.  A formal  contract was executed between the parties on 4th March, 1993  and the said agreement provided that the General Conditions  of Contract and Standard Specifications of the South Eastern  Railways shall be applicable to the contract.  Clause 63 of the  General Conditions of Contract provides for settlement of  disputes by Arbitration.         As would appear from the materials on record, the  appellant herein was unable to complete the work within the  stipulated time frame and accordingly it applied for extension  of time by three months upto 30th September, 1993.  It is the  appellant’s case that since it was not informed about the  decision on the said application, the appellant suffered huge  losses on account of idle labour and surplus staff.  It appears  that ultimately the appellant’s request was turned down and  certain deductions were made from the Running Bills  submitted by the appellant and in fact payment was not even

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made for the works already done by the appellant.  According  to the appellant, the respondent refused to refund even the  appellant’s security deposit unless the appellant submitted a  No-Claim Certificate in terms of Clause 43(2) of the General  Conditions of Contract.  Having no other alternative and  having incurred huge losses on account of idle labour and  surplus staff and the establishment expenses, the appellant  submitted a No Claim Certificate in order to at least get refund  of its security deposit.         By a letter dated 17th January, 1996, the appellant called  upon the respondent to make payment of a sum of  Rs.8,73,168/- and Rs.1,31,642/- which, according to the  appellant, was due from the respondent to the appellant under  the contract, failing which the respondent was requested to  appoint an Arbitrator for adjudication of the disputes which  had arisen between the parties.  In view of the failure of the  respondent either to pay the dues, as demanded, or to appoint  an Arbitrator, the appellant filed an application under Section  11 of the Arbitration and Conciliation Act, 1996 (hereinafter  called "the 1996 Act") before the Calcutta High Court for  reference of its claims in terms of its letter dated 17th January,  1996 to arbitration and for appointment of an Arbitrator.  No  reply was filed by the respondent to the said application but  during the pendency thereof, the respondent refunded to the  appellant, the security deposit of Rs.79,000/-.  The same was  received by the appellant under protest.         As no objection was taken by the respondent to the  appellant’s application under Section 11 of the 1996 Act or  with regard to the submission of the No Claim Certificate by  the appellant at the time of receiving the security deposit, the  learned Single Judge of the Calcutta High Court, by his order  dated 20th February, 1998, directed the matter to be placed  before Hon’ble the Chief Justice for naming an Arbitrator for  adjudication of the disputes.  On 12th March, 1998, the Chief  Justice appointed one Shri Subrata Bagchi as Sole Arbitrator  to go into the disputes between the parties.  The Arbitrator  came to a finding that the No Claim Certificate had been  signed by the appellant under duress and coercion but  disallowed the various claims of the appellant amounting to  Rs.10 lakhs.  However, the Arbitrator awarded a sum of  Rs.1,03,000/- as costs to the appellant.         Both parties were aggrieved by the aforesaid Award and  filed separate applications for setting aside the same.   Ultimately, by consent of parties, the learned Single Judge of  the Calcutta High Court by his order dated 31st January, 2000  set aside the Award made by Shri Subrata Bagchi and by  consent appointed Shri G.C Law, Counsel appearing for the  Union of India in the case, as Sole Arbitrator.         On 25th May, 2001, Shri Law published his Award  allowing the claims made by the appellant.  The said Award  was challenged by the respondent herein- Union of India  under Section 34 of the 1996 Act, being A.P. No.193 of 2001,  before the learned Single Judge of the Calcutta High Court.   On behalf of the Union of India it was urged that the Arbitrator  had not considered the General Conditions of Contract and in  particular Rules 43(2) and 16(2) thereof.  The learned Single  Judge appears to have been of the view that by participating in  the proceedings under Section 11 of the 1996 Act and no  objection having been made to the appointment of an  Arbitrator despite the submission of a No Claim Certificate by  the appellant, the Award did not warrant any interference.   According to the learned Single Judge the matters had been  adjudicated upon by the Arbitrator and since the court was  not sitting in appeal over the Award, it could not enter into the  reasonableness of the reasons given by the Arbitrator.  The

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learned Single Judge dismissed the application for setting  aside the Award with the aforesaid observations.         The matter was taken in appeal by the Union of India in  APO No.212 of 2004 under Section 37 of the 1996 Act.  Taking  note of the No Claim Certificate, submitted by the appellant, in  the light of Clause 43(2) of the General Conditions of Contract,  the Division Bench came to a finding that apart from a mere  statement, there was no proof of the allegation that the  appellant herein had been compelled to sign such a certificate  under coercion or duress.  The Division Bench observed that  no such finding had been arrived at by the Arbitrator.  On  such finding, the Division Bench allowed the appeal and also  the application under Section 34 of the 1996 Act.   Consequently, the impugned order of the learned Single Judge  and the Award passed by the learned Arbitrator were both set  aside.         As indicated hereinbefore, SLP (C) No.19237 of 2005 is  directed against the said judgment and order of the Division  Bench of the Calcutta High Court.           The Union of India filed a Review Petition, being GA  No.1265 of 2005, for review of the aforesaid judgment dated  16th March, 2004 but the same was also dismissed on 23rd  September, 2004.  SLP (C) No.2753 of 2005 is directed against  the order passed on the Review Petition.         Appearing in support of the two appeals, Mr.Raj Kumar  Mehta, Advocate, urged that the Division Bench of the  Calcutta High Court had been persuaded to allow the appeal  filed by the Union of India on the sole ground that by  furnishing the No Claim Certificate the appellant herein was  no longer entitled to raise any claim having regard to Clause  43(2) of the General Conditions of Contract.  Mr.Mehta also  submitted that the Division Bench had wrongly held that there  was no proof in support of the allegations that such No  Objection Certificate had been furnished by the appellant  under coercion and duress.  It was urged that there were  sufficient materials on record to indicate that the authorities  of the respondent were bent upon denying the appellant its  just dues, and, on the other hand, they had deducted certain  amounts which were due and payable on account of Running  Bills submitted by the appellant.  It was also submitted that a  case had been made out before the learned Arbitrator as also  the learned Single Judge that the appellant had been  compelled by circumstances to submit the No Objection  Certificate without which no payment even of lawful dues are  made by the Railways.  It was sought to be urged that it is  common practice for discharge receipts to be given before any  payment is made and the appellant had, under compelling  circumstances, merely followed such practice in order to  recover even its security deposit which was not being paid to  it.         Mr.Mehta also urged that wrong reliance had been placed  by the Division Bench on the decision of this Court in the case  of P.K. Ramaiah and Co.  vs. Chairman & MD, National  Thermal Power Corpn., [1994 Supp (3) SCC 126].  According  to Mr.Mehta the Division Bench should have, on the other  hand, taken into consideration the age old maxim Necessitas  non habet legem which means that necessity knows no law.    According to Mr.Mehta it was out of necessity, namely, to  recover its security deposit, that a No Claim Certificate had  been submitted by the appellant and the same ought not to be  held as a bar against the appellant for raising claims in  respect of its lawful duties.         In support of the aforesaid submissions, Mr.Mehta  referred to and relied upon the decision of this Court in  Chairman and MD, NTPC Ltd. vs. Reshmi Constructions,

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Builders & Contractors [2004 (2) SCC 663] wherein the  aforesaid maxim had been explained and applied to a similar  situation where a question had arisen for decision   as to  whether an arbitration clause in a contract agreement  continues to survive despite the purported satisfaction thereof.   This Court while adverting to various decisions on the subject,  including the decision in P.K. Ramaiah’s case (supra), came  to the conclusion that notwithstanding the submission of a No  Demand Certificate, the arbitration agreement continued to  subsist because of the several reasons indicated in the  judgment.  Having regard to the views expressed in the  aforesaid judgment, Mr.Mehta submitted that the Division  Bench of the Calcutta High Court had erred in relying solely  on Clause 43(2) of the General Conditions of Contract and the  No Claim Certificate submitted by the appellant in arriving at  a conclusion that no further dispute existed for determination  in arbitration and the judgment and orders under appeal were  liable to be set aside.           Mr.Doabia, learned Senior Advocate, appearing for the  Union of India, supported the judgment of the Division Bench  of the Calcutta High Court with particular reference to Clause  43(2) of the General Conditions of Contract.  He reiterated the  findings of the Division Bench to the effect that having  submitted a No Claims Certificate, the appellant was  precluded from raising any further claims and the learned  Arbitrator had committed a gross error in allowing such claim  notwithstanding the prohibition contained in the said clause.         Since we are called upon to consider the efficacy of  Clause 43(2) of the General Conditions of Contract with  reference to the subject matter of the present appeals, the  same is set out hereinbelow:

"43(2) Signing of "No claim" Certificate.  The  Contractor shall not be entitled to make any claim  whatsoever against the Railways under or by virtue  of or arising out of this contract, nor shall the  Railways entertain or consider any such claim, if  made by the contractor, after he shall have signed a  "No Claim" certificate in favour of the Railways, in  such form as shall be required by the Railways,  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 reference to arbitration  in respect thereof."

       A glance at the said clause will immediately indicate that  a No Claim Certificate is required to be submitted by a  contractor once the works are finally measured up.  In the  instant case the work was yet to be completed and there is  nothing to indicate that the works, as undertaken by the  contractor, had been finally measured and on the basis of the  same a No Objection Certificate had been issued by the  appellant.  On the other hand, even the first Arbitrator, who  had been appointed, had come to a finding that No Claim  Certificate had been given under coercion and duress.  It is the  Division Bench of the Calcutta High Court which, for the first  time, came to a conclusion that such No Claim Certificate had  not been submitted under coercion and duress.         From the submissions made on behalf of the respective  parties and in particular  from the submissions made on  behalf of the appellant, it is apparent that unless a discharge  certificate is given in advance, payment of bills are generally  delayed.  Although, Clause 43(2) has been included in the

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General Conditions of Contract, the same is meant to be a  safeguard as against frivolous claims after final measurement.   Having regard to the decision in the case of Reshmi  Constructions’s   (supra), it can no longer be said that such a  clause in the contract would be an absolute bar to a  contractor raising claims which are genuine, even after the  submission of such No Claim Certificate.         We are convinced from the materials on record that in  the instant case the appellant also has a genuine claim which  was considered in great detail  by the Arbitrator who was none  other than the counsel of the respondent-Railways.           In such circumstances we are inclined to hold that  notwithstanding Clause 43(2) of the General Conditions of  Contract and the submission of a No Claim Certificate by the  appellant, the appellant was entitled to claim a reference  under the contract and the Division Bench of the Calcutta  High Court was wrong in holding otherwise.         The appeals are accordingly allowed.  The impugned  judgments in the two appeals are both set aside.         There will, however, be no order as to costs.