Holding

Clause 43(2) is a safeguard against frivolous claims after final measurement and does not bar a contractor from raising genuine claims, particularly when the works have not been finally measured and the No‑Claim Certificate was obtained under duress.

Summary

Ambica Construction entered into a works contract with the Union of India (Railways) which incorporated Clause 43(2) requiring a No‑Claim Certificate after the works were finally measured. The contractor could not complete the work on time, faced deductions and was denied payment and refund of its security deposit unless it submitted such a certificate. It submitted the No‑Claim Certificate under duress to obtain the deposit and later claimed outstanding dues, leading to arbitration. The first arbitrator held the certificate was signed under duress and disallowed the claims; a second arbitrator allowed them. The Calcutta High Court Division Bench held that the certificate barred any further claim, setting aside the award. The Supreme Court allowed the appeals, holding that Clause 43(2) is a safeguard against frivolous claims after final measurement and does not absolutely preclude a contractor from raising genuine claims, especially when the works were not finally measured and the certificate was obtained under duress.

Issues considered

The effect of Clause 43(2) of the General Conditions of Contract on a contractor's right to raise further claims after submitting a No‑Claim Certificate.
Whether a No‑Claim Certificate signed under duress is binding and bars subsequent claims.
Whether the arbitration clause remains operative despite the submission of a No‑Claim Certificate.

Legislation cited

Arbitration and Conciliation Act, 1996s. 11, s. 34, s. 37

Subjects

construction contractno claim certificateduressarbitrationClause 43(2)general conditions of contractsecurity depositfinal measurementgenuine claim

Judgment

A M/S. AMBICA CONSTRUCTION
v.
UNION OF INDIA

NOVEMBER 20, 2006

B [DR. AR. LAKSHMANAN AND AL TAMAS KABIR, JJ.]
'•··,

Contract-General conditions of contract-Clause 43(2)-Works
contract-Signing of No' claim certificate by contractor to recover security
C deposit from the G~nment-Subsequently contractor claiming its lawful
dues-Entitlement of-Held: Under General Conditions of Contract, No Claim
Certificate is submitted by contractor once the works are finally measured
up-Work was yet to be completed and to be finally measured-Arbitrator
held that No Claim Certificate was given by the contractor under coercion
and duress-Further, discharge certificate is given in advance for payment
D of bills on time-Clause 43(2) provides safeguard against frivolous claims
after final measurement-Thus, having submitted No Claim Certificate
· contractor not precluded from raising further claim which was genuine.

Appellant-contractor and respondent-Union oflndia executed a works
contract. General Conditions of Contract provided for settlement of disputes
E by arbitration. Appellant was unable to complete the work within the stipulated
time. Respondent made certain deductions from the running bills submitted
by the appellant and did not make payment to the appellant for the works
already done. It also refused to refund the appellant's secruity deposit unless
appellant submitted a No-Claim Certificate in terms of clause 43(2) of the
F General Conditions of Contract. Having no other alternate, appellant submitted
a No Claim Certificate to get refund of the security deposit. Thereafter,
appellant claimed the amount due under the contract from the respondent.
Respondent did not pay the dues. Appellant then filed an application for
reference of its claims to arbitration and for appointment of an Arbitrator.
During pendency, respondent refunded the security deposit to the appellant
G but the appellant received the same under protest. Sole Arbitrator was
appointed. Arbitrator held that the appellant signed the No Claim Certificate
under duress and coercion; he however, disallowed its claims. Aggrieved
parties challenged the Award. Single Judge of High Court set aside the Award
and appointed a new Arbitrator who passed an Award allowing the appellant's

H 188
- AMBICA CONSTRUCTION v. U.O.I.

claims. Respondent challenged the award. Single Judge of High Court
189
A
dismissed the application for setting aside the Award. Respondent then filed
an appeal. Division Bench of High Court held that apart from a mere statement,
there was no proof of the allegation that the appellant had been compelled to
sign No Objection Certificate under coercion or duress; and that having
submitted a No Claims Certificate, the appellant was precluded from raising B
any further claims. It set aside order of Single Judge of High Court and the
Award passed by the Arbitrator. Respondent filed a Review Petition but the
same was dismissed. Hence the present appeals.

Allowing the appeals, the Court

HELD: 1.1. Clause 43(2) of the General Conditions of Contract indicate C
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. Even the first Arbitrator, D
who had been appointed had come to a finding that No Claim Certificate had
been given under coercion and duress. The Division Bench of High Court for
the first time came to a conclusion that such No Claim Certificate had not
been submitted under coercion and duress. [194-D; 194-G-H; 195-A-BI

1.2. From the submissions made by the parties, it is apparent that unless E
a discharge certificate is given in advance, payment of bills are generally
delayed. Although, Clause 43(2) has been included in the General Conditions
of Contract, the same is meant to be a safeguard as against frivolous claims
after final measurement. It cannot be said that such a clause in the contract
would be an absolute bar to a contractor raising claims which are genuine, F
even after the submission of such No Claim Certificate. [195-B-D)

Chairman and MD. NTPC Ltd v. Reshmi Constructions, Builders and
Contractors, 120041 2 SCC 663, relied on.
1.3. 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 G
counsel of the respodent-Railways. 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 tile Division Bench of High Court was wrong in holding atherwise.
1195-D-F) H
190 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R.

A P.K. Ramaiah and Co. v. Chairman and MD, National Thermal Power
Corpn., [1994) Supp 3 SCC 126, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5093 of2006.

From the Judgment and Order dated 23.9.2004 of the High Court of
B Calcutta in G.A. No. 1265 of2004.

WITH

C.A. No. 5097 of2006.

C Raj Kumar Mehta and Suman Kukrety for the Appellant.

T.S. Dobia, Kiran Bhardwaj, Ms. Shilpa Singh, D.S. Mehra and B. Krishna
Prasad for the Respondent.

The Judgment of the Court was delivered by
D ALTAMAS KABIR, J. Delay condone~ in S.L.P.(c) No. 19237/2005.

Leave granted in both the Special Leave Petitions which have been
taken up together for di~posal, since SLP(c) No~ 19237 of 2005 is directed
against the main judgment and Order dated 1~th March, 2004, passed by the
E 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
F 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 tf1e parties on 4th March, 1993 and the said agreement
G 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.

H As would appear from the materials on record, the appellant herein was

f, •
AMBICA CONSTRUCTION v. U.0.1. [ALTAMAS KABIR, J.)
. ---- 191

unable to complete the work within the stipulated time frame and accoraingly .. A
it applied for extension of time by three months upto 30th September, 1993.
.

It is ~he 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 B
submitted by the appellant and in fact payment was not even 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 accoun_t of idle labour and surplus staff and the establishment C
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 D
· 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 E
"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. F
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 G
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 H

-
192 SUPREME COURT R.EPORTS [2006] SUPP. 9 S.C.R.

A the appellant amounting to Rs. IO lakhs. However, the Arbitrator awarded a
sum of Rs.1,03,000/- as costs to the appellant.

. Boih 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
B January, 2000 set aside the Award made by Shri Subrata Bagchi ar.d 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 A ward was challenged by the respondent
C herein- Union oflndia under Section 34 of the 1996 Act, being A.P. No. 193
of2001, 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 Rules43(2) and 16(2) thereof.
The learned Single Judge appears to have been of the view that by participating
D in the proceedings under Section.I I of the 1996 Act and no objection having
been made to the appointment of an Arbitrator despite the submission of a
No qaim Certificate by the appellant, the Award did not warrant any
interfe(ence. 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 A ward, it could not enter into the reasonableness of the
E reasons given by the Arbitrator. The 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
F 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
G appeal and also the application under Section 34 of the 1996 Act. Consequently,
the impugned order of the learned Single Judge and the Awl!rd passed by the
learned Arbitrator were both set aside. -·

As indicated hereinbefore, SLP (C) No. 19237 of2005 is directed against
the said judgment and order of the Division Bench of the Calcutta High Court.
H
AMBICA CONSTRUCTION v. U.0.1. [ALT AMAS KABIR, J.] 193

The Union oflndia filed a Review Petition, being GA No. 1265 of2005, A
for review of the aforesaid judgment dated 16th March, 2004 but the same was
also dismissed on 23rd September, 2004. SLP (C) No. 2753 of2005 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 B
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 C
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 D
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 E
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. v. Chairman & MD, National Thermal Power Corpn., [1994] Supp 3 SCC p
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. G
In support of the aforesaid submissions, Mr. Mehta referred to and
relied upon the decision of this Court in Chairman and MD, NTPC Ltd. v.
Reshmi Constructions, Builders & Contractors [2004] 2 SCC 663 wherein the.
aforesaid maxim had been explained and applied to a similar situation where H
194 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R.

A 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 adve1ting 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
B 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
C 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
D submitted a No Claims Ce1tificate, 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 cal led upon to consider the efficacy of Clause 43(2) of the
E 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
F 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
G 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,
H had been finally measured and on the basis of the same a No Objection
AMBICA CONSTRUCTION v. U.O.I. [AL TAMAS KABIR, J.] 195

Certificate had been issued by the appellant. On the other hand, even the first A
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 B
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 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 C
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 D
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 E
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. F
There will, however, be no order as to costs.

N.J. Appeals allowed.

G