Summary
A contractor for repair works submitted a final bill with a no-claims certificate in February 2002, which was paid only in November 2003 after it had raised additional claims and invoked arbitration. The arbitrator rejected the department's objection under Clauses 65 and 65A of the contract, which deem claims not in the final bill waived, and allowed three claims; the District Judge set the award aside but the High Court restored it, treating the clauses as unconscionable. The Supreme Court held that an arbitrator is bound by the contract, that the clauses barred fresh claims absent a finding that the final bill was vitiated by duress, and that an order rejecting a Section 16 plea is not appealable under Section 37; the award was set aside but, given the meagre sums and long delay in payment, Rs. 3 lakhs was directed in full settlement.
Issues
- Whether an arbitrator may award claims raised after submission of the final bill where Clauses 65 and 65A of the contract deem such claims waived and extinguished, absent a finding that the final bill or no-claims certificate was vitiated by duress or coercion.
- Whether an arbitral tribunal's order rejecting a plea under Section 16(2) or 16(3) of the Arbitration and Conciliation Act, 1996 attains finality if not appealed under Section 37.
- Whether the principle of unconscionable bargains in Central Inland Water Transport Corporation v. Brojo Nath Ganguly can be invoked to disregard such contractual clauses.
Provisions considered
- Section 16, Arbitration and Conciliation Act, 1996The arbitrator rejected the department's jurisdictional plea by relying on the Section 11 appointment order and the fresh arbitration agreement, without any finding that the final bill was the product of duress; that was insufficient to permit adjudication of claims outside the final bill. (¶¶ 19, 20, 25)
- Section 37(2)(a), Arbitration and Conciliation Act, 1996An appeal lies only against an order accepting a plea under Section 16(2) or (3); an order rejecting such a plea forms part of the award and can be challenged in a petition under Section 34, so the rejection order had not attained finality. (¶¶ 21, 22)
- Sections 15 to 18, Indian Contract Act, 1872A contractor seeking to escape a final bill or no-claims certificate must establish before the arbitrator, as in a civil court, that it resulted from coercion, undue influence, fraud or other vitiating factors; only then may the arbitrator examine the merits of further claims. (¶¶ 9, 18, 25)
- Article 136, Constitution of IndiaFollowing Taherakhatoon, the Court after declaring the law may decline to interfere fully and mould relief on equitable considerations; a lump sum was directed given the meagre amounts and the long delay in paying the final bill. (¶¶ 27, 28, 29)
Held
- An arbitrator is a creature of the contract and cannot stray outside its confines; Clauses 65 and 65A clearly interdict any new claim after submission of the final bill and deem such claims waived, and following Bharat Coking Coal and PSA SICAL an award disregarding them would be illegal and without jurisdiction. Master Construction Company, which distinguished mere allegations of duress from established coercion, does not assist the contractor. (¶¶ 8, 10, 12, 17, 26)
- Where the contractor pleads that the final bill or no-claims certificate was itself born of duress or other vitiating factors and the arbitrator so finds on sufficient material, an award on further claims cannot be attacked as travelling beyond the contract; but here there was no such finding, so the final bill stood and the clauses operated. (¶¶ 18, 20, 25, 26)
- The salutary principle of Central Inland Water Transport Corporation cannot be torn out of context to override a final bill in the absence of any finding of vitiation, and it was not the contractor's case that the contract was entered into in circumstances attracting that principle; the High Court's reasoning that the exclusionary clause was opposed to public policy cannot be accepted. (¶¶ 15, 24, 25, 28)
- Although the law is declared in the department's favour, the final bill remained unpaid for over a year, which apparently provoked the new claims, and the amounts are meagre; in exercise of discretion under Article 136 the interests of justice require payment of a global sum of Rs. 3 lakhs in full and final settlement. (¶¶ 27, 28, 29)
Result
Appeals allowed; Punjab and Haryana High Court judgment dated 11.02.2014 restoring the arbitral award set aside; appellants directed to pay the respondent contractor a global sum of Rs. 3 lakhs within six weeks in full and final settlement of all its claims; no order as to costs.