Supreme Court of India
M/S. ASSOCIATED CONSTRUCTIONversusPAWANHANS HELICOPTERS PVT LTD
- Citation
- 2008 INSC 604
- Decided
- 7 May 2008
- Disposal
- Appeal(s) allowed
- Bench
- TARUN CHATTERJEE
Holding
The Court held that where the contract contains a clause (clause 43) allowing escalation claims and time is of the essence, the arbitrator’s award granting such escalation is permissible and cannot be set aside, as courts do not sit in appeal over arbitral awards unless they are unconscionable.
Summary
The appellant, Mis. Associated Construction, entered into a construction contract with the respondent, Pawanhans Helicopters, which required completion within four months. Delays caused by the respondent led the appellant to issue a "No Dues Certificate" under alleged economic duress and later claim price escalation under clause 43 of the contract. An arbitral tribunal awarded the appellant escalation amounts, which the respondent challenged under sections 30 and 33 of the Arbitration Act, 1940. The High Court Division Bench set aside the award, holding that clause 34 barred escalation and that the "No Dues Certificate" was not given under duress. The Supreme Court reversed this, holding that clause 43 permits escalation claims when time is of the essence, that the arbitrator’s view was permissible, and that courts cannot sit as an appellate body over arbitral awards unless they are unconscionable. Consequently, the appeals were allowed, the Division Bench order set aside, and the Single Judge’s decision restored.
Issues considered
- The scope of judicial interference with an arbitral award under sections 30 and 33 of the Arbitration Act, 1940.
- Whether clause 34 of the contract bars any claim for price escalation.
- Whether clause 43 provides a separate remedy for escalation despite clause 34.
- Whether the "No Dues Certificate" was issued under duress, affecting the contractor’s right to further payment.
- Whether the contractor is entitled to escalation compensation for delays attributable to the respondent beyond the contract period.
Legislation cited
- Arbitration Act, 1940s. 30, s. 33
Subjects
ArbitrationArbitral awardEscalation clauseContract interpretationDuressNo Dues CertificateTime is of the essenceSection 30 Arbitration Act 1940Section 33 Arbitration Act 1940Construction contract
Judgment
[2008] 7 3 C.R 970
A MIS. ASSOCIATED CONSTRUCTION
v.
PAWANHANS HELICOPTERS PVT LTD
(Civil Appeals Nos. 3376-3377 of 2008)
MAY 7, 2008
B
[TARUN CHATTERJEE AND HARJIT SINGH BEDI, JJ.]
Arbitration - Award - Challenge to - Held: The Court
does not sit in appeal over an arbitral award - If view taken by
c arbitrator permissible, it cannot be interfered with, on the
premise that a different view is also possible - On facts. it
cannot be said that the arbitra! award was so unconscionable
that it required interference by Court
Contract - For construction work - Between Appellant
D and Respondent-Government undertaking - Delay in ..
complr->tion of work on account of reasons attributable to
Respondent - Respondent demanded "No Dues Certificate"
for release of payment - Appellant gave such certificate -
Claim towards escalation by Appellant - On facts held: Even
E assuming that there could be no price escalation during
pendency of the contract, such embargo could not be carried
beyond that period as time was essence of the contract- Plea
raised by Appellant that it issued "No Dues Certificate" under
duress not an after thought.
F Appellant-contracting firm entered into a contract for
construction work with the Respondent, a Government
of India undertaking. The construction work was
scheduled to be completed in 4 month but the Appellant
could not meet the deadline due to the fault of the
G Respondent. The Respondent demanded a "No Dues
Certificate" for release of payment. Appellant gave such
certificate allegedly "under duress" as it was in economic ..
distress. There was a disagreement between the parties
over the payment of bills. The matter was referred for
H 970
MIS ASSOCIATED CONSTRUCTION v. PAWANHANS 971
HELICOPTERS PVT LTD.
arbitration. The arbitral award passed was in favour of A
Appellant. on which the Respondent moved the High
Court. The Single Judge too held in favour of Appellant
stating that clauses 18 and 34 of the contract, when read
together, provided for the payment of escalation charges
...... as the work had not been completed within four months B
on account of the fault on the part of the Respondent and
that the said clauses did not prohibit such payment, more
particularly as time was essence of the contract and as the
contract was not on a fixed price, the prohibition of
escalation was, if at all, to be read during the period of c
contract only. The Single Judge also repelled the arguments
of the Respondent that after having submitted the final bill
on 25th October 1991, it was not open to the Appellant to
submit a second final bill on 2nd February 1993 by
observing that the payment received as a consequence of
D
the bills submitted on 25th October 1991, was "under
duress" and it is on that account that the App~llant had
given the aforesaid "No Dues Certificate". The Division
Bench of the High Court however set aside the order of
the Single Judge. Hence the present appeals.
E
Allowing the appeals, the Court
HELD:1.1. Clause 43 and 43 (1) and (2) of the contract
in question when read together clearly visualize escalation
of price on account of reasons beyond the control of the
~ .
contractor and attributable to the other side. Moreover, F
clause 43 (2) clearly states that the remedy under clause 43(1)
would be in addition to such other remedy that may be open
to the contractor under the other provisions. Clause 43
should be read in aid of the contractor as it clearly provides
for indemnity in case there was a delay in the completion of G
the work which could be attributable to the Respondent.
Further, even assuming for a moment that there could be
no price escalation during the period of 4 months i.e. during
the pendency cf the contract, such embargo would not be
carried beyond that period as time was the essence of the H
972 SUPREME COURT REPORTS [2008] 7 S.C.R.
A contract. [Paras 7, 11] [981-C,D, 984-F,G]
1.2. The Court does not sit as one in appeal over the
award of the arbitrator and if the view taken by the
arbitrator is permissible, no interference is called for on
the premise that a different view was also possible. Also,
8 in commercial transactions, all situations cannot be
visualized and the positive and unchallenged finding in
the present case is that the delay in the execution of the
work was occasioned on account of reasons attributable
the to Respondent. It cannot, therefore, be said that the
C award of the arbitrator was so unconscionable that it
required interference. [Para 7] [981-D,E,F,G]
1.3. It was open to the Appellant-contractor to
contend that it was liable to be compensated on account
D of the fact that delay had been occasioned on account of
reasons attributable to Respondent. [Para 1O] [984-E] ..
MCD v M!s.Jagan Nath Ashok Kumar & Anr. (1987) 4
SCC 497; PM.Paul v. Union of India (1989) Supp 1 SCC 368
and K.N.Sathyapalan (0) By Lrs. v. State of Kera/a & Anr.
E (2006) 12 SCALE 654- referred to.
2.1. The desperate tone of the Appellant-contractor
is supported by the letter of 10th January 1991 in which it
was noted that though repeated requests had been made
for the payment atleast against the bills certified by the
F Architect, a huge amount had been blocked arbitrarily over
a long period of time and a request was made for its
release. The letter dated 21st November 1991 is again a
reminder to the Respondent asking for payment and that
in case there was a dispute, the matter be referred to the
G arbitrator and submitting that payment should be made
atleast with respect to those dues which had been
certified by the Architect. The letter dated 9th December
1991 from Respondent to the contractor shows that
payment could be considered provided the contractor
H submitted a "No Claim Certificate". It appears that such
MIS. ASSOCIATED CONSTRUCTION v. PAWANHANS 973
HELICOPTERS PVT LTD.
certificate was indeed issued but with no result on which A
the contractor in his letter dated 26th December 1991 in
reply to the letter dated 9th December 1991, once again
submitted that the payments be released in so far as they
had been certified by the ArchitectsfConsultants and if
,_ there was a dispute regarding the other payments, they B
should be referred to an arbitrator. When no action was
taken, another letter dated 5th May 1992 was addressed
to Respondent by the contractor stating that as they were
facing economic duress on account of the payment being
held back, and as a "No Claim Certificate" had been c
issued, the payment be defrayed as promised or else they
might have to refer the matter to the arbitrator. [Paras 12,
15] [985-E,H, 986-A,F,G]
2.2. It appears however that no steps were taken on
. which the contractor addressed a letter dated 2nd D
February 1993 for payment of dues and again stated that
if the payment was not made, the dispute should be
referred to the arbitrator. In response to this letter,
Respondent in its letter dated 9th February 1993 replied
that the matter was under scrutiny and it would take about E
2 months for verification and that the contractor would
be informed in due course. As no reply was received, a
letter dated 21st May 1993 was addressed by the
contractor relating to the undertaking that the enquiry
would be completed within 2 months but complaining that F
nothing had been done and on the contrary on 8th June
1993 the claim for any payment was rejected by
Respondent observing that as a "No Dues Certificate" had
been submitted by the contractor, the question of any
balance payment being due did not arise. It is at this stage
G
that the contractor had invoked the clause for arbitration.
The correspondence shows that the contractor was
> compelled to issue a "No Dues Certificate" and in this view
of the matter, it could not be said that the contractor was
bound by what he had written. It is also clear that there is
H
974 SUPREME COURT REPORTS (2008] 7 S.C.R
A voluminous correspondence over a span of almost 2
years between the submission of the first final bill on 3rd
June 1991 and the second final bill dated 2nd February
1993 and as such the claim towards escalation or the plea
of the submission of a "No Dues Certificate" under duress
B being an after thought is not acceptable. [Para 16] [987 - .•
B-G]
Mis. Ambica Construction v. Union of India (2006} 12
SCALE 149 - referred to.
c 3. In the facts and circumstances of the case, in that
Respondent has taken advantage of a beleaguered
contractor, and has behaved in a most unbecoming
manner in pushing it ever deeper into the chasm, the
Appellant-contractor will have its costs which are
computed at Rs.10,000/- [Para 17] [988-F,G]
0
CIVIL APPELLATE JURISDCTION : Civil Appeal Nos.
3376-3377 of 2008
From the Judgment & Order dated 7.6.2007 0f the High
E Court of Bombay in Appeal No. 840/1999 in Arbitration Petition
No. 106 of 1997 and Appeal No. 1455/1999 in Arbitration
Petition No. 108 of 1997
Shyam Divan, Ajay Kumar, Richa Srivastava and lndu
Sharma for the Appellant.
F Raju Ramachandran, J. Buther, Amit Kumar, Geeta Kalra
and Susmita Lal for the Respondent.
The Judgment of the Court was delivered by
HARJIT SINGH BEDI, J. 1. Leave granted.
G
2. The respondent, Pawanhans Helicopters Pvt. Ltd.
(hereinafter called "Pawanhans") a Government of India
undertaking, floated two tenders for allocation of work for
construction of a compound wall and a bridge over a nala.
H Pursuant to the aforesaid information, several tenders were
MIS. ASSOCIATED CONSTRUCTION v. PAWANHANS 975
HELICOPTERS PVT LTD. [HARJIT SINGH BEDI, J]
•
received and the tenders of the appellant (hereinafter called the A
"contractor") were ultimately accepted. Pursuant to the aforesaid,
two formal agreements providing for the terms and conditions
of the contract in the shape of general conditions of the contract
and special conditions of the contract governing the execution
... of work were duly signed on 12th October 1999. As per the B
contract the work was required to be completed within four
months. It appears that on account of some delay which was
attributable to Pawanhans, the work did not proceed as per
schedule and the contractor accordingly informed Pawanhans
by letters dated 15th February 1990, 23rd February 1990, 24th c
March 1990, 26th June 1990 and 6th July 1990 that the work
was getting delayed as the requisite facilities for its completion
had not been provided and highlighting several factors
attributable to it had supervened which had led to the delay. The
contractor also in the meanwhile vide letters dated 27th July 1990
D
and 6th August 1990 requested the respondent to release the
outstanding bills against the work already completed and also
requested for the "Virtual Completion Certificate" vide letter
dated 25th August 1990. As some work on the compound wall
still remained to be completed, the contractor agreed to take
up this assignment subject to waiver of the discount of 8.2% E
which was to be given to Pawanhans till then and the completed
works were duly handed over to Pawanhans on the 12th
November 1990. The contractor had also submitted a bill dated
23rd June 1991 and it was conveyed to Pawanhans that it
expected compensation on account of the variation in the terms F
of the contract. Pawanhans thereupon advised the contractor
to submit a final bill which too was submitted. The bill was
verified by Pawanhans and referred to the contractor yet again
with objections. The contractor vide letter dated 21st November
1991 disputed the verification as being without any foundation G
and also reserved its right to seek arbitration. After a protracted
correspondence, Pawanhans vide letter of 9th December 1991
' advised the contractor to submit a "No Claim Certificate" as a
pre-condition for the release of the balance payment. The
contractor wrote to Pawanhans that it was in dire need of H
976 SUPREME COURT REPORTS [2008] 7 S.C.R.
•
A finances and was being subjected to duress but nevertheless
submitted a "No Dues Certificate" dated 17tn February 1992
once again specifically highlighting that the same was being
issued under duress. It appears that despite the issuance of
the aforesaid certificate, Pawanhans still did not release the
B payment on which the contractor wrote another letter dated 5th ..
May 1992 and several letters thereafter but again to no effect,
and on the contrary received a letter dated sth June 1992 from
Pawanhans asking for a "No Dues Certificate" as per the
enclosed specimen without attaching any condition to the same.
c The contractor, now in a desperate situation, submitted yet
another "No Claim Certificate" dated 18th June 1992 as per
directions. After receiving the aforesaid document, Pawanhans
in its letter dated 9th February 1993 informed the contractor that
a period of two months would be required for the scrutiny of its
bills and vide letter dated 21st May 1993 also intimated that the
D
bills had been submitted for verification by the ArchitecUEngineer
..
as per the terms of the contract and that ;n case it was willing to
defray the payment, the matter could be referred to arbitration.
The contractor finally received a communication dated ath June
1993 pointing out that as all payments due under the contract
E
had been made and as a "No Dues Certificate" had been
furnished, no further amount was due. The contractor accordingly
served a notice dated 28th June 1993 on Pawanhans invoking
the clause relating to arbitration. The matter was referred to
arbitration by two registered Architects as per the clause. The
F contractor submitted its statement of claim for the outstanding •
amount plus compensation and damages on 5th August 1994.
The arbitrators passed two awards on 31st December 1996,
one with respect to the contract for the compound wall and the
second for the construction of the bridge awarding certain
G amounts to the contractor. Aggrieved by the awards, Pawanhans
filed two separate petitions under sections 30 and 33 of the
Arbitration Act, 1940 before the Bombay High Court for a
direction that the awards be set aside.
The learned Single Judge in his judgment and order dated
H
MIS. ASSOCIATED CONSTRUCTION v. PAWANHANS 977
HELICOPTERS PVT LTD. [HARJIT SINGH BEDI, J.]
9th December 1998 held that clauses 18 and 34 of the contract A
when read together, provided for the payment of escalation
charges as the work had not been completed within four months
on account of the fault on the part of the respondent and that the
said clauses did not prohibit such a payment, more particularly
as time was the essence of the contract and as the contract B
was not on a fixed price, the prohibition of escalation was if at
all to be read during the period of contract only. The learned
Single Judge also repelled the arguments of the respondent
that after having submitted the final bill on 25th October 1991, it
was not open to the appellant herein to submit a second final c
bill on 2nd February 1993 by observing that the payment
received on the 4th July 1993 as a consequence of the bills
submitted on 25th October 1991, was under duress and it is on
that account that the appellant had given the aforesaid
certificate. Some objections raised by the respondent herein
D
were however accepted by the learned Single Judge and the
award was acc0rdingly modified and it is the admitted case
that the aforesaid modification has been accepted and was not
challenged before the Division Bench by the contractor.
2. Two appeals were thereafter filed by Pawanhans before E
the Division Bench of the Bombay High Court. The Division
Bench vide its order dated 7th June 2007 allowed the appeals
and set aside the order dated 9th December 1998 of the learned
Single Judge as also the two awards dated 31st December 1996
by highlighting as a preface that it could not be disputed that the F
scope for interference by the court under section 30 or 33 of the
" Arbitration Act was limited as the court could not sit as a court
of appeal on the decisions arrived at by the arbitrator. The Court
then applied the aforesaid principle to the facts of the case and
relied on clauses 18 and 34 ibid observed that a plain reading
G
of the said clauses did not visualize any claim for escalation or
reduction towards the cost of the work and again reiterated that
>· clause 34 of the agreement prohibited the contractor from
claiming any extra amount on account of fluctuation of price.
The Court further observed, somewhat in contradiction, that a
H
978 SUPREME COURT REPORTS [2008] 7 S.C.R
•
A remedy towards the escalation of price had been provided by
clause 43 of the contract and clause 43-1 (E) specifically
provided, the procedure whereby such a claim could be made
and as the procedure prescribed by the clause had not been
adopted, it was not open to the contractor to contend before the
B arbitrator that it was entitled to some payments on account of
price escalation. The Court finally concluded that:
"Once it is clear that the respondents are not entitled to
claim escalation charges and the entire dispute, which is
the subject matter of the appeals being related to the
c escalation charges, the impugned orders, to the extent
they confirm the award in relation to the escalation
charges, are liable to be set aside and the petitions filed
by the appellants challenging the awards in relation to the
grant of the escalation charges are liable to be allowed to
D that extent. Consequently, the claims for interest on the
amount of darrages awarded towards the escalation arP
also liable to be set aside."
3. The Division Bench then examined the is:?.ues raised
E by the contractor as to whether that "No Due Certificate" had
been given under duress and held that there was no evidence
to show that the said certificate had been given under duress or
coercion and as the certificate itself provided a clearance of no
dues, the contractor could not now turn and say that any further
payment was still due on account of the second final bill. The
F Division Bench accordingly allowed the appeal. The matter is
before us in these circumstances.
4. Mr. Shyam Divan, the learned senior counsel for the
contractor, has raised several arguments before us during the
G course of the hearing. He has first pointed out that the awards
rendered by the arbitrator were non-speaking and in this view
of the matter, the scope for judicial interference was extremely
limited and interference with the findings of the Arbitrators was.
therefore not called for. He has also pleaded that clauses 18
H and 34, as per their plain interpretation themselves visualized a
M/S. ASSOCIATED CONSTRUCTION v. PAWANHANS 979
HELICOPTERS PVT LTD. [HARJIT SINGH BED!, J]
'
claim for escalation where the delay had been caused by the A
opposite party and that in any case, the bar on the escalation, if
at all, could be restricted only for the period of contract i.e. four
months and not thereafter. He has also submitted that clause
~
43-1 (C) on which reliance had been placed by the Division
... Bench for non-suiting the contractor, was misplaced as this B
clause too did not specifically or even by implication whittle down
the effects of clauses 18 and 34. It has also been argued that
the finding of the Division Bench that there was no duress on
the contractor relating to the issuance of the "No Claim
Certificates" was incorrect in the light of the voluminous evidence c
to the contrary on record.
5. Mr. Raju Ramachandran, the learned senior counsel
appearing for Pawanhans has fairly and at the very outset
pointed out that the award in question was non-speaking and
. as such the scope for interference by the court was limited. He
has further rontended that it would perhaps be difficult to read
D
into the clauses a complete bar towards escalation, as a court
would be reluctant to visualize such a bar in the light of some
·unforeseen situations that might arise in the execution of a work
and the gates, thus, could not for ever be closed, but has E
submitted that clause 43 provided for such an opening and as
this procedure had not been adopted by the contractor, the claim
under clauses 18 and 34 was not maintainable. He has also
... submitted that the "No Dues Certificate" having once being given
by the contractor, it was not open to it to make a volte-face and F
to challenge the said certificate on the ground that it had been
" given under duress and the finding of the Division Bench on this
point was, therefore, correct.
6. We have heard the learned counsel for the parties and
gone through the record. As would be apparent, the matter would G
rest on an interpretation of clauses 34, 43 (1) .and (2) of the
General Conditions of the Contract and clause 18 of the Special
>
Conditions of the Contract. We reproduce herein below the
clauses abovementioned:
H
980 SUPREME COURT REPORTS [2008] 7 S.C.R.
•
A "34. The contractor shall not claim any extras for fluctuation
of price and the contract price shall not be subject to any
rise or fall of prices.
43 (1) E. Architect's instructions issued in regard to the
postponement of any work to be executed under the
B provisions of this contract; and if the written application is
made within a reasonable time of it becoming apparent
that the progress of the work or of any part thereof has
been affected as c.foresaid:
c Then the Architect shall ascertain the amount of such loss
and/or expenst: Any amount from time to time so
ascertained shall be added to the amount which would
otherwise be stated as due in such certificate.
43 (2) The provisions of this condemn are without prejudice
D to any other rights and remedies which the contractor may
possess.
18. It is specifically pointed out that the contractor shall not
be entitled to any compensation whatsoever on account
of:
E
1. Any delay in supply of any material.
2. Any increase in costs of any material.
3. Any subsequent increase in cost of any material due
F to increase in other charges like Railway, Steamer,
freights or taxes and duties. •
4. Any increase in labour costs."
7. We have examined the arguments raised by the learned
G counsel in the light of the aforesaid and other provisions. It is
the admitted position that as per clause 38, the date of the
commencement of the contract was 1st November. 1989 and
the date stipulated for the completion of the work was 28 1h
February 1990. It is also clear from sub-clause (7) of clause 1
H of the General Conditions that time would be the essence of the
M/S. ASSOCIATED CONSTRUCTION v. PAWANHANS 981
HELICOPTERS PVT. LTD. [HARJIT SINGH BEDI, J.]
contract. We also see from clause 43 aforequoted that this A
clause has within itself the clear indication that the embargo
placed by clauses 18 and 34 was not sacrosanct as has been
found by the Division Bench as there could be a situation where
the contractor had suffered loss for whatever reasons which was
.. required to be reimbursed as per procedure prescribed in clause
43. Clause 43 (2) also specifically provided that clause 43 was
B
without prejudice to any other rights and remedies that the
contractor might possess. We find from a reading of the judgment
of the Division Bench that the contractor has been non-suited
on the plea that it had failed to proceed under clause 43. On the c
contrary we believe that Clause 43 is a clause which should be
read in aid of the contractor as it clearly provides for indemnity
in case there was a delay in the completion of the work which
could be attributable to Pawanhans. We are, further, of the
opinion that even assuming for a moment that there could be no
D
~
Jo price escalation during the period of 4 months i.e. during the
· pendency of the contract, such embargo would not be carried
beyond that period as time was the essence of the contract.
The learned Division Bench has relied upon a large number of
judgments in support of its decision that in case of a clause
barring the escalation in the price, it was not open to the E
contractor to claim any amount under that head. A perusal of the
aforesaid judgments, however, do not show any provisiori in
terms of clause 43, and that in any case, these judgments pertain
to a claim of price escalation during the period of contract. It
must also be borne in mind that a, court does not sit as one in F
appeal over the award of the arbittator and if the view taken by
the arbitrator is permissible, no interference is called for on the
premise that a different view was also possible. We also feel
that in commercial transactions all situations cannot be
visualized and the positive and unchallenged finding in the G
present case is that the delay in the execution of the work was
occasioned on account of reasons attribtitable to Pawanhans.
> It cannot, therefore, be said that the award of the arbitrator was
so unconscionable that it required interference. In MCD vs. Ml
sJagan Nath Ashok Kumar & Anr (1987) 4 SCC 497, it was H
982 . SUPREME COURT REPORTS [2008] 7 S.C.R.
•
A observed thus:
"In this case:, there was no violation of any principles of
natural justice. It is not a case where the arbitrator has
refused cogent and material factors to be taken into
e;onsideration. The award cannot be said to be vitiated by
B
non-reception of material or non-consideration of the
relevant aspects of the matter. Appraisement of evidence
by the arbitrator is ordinarily never a matter which the
court questions and considers. The parties have selected
their own forum and the deciding forum must be conceded
c the power of appraisement of the evidence. In the instant
case, there was no evidence of violation of any principle
of natural justice. The arbitrator in our opinion is the sole
judge of the quality as well as quantity of evidence and it l
/'
will not be for this Court to take upon itself the task of
·~
D being a judge of the evidence before the arbitrator. It may ...
be possible that on the same evidence the court might
have arrived at a different conclusion than the one arrived
at by the arbitrator but that by itself is no ground in our view
for setting aside the award of an arbitrator." and further
E concluded:
"After all an arbitrator as a judge in the words of Benjamin
N. Cardozo, has to exercise a discretion informed by
tradition, methodized by analogy, disciplined by system,
and subordinated to "the primordial necessity of order in
F the social life''. •
8. PM.Paul vs. Union of India (1989) Supp 1 SCC 368 is
a case which is almost identical on facts. In this matter the work
could not be completed during the period of the contract anc
G the contractor was accordingly granted extension of time to
complete the same. By an order of this Court, the dispute was
referred to an Arbitrator on the reference as to who was
responsible for the delay in the completion of the work, what
•
were to be the repercussions of the delay and how to apportion
the responsibility and the consequences. The arbitrator made
H
M/S. ASSOCIATED CONSTRUCTION v. PAWANHANS 983
HELICOPTERS PVT LTD. [HARJIT SINGH BED!, J.]
an award in favour of the contractor which was duly challenged A
by the Union of India with the matter finally reaching this Court at
the instance of the contractor and this is what the Court had to
say.
"It was submitted that if the contract work was not
completed within the stipulated time which it appears was 8
not done then the contractor has got a right to ask for
extension of time, and he could claim difference in price.
This is precisely what he has done and has obtained a
portion of the claim in the award. It was submitted on
behalf of the Union of India that failure to complete the C
contract was not the case. Hence, there was no substance
in the objections raised. Furthermore, in the objections
raised, it must be within the time provided for the
application under Section 30 i.e., 30 days during which
. the objection was not specifically taken, we are of the D
opinion that there is no substance in this objection sought
. to be raised in opposition to the award. Once it was found
that the arbitrator had jurisdiction to find that there was
delay in execution of the contract due to the conduct of the
respondent, the respondent was liable for the E
consequences of the delay, namely, increase in prices.
Therefore, the arbitrator had jurisdiction to go into this
question. He has gone into that question and has awarded
as he did."
9. A similar view has been taken by this Court in F
K.N.Sathyapalan (D) By Lrs. vs. State of Kera/a & Anr. (2006)
12 SCALE 654. It has been held as under:
"We have. intentionally set out the background in which the
Arbitrator made his award in order to examine the G
genuineness and/or validity of the appellant's claim under
those heads which had been allowed by the Arbitrator. It
is quite apparent that the appellant was prevented by .
unforeseen circumstances from completing the work within·.
the stipulated period of eleven month and that such delay·.·
. .'.··H
984 SUPREME COURT REPORTS [2008] 7 S.C.R.
A could have been prevented had the State Government
stepped in to maintain the law and order problem which
had been created at the work site. It is also clear that the
rubble and metal, which would have been available at the
departmental quarry at Mannady, had to be obtained from
B quarries which were situated at double the distance, and
even more, resulting in doubling of the transportation
charges. Even the space for dumping of excess earth
was not provided by the respondents which compelled
the appellant to dump the excess earth at a place which
c was for away from the work site entailing extra costs for
the same.
In the aforesaid circumstances, the Arbitrator appears
to have acted within his jurisdiction in allowing some of
the claims on account of escalation of costs which was
D referable to the execution of the work during the extended
period, In our judgment, the view taken by the High Court
was on a rigid interpretation of the terms of contract and
the Supplemental Agreement executed between the
parties, which was not warranted by the turn of events."
E
10. We are, therefore, of the opinion in the light of the
aforesaid judgments, that it was open to the contractor to
contend that it was liable to be compensated on account of the
fact that delay had been occasioned on account of reasons
attributable to Pawanhans. It is significant that the Division
F Bench of the High Court has been silent on this aspect of the
matter and has not referred to the finding of the learned Single
Judge with regard to the responsibility for the delay.
11. We are further of the opinion that clause 43 and 43 (1)
G and (2) when read together clearly visualize escalation of price
on account of reasons beyond the control of the contractor and
attributable to the other side. Moreover clause 43 (2) clearly
states that the remedy under clause 43(1) would be in addition
to such other remedy that may be open to the contractor under
H the other provisions.
M/S. ASSOCIATED CONSTRUCTION v. PAWANHANS 985
HELICOPTERS PVT LTD. [HARJIT SINGH BEDI, J.]
12. We have also gone through the record with respect to A
the finding of the Division Bench that there was no duress or
coercion on the contractor which had compelled it to give a "No
Dues Certificate". Mr. Raju Ramachandran has, however,
submitted that the story about duress was an after thought in
the background that the first final bill had been submitted by the B
contractor on the 3rd June 1991 and the second final bill on 2nd
February 1993 i.e. almost 2 years later and that in any case, a
second final bill was not visualized under the contract. He has
submitted that the observation of the arbitrator that submission
of the second final bill was sanctioned as a trade practice was c
without any basis. We have gone through the record in the light
of the submissions of the learned counsel. We first refer to the
letter of the contractor of 11th July 1990 to which reference has
been made by the Division Bench requesting Pawanhans to
ensure a regular power supply. The letter of 27th July 1990 by
0
the contractor refers to the statement of accounts submitted by
it and requests for payment as per the accounts which had been
cleared by the Architect. It is to be noted that these letters are
on the record and were written by the contractor at the time when
the work was in the process of completion. The desperate tone
of the contractor is however supported by the letter of 1oth E
January 1991 in which it was noted that though repeated
requests had been made for the payment atleast against the
bills certified by the Architect, a huge amount had been blocked
arbitrarily over a long period of time and a request was made
for its release. The letter dated 21st November 1991 is again a F
reminder to Pawanhans asking for payment and that in case
there was a dispute, the matter be referred to the arbitrator and
submitting that payment shou Id be made atleast with respect to
those dues which had been certified by the Architect. The letter
dated 9th December 1991 from Pawanhans to the contractor G
shows that payment could be considered provided the contractor
submitted a "No Claim Certificate". It appears that such
certificate was indeed issued but with no result on which the
contractor in his letter dated 25th December 1991 in reply to the
letter dated 9th December 1991, once again submitted that the H
986 SUPREME COURT REPORTS [2008] 7 S.C.R.
A payments be released in so far as they had been certified by
the Architects/Consultants and if there was a dispute regarding
the other payments, they should be referred to an arbitrator and
in desperation further adds:
"However, if you want to hold us to economic duress by
B not paying what you wish to pay, without "No Claim
Certificate", we shall treat it as "Duress" and issue you
such a certificate much against our willingness as we
cannot afford to liquidate our dues by such a certificate.
c Please do not hold us to a ransom and arrange to pay. In
case you would still like to insist, let us know, so that we could
issue you such a certificate under duress as we have serious
financial problems."
14. It appears that despite the pleading tone of the .
;D aforesaid letter no payment was made on which the contractor
wrote yet another letter dated 17th February 1992 in which it
was submitted as under:
"lnspite of our claim statements, you have insisted on "No
Claim Certificate", we hereby give you this certificate that
E
we have "No Claims" and hence you pay us what you
might have worked out as our "Final Dues".
In case, you have a particular draft in which a "No Claim"
Certificate need be issued to receive our dues of our bill,
F please let us have the deft, or else this letter may be treated
as the certificate of "No Claim" from our side."
15. When no action was taken, another letter dated 5th
May 1992 was addressed to Pawanhans by the contractor
stating that as they were facing economic duress on account of
G the payment being held back, and as a "No Claim Certificate"
had been issued, the payment be defrayed as promised or else .
they might have to refer the matter to the arbitrator. The letter
dated 3th June 1992 is again tell-tale and we reproduce the
contents hereunder:
H.
M/S. ASSOCIATED CONSTRUCTION v. PAWANHANS 987
HELICOPTERS PVT LTD. [HARJIT SINGH BEDI, J.]
"Kindly let us know what is it that we have to do to get A
money which you say is payable but only on your extracting
"No Claim" certificate under duress. Please take note if
you fail to pay us our dues, we shall be constrained to take
you to court for which you will blame yourself if it
inconvenience is caused. It is a clear 15 days notice B
please."
16. It appears however that no steps were taken on which
the contractor addressed a letter dated 2nd February 1993 for
payment of dues and again stated that if the payment was not
made, the dispute should be referred to the arbitrator. In c
response to this letter, Pawanhans in its letter dated 9th February
1993 replied that the matter was under scrutiny and it would
take about 2 months for verification and that the contractor would
be informed in due course. As no reply was received, a letter
... dated 21st May 1993 was addressed by the contractor relating D
to the undertaking that the enquiry would be completed within 2
months but complaining that nothing had been done and on the
contrary on gth June 1993 the claim for any payment was rejected
by Pawanhans observing that as a "No Dues Certificate" had
been submitted by the contractor, the question of any balance E
payment being due did not arise. It is at this stage that the
contractor had invoked the clause for arbitration. We have
reproduced the correspondence in extenso to show that the
contractor was compelled to issue a "No Dues Certificate" and
in this view of the matter, it could not be said that the contractor F
was bound by what he had written. It is also clear that there is
voluminous correspondence over a span of almost 2 years
between the submission of the first final bill on 3rd June 1991
and the second final bill dated 2nd February 1993 and as such
the claim towards escalation or the plea of the submission of a
G
"No Dues Certificate" under duress being an after thought is
"
.. not acceptable. In Mis. Ambica Construction vs. Union of India
{2006) 12 SCALE 149 it was observed as under:
"A glance at the said clause will immediately indicate that
a No Claim Certificate is required to be submitted by a H
988 SUPREME COURT REPORTS [2008] 7 S.C.R.
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,
•
B
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
c 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
•
D 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 case
E 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."
17. We are therefore of the opinion that the judgment of
F the Division Bench is erroneous and we accordingly set it aside. '
The judgment of the learned Single Judge is accordingly
restored. In the facts and circumstances of the case, in that
Pawanhans has taken advantage of a beleaguered contractor,
and has behaved in a most unbecoming manner in pushing it
G ever deeper into the chasm, the contractor will have its costs
which are computed at Rs.10,000/-. The appeals are accordingly
allowed.
B.B.B. Appeals allowed.
H
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