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  IN THE SUPREME COURT OF INDIA  CIVIL  APPELLATE JURISDICTION  

CIVIL APPEAL NO. 7970     OF 2010

(Arising out of SLP(C) No.8306/2008)

UNION OF INDIA AND ORS.                Appellant(s)

                    :VERSUS:

HARI SINGH                             Respondent(s)

J U D G M E N T

Dalveer Bhandari, J.

1. Delay condoned.

2. Leave granted.

3. This appeal is directed against the judgment and  

order dated 12.01.2007 passed by the High Court of Punjab  

and Haryana at Chandigarh in Arbitration Case No.34 of  

2004.

4. Brief facts which are necessary to dispose of this  

appeal are recapitulated as under:  

The respondent contractor was awarded a contract  

by the Northern Railway vide Contract Agreement No.74-

W/1/1/307/WA/CDG  dated  01.05.2002,  for  execution  of  

“Earthwork in formation in filling Construction of all  

minor bridges within the Zone, including retaining wall,

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side drains and other protection works and allied works  

in  Zone  No.8  from  Km.25  to  Km.42  in  Punjab  area  in  

connection  with  new  BG  Rail  Link  from  Chandigarh  to  

Ludhiana”.   The  Contract  Agreement  also  provided  for  

execution of Supplementary Agreement. The contract was  

executed by the respondent and the entire amount due and  

payable to the contractor - respondent was paid to him  

by  a  Supplementary  Agreement  dated  27.04.2004,  which  

reads as under:

“SUPPLEMENTARY AGREEMENT

Article  of  agreement  made  this  day  27th  

April in the year two thousand four between the  President of India, acting through the Northern  Railway administration having his office at Dy  CE/C-II/CD  hereinafter  called  the  Railway  of  the  one  part  and  nil  of  the  second  part.  Whereas  the  party  hereto  of  the  other  part  executed on agreement with the party hereto of  the  first  part  being  agreement  number  740/1/1/207 dated 13.2.2001 for the performance  nil  hereinafter  called  the  'Principal  Agreement'.  

And whereas it was agreed by and between  the  parties  hereto  that  the  works  would  be  completed by the party hereto the second part  on 31.10.2003 dated last extended' and whereas  the  party  hereto  of  the  second  part  has  executed the work to the entire satisfaction of  the party hereto of the first part already made  payment of the party hereto of the second part  diverse sums from time to time aggregating to  Rs.19891584.07 including the final bill bearing  voucher  No.362-C/C-II/CDG  dated  27.3.2004  the  receipt of which is hereby acknowledged by the  party  hereto of  the second  part in  full and  final  settlement  of  all  his/its  claims  under  the principal agreement.

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And  whereas  the  party  hereto  of  the  second  part  have  received  further  sum  of  26849531 through the final bill bearing voucher  NO.362-C/0-II CDG dt. 27.3.2004 (the receipt of  which  is  hereby  acknowledge  by  the  party  thereto  of  the  second  part)  from  the  party  hereto  the  first  part  in  full  and  final  settlement of all his/its disputed claims under  principal agreement.

Now it is hereby agreed by and between  the  parties  in  the  consideration  of  sums  already paid (by the party hereto of the first  part  to the  party hereto  of the  second part  against  all  outstanding  dues  and  claims  for,  all  works  done  under  the  aforesaid  principal  agreement  including/excluding  the  security  deposit  the  party  hereto  of  the  second  part  have  no  further  dues  of  claims  against  the  party  hereto  the  first  part  under  the  said  Principal  Agreement.  It  is  further  agreed  by  and between the parties that the party hereto  of the second part has accepted the said sums  mentioned above in full and final satisfaction  of  all  its  dues  and  claims  under  the  said  Principal Agreement.

It  is  further  agreed  and  understood  by  and between the parties that in consideration  of  the  payment  already  made,  under  the  agreement, the said Principal  Agreement shall  stand finally discharged and rescinded all the  terms and conditions including the arbitration  clause.

It  is  further  agreed  and  understood  by  and between the parties that in consideration  of  the  payment  already  made,  under  the  agreement, the said Principal Agreement shall  stand finally discharged and rescinded on the  terms and conditions including the arbitration  clauses.  

It  is  further  agreed  and  understood  by  and  between  the  parties  that  the  arbitration  clause  contained  in  the  said  principal  agreement shall cease to have any effect and/or  shall  be  deemed  to  be  non-existent  for  all  purposes.“  

6. The respondent Contractor had sent a legal notice

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to the General Manager, Northern Railways, Baroda House,  

New Delhi immediately after receiving the entire amount  

in pursuance to the settlement of his full and final  

claim with the appellant.  The legal notice sent by the  

respondent did not even mention the fact of entering into  

the  supplementary  agreement  with  the  appellant  and  

receiving  the  entire  amount  of  Rs.2,07,49,099/-.   The  

respondent deliberately suppressed the material facts and  

thereafter filed an Arbitration Case No.34/2004 before  

the High Court of Punjab and Haryana.  The court without  

appreciating  these  facts,  by  an  impugned  judgment,  

referred the claim of the respondent-Contractor to the  

two arbitrators.   

7. The appellant-Union of India is seriously aggrieved  

by the impugned judgment of the High Court and submitted  

that after receiving the entire amount, the respondent  

also signed the supplementary agreement and thereafter  

the  respondent  was  not  justified  in  invoking  the  

arbitration.

8. Learned Additional Solicitor General appearing on  

behalf of the Union of India has strenuously submitted  

that the matter is no longer res integra and is covered

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by  a  series  of  judgments  for  almost  a  century.   He  

referred to the judgment of Privy Council in Payana Reena  

Saminathan v. Pana Lana Palaniappa 14 (1913-14) 41 IA 142  

(reiterated in Union of India v. Kishorilal Gupta & Bros.  

AIR 1959 SC 1362) which reads as under:-

“…….The `receipt' given by the appellants and  accepted  by  the  respondent,  and  acted  on  by  both parties proves conclusively that all the  parties  agreed  to  a  settlement  of  all  their  existing disputes by the arrangement formulated  in the `receipt'. It is a clear example of what  used to be well known as common law pleading as  `accord  and  satisfaction  by  a  substituted  agreement'. No matter what were the respective  rights  of  the  parties  inter  se  they  are  abandoned in consideration of the acceptance by  all of a new agreement. The consequence is that  when  such  an  accord  and  satisfaction  takes  place  the  prior  rights  of  the  parties  are  extinguished. They have in fact been exchanged  for  the  new  rights;  and  the  new  agreement  becomes a new departure, and the rights of all  the parties are fully represented by it.”

9. He submitted that this judgment has been approved and  

followed by this court even in the year 2009.

10. Learned Additional Solicitor General also placed on  

record the judgment of this court in  State of Maharashtra  

v. Nav Bharat Builders 1994 Supp (3) SCC 83.  In this case,  

the  court observed  that the  dispute between  the parties  

were  conclusive  and  the  respondent  fully  and  finally  

accepted  the  claim  and  thereafter  received  the  amount.

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Thus,  there  was  accord  and  satisfaction  of  the  claim  

relating to labour escalation charges and thereafter the  

matter could not have been referred to the arbitration.

11. Learned Additional Solicitor General also relied on  

another  judgment  of  this  court  in  M/s  P.K.  Ramaiah  and  

Company v.  Chairman & Managing Director, National Thermal  

Power Corpn. 1994 Supp (3) SCC 126.  In this case also the  

respondent received the amount in full and final settlement  

of  his  claim.   Consequently,  there  was  an  accord  and  

satisfaction and thereafter no arbitrable dispute remained  

for reference to the arbitration.

12. This  court  in  Nathani  Steels  Ltd. v.  Associated  

Constructions 1995 Supp (3) SCC 324 also had an occasion to  

examine the similar case.  The court observed that after  

settling the entire matter and receiving the payment, it  

was not open to the respondent to treat the settlement as  

non est and proceed to invoke the Arbitration clause.

13. This court in a relatively recent case has examined  

the  legal  position  once  again  in  the  case  of  National  

Insurance  Company  Limited v.  Boghara  Polyfab  Private  

Limited (2009) 1 SCC 267.  In para 25 of the said judgment,

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the court observed as under:-

“25………Where both parties to a contract confirm  in writing that the contract has been fully and  finally  discharged  by  performance  of  all  obligations and there are no outstanding claims  or  disputes,  courts  will  not  refer  any  subsequent  claim  or  dispute  to  arbitration.  Similarly,  where  one  of  the  parties  to  the  contract  issues  a  full  and  final  discharge  voucher (or no due certificate as the case may  be) confirming that he has received the payment  in full and final satisfaction of all claims,  and he has no outstanding claim, that amounts  to discharge of the contract by acceptance of  performance and the party issuing the discharge  voucher/certificate cannot thereafter make any  fresh claim or revive any settled claim. Nor  can he seek reference to arbitration in respect  of any claim.”

14. The court further observed in para 29 as under:-

“29…….It  is  thus  clear  that  the  arbitration  agreement  contained  in  a  contract  cannot  be  invoked  to  seek  reference  of  any  dispute  to  arbitration,  in  the  following  circumstances,  when the contract is discharged on account of  performance,  or  accord  and  satisfaction,  or  mutual agreement, and the same is reduced to  writing (and signed by both parties or by the  party seeking arbitration):

(a) Where the obligations under a contract are  fully performed and discharge of the contract  by performance is acknowledged by a full and  final  discharge  voucher/receipt.  Nothing  survives in regard to such discharged contract.

(b)  Where  the  parties  to  the  contract,  by  mutual  agreement,  accept  performance  of  altered,  modified  and  substituted  obligations

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and  confirm  in  writing  the  discharge  of  contract  by  performance  of  the  altered,  modified or substituted obligations.

(c) Where the parties to a contract, by mutual  agreement, absolve each other from performance  of  their  respective  obligations  (either  on  account  of  frustration  or  otherwise)  and  consequently cancel the agreement and confirm  that  there  is  no  outstanding  claims  or  disputes.”

15. In this case the court relied on earlier judgments of  

this court and reiterated the legal position which has been  

crystallized  by  a  series  of  judgments  where  both  the  

parties  to  a  contract  confirmed  in  writing  that  the  

contract  has  been  fully  and  finally  discharged  by  the  

parties and there was no outstanding claim or dispute and  

thereafter the matter could not have been referred to the  

arbitration.

16. In  a  celebrated  book,  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”.

17. In our considered view, on the basis of the above  

settled  legal  position  that  when  the  parties  by  a  

supplementary agreement obtained a full and final discharge

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after paying the entire amount, which was due and payable  

to the contractor, thereafter the contractor would not be  

justified  in  invoking  arbitration  because  there  was  no  

arbitral dispute for reference to the arbitration.

18. In view of the settled legal position, the impugned  

judgment  is  unsustainable  and  is  accordingly  set  aside.  

The  appeal  is  allowed  accordingly.  The  parties  to  bear  

their own costs.  

.....................J (DALVEER BHANDARI)

.....................J (DEEPAK VERMA)

New Delhi; September 10, 2010.