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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
ARBITRATION PETITION NO. 36 OF 2007
Kabra Extrusiontechnik Ltd. )
Having Registered Office at )
Kolsite House, Veera Desai Road )
Andheri (West), P.O. Box 11902 )
Mumbai 400 053. ).. PETITIONER
Versus
1) National Insurance Company Ltd. )
A Government of India Undertaking )
Having registered office at 3, Middleton )
Street, Kolkata 700 071 )
2) Divisional In-Charge )
National Insurance Co. Ltd. )
Having address at Mangala Chambers )
GIDC - Char Rasta Vapi 396 195 ).. RESPONDENTS
Mr Ragesh S Mehta i/b Ms Purnima G Bhatia for the Petitioner.
Mr S M Vidyarthi for the Respondents.
CORAM : SWATANTER KUMAR, C.J.
JUDGMENT RESERVED ON : 20TH MARCH 2009
JUDGMENT PRONOUNCED ON : 26TH MARCH 2009
JUDGMENT
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The Petitioner had taken a Fire and Special Perils Policy
of Rs. 56.74 crores, Exhibit “A” to the Petition. The premium of
Rs.9,57,771/ was paid and the policy became effective from 1st
August 2004. The arbitration clause, namely, Clause 13, of the
Policy reads as under :-
“13. If any dispute or difference shall arises as to
the quantum to be paid under this policy (liabilitybeing otherwise admitted) such difference shall
independently of all other questions be referred to
the decision of a sole arbitration to be appointed inwriting by the parties to or if they cannot agree upon
a single arbitration within 30 days of any party
invoking arbitrators, the same shall be referred to a
panel of three arbitrators, comprising of twoarbitrators, one to be appointed by each of the
parties to the dispute/difference and the thirdarbitrator to be appointed by such two arbitrators
and arbitration shall be conducted under and in
accordance with the provisions of the Arbitration
and Conciliation Act, 1996.
It is clearly agreed and understood that no
difference or dispute shall be referable to arbitration
as hereinabove provided, if the Company has
disputed if not accepted liability under or in respectof this policy.
It is hereby expressly stipulated and declared that it
shall be a condition precedent to any right of action
or suit upon this policy that the award by such
arbitrator/arbitrators of the amount of the loss or::: Downloaded on – 09/06/2013 14:27:41 :::
3damage shall be first obtained.”
2. On 2nd/3rd August 2004, there were heavy rains in and
around Daman and there were un-manageable floods. Water from
the Daman dam was released to prevent adverse effect on it and due
to which large number of areas of Daman were under water to the
extent of 18 feet above the ground level. Several factories, buildings,
plants were damaged. Amongst others, the factory, building, plant
and machinaries and goods of the Petitioner were also under water
which caused tremendous loss to the Petitioner. Resultantly, on 3rd
August 2004, the Petitioner gave an intimation to the Respondents
and lodged its claim for Rs.20,86,20,974/- under the Policy. The
Respondents appointed Bhatawadekar & Co., and Mehta &
Padamsey Pvt. Ltd. as joint Surveyors. On 5th August 2004, the
Surveyors visited the site and prepared their interim report and on 21st
September 2005 submitted their final survey report. Against the claim
of the Petitioner for the above amount, in the final survey report, the
Surveyors recommended Rs.16,11,59,530/-. It may also be noticed
that vide an interim report the Surveyors had recommended payment
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of Rs.8 crores as interim payment. After submission of the survey
report, the amounts due to the Petitioner were not cleared. Thus, vide
letter dated 4th November 2005 the Petitioner requested the
Respondents for settling the claim which was followed by reminders.
Some on account payments were made and on 31st January 2007 the
Respondents made the final payment, thus making a total payment of
Rs.15,31,28,520/-. On or about 30th January 2007, the Respondents
issued a format of declaration which was to be furnished by the
Petitioner before the payment to it could be released. This format
stated that the payment of Rs.15,31,28,529/- was being offered was
accepted by the Petitioner in full and final settlement of the claim. This
declaration was submitted and the final payment was thereafter
released in favour of the Petitioner totalling to Rs.15,32,84,353/-.
Vide letter dated 7th February 2007 the Petitioner acknowledged the
receipt of the said payment and raised a protest that the deduction of
the claim in any case to the extent of Rs.80,43,634/- was unjust and
unfair and that amount had been approved by the Surveyors and
asked for the reasons for which the claim was denied. Not only this,
the Petitioner was also called upon to file a declaration which was
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filed on a stamp paper stating that to be full and final settlement and
that it will not raise any claim. With reference to its earlier
correspondence, vide its letter dated 26th February 2007, the
Petitioner invoked the arbitration agreement and requested that its
claim settlement be referred to Arbitration in accordance with the
arbitration clause. Vide letter dated 14th March 2007, the
Respondents expressed inability to participate in the arbitration
proceedings as, according to them, the matter was fully and finally
settled and no arbitration could lie in face of the No Claim Certificate.
In fact, even vide their letter dated 16th August 2007, the Respondents
also stated that the payment had been accepted unconditionally and
as such no claim can be referred to Arbitration. Despite invocation of
the arbitration clause by the Petitioner, the Respondents having failed
to act, the Petitioner filed the present Petition under Section 11(6) of
the Arbitration and Conciliation Act, 1996.
3. In the reply filed on behalf of the Respondent – Insurance
Company – the main stand is that in face of the discharge voucher
and declaration having been filed in full and final settlement, the
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Petitioner cannot invoke the arbitration clause. It is also averred that
the payments were made on account and thereafter the final payment
was made as a consequence of the discussions and meetings held
between the parties on 8th November 2006 and 9th November 2006.
Thus, the Petitioner is estopped from raising any claim and in fact,
according to the Respondents, the claim raised is incorrect and is not
maintainable. The Respondents have relied upon the judgments of
the Supreme Court in the case of M/s P.K. Ramaiah and Company vs
Chairman & Managing Director, National Thermal Power Corpn., 1994
Supp. (3) SCC 126, and in the case of Nathani Steels Ltd. vs
Associated Constructions, 1995 Supp (3) SCC 324 in support of their
defence.
4. Before I proceed to discuss the merits of the case with
regard to the contentions raised, it will be useful to refer to the
judgment of the same date in the case of M/s Ashoka Buildcon Pvt. Ltd
vs Maharashtra State Road Development Corporation Ltd. and another,
Arbitration Petition No. 24 of 2007, where some of the identical
pleas were raised before the Court and after referring to the
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judgments of the Supreme Court as well as this Court, the Court took
the following view :-
“10. This Court in the case of National
Insurance Co. Ltd. (supra) had, after detaileddiscussion on the subject and referring to the
judgment of the Supreme Court, held as under :-
“7. The learned counsel appearing for the
applicant, while relying upon the judgment
of the Supreme Court in the case ofChairman and MD, NTPC Ltd. v. Reshmi
Constructions, Builders, and Contractors
(2004) 2 SCC 663, argued that the disputewith regard to the recording of full and
final settlement or complete discharge is a
question of fact, which can be gone into
by the arbitral tribunal itself and in that
regard arbitration clause can be invokedfor reference of that dispute. In that case
the Supreme Court was concerned
whether accordance of satisfaction under
the contract itself can be referred to the
arbitration and the question was answeredin the affirmative by the court and the
court held as under:
“Normally, an accord and satisfaction by
itself would not affect the arbitrationclause for even when rights and
obligation of the parties are worked
out, the contract does not come to
an end, inter alia, for the purpose of
determinatino of disputes arising
thereunder, and, thus, the arbitration::: Downloaded on – 09/06/2013 14:27:41 :::
8agreement can be invoked; but if the
dispute is that the contract itself doesot subsist, the question of invoking
the arbitration clause may not arise.
But in the event it be held that the
contract survives, recourse to the
arbitration clause may be taken.”
8. It may be noticed that the above
judgment pronounced by the Supreme
Court is prior to the law enunciated by
the Supreme Court in the case of S.B. P
& Co. Vs Patel Engineering and Ltd. Anr
– 2005(8) SCC 618. However, that itself
would be of no prejudice to the interest of
the applicant. There can be very serious
dispute with regard to the genineness
and effect of the discharge voucher to be
construed as full and final settlement,
leaving no scope for subsisting any
further dispute.
xxxxx xxxxx xxxxx
The question of coercion and undue
influence should be kept open in the
facts and circumstances of the case and
parties should be permitted to lead
evidence before the Arbitrator even on
this issue.”
11. This judgment of the Court was
assailed before the Supreme Court, where the
Supreme Court, in addition to the above, while
dismissing the Appeal, held as under:-
“18. What is however clear is when a
respondent contends that the dispute is not
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arbitrable on account of discharge of the
contract under a settlement agreement or
discharge voucher or no-claim certificate,
and the claimant contends that it was
obtained by fraud, coercion or under
influence, the issue will have to be decided
either by the Chief Justice/his designate in
the proceedings under section 11 of the Act
or by the arbitral Tribunal as directed by the
order under section 11 of the Act. A claim
for arbitration cannot be rejected merely or
solely on the ground that a settlement
agreement or discharge voucher had been
executed by the claimant, if its validity is
disputed by the claimant.
19. We may next examine some related and
incidental issues. Firstly, we may refer to
the consequences of discharge of a
contract. When a contract has been fully
performed, there is a discharge of the
contract by performance, and the contract
comes to an end. In regard to such a
discharged contract, nothing remains-
neither any right to seek performance nor
any obligation to perform. In short, there
cannot be any dispute. Consequently,
there cannot obviously be reference to
arbitration of any dispute arising from a
discharged contract. Whether the contract
has been discharged by performance or
not is a mixed question of fact and law, and
if there is a dispute in regard to that
question, that is arbitrable. But there is an
exception. 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
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not 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
charge 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. When we refer to a discharge of
contract by an agreement signed by both
parties or by execution of a full and final
discharge voucher/ receipt by one of the
parties, we refer to an agreement or
discharge voucher which is validly and
voluntarily executed. If the party who has
executed the discharge agreement or
discharge voucher, alleges that the
execution of such discharge agreement or
voucher was on account of fraud/coercion/
undue influence paracticed by the other
party and is able to establish the same,
then obviously the discharge of the contract
by such agreement/voucher is rendered
void and cannot be acted upon.
Consequently, any dispute raised by such
party would be arbitrable.”
20. While discharge of contract by performance
refers to fulfilment of the contract by
performance of all the obligations in terms
of the original contract, discharge by
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`accord and satisfaction’ refers to the
contract being discharged by reason of
performance of certain substituted
obligations. The agreement by which the
original obligation is discharged is the
accord, and the discharge of the
substituted obligation is the satisfaction. A
contract can be discharged by the same
process which created it, that is by mutual
agreement. A contract may be discharged
by the parties to the original contract either
by entering into a new contract in
substitution of the original contract; or by
acceptance of performance of modified
obligations in lieu of the obligations
stipulated in the contract. The classic
definition of the term `accord and
satisfaction’ given by the Privy Council in
Payana Reena Saminathan vs. Pana Lana
Palaniappa, 41 IA 142 (reiterated in
Kishorilal Gupta ) is 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
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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.”
12. In the case of M/s.Ambica Construction
(supra), the Supreme Court relied upon the
judgment of that Court in Reshmi Constructions,
Builders & Contractors (supra), where the Court,
while applying Maxim “Necessitas non habet legem”,
in respect of issuance of No Claim Certificate took
the view that it could no longer be said that such a
clause in the contract would be an absolute bar to
a contract rising claims which are genuine, even
after submission of such No Claim Certificate.”
5. In light of the above stated principles, reference to certain
specific facts as averred by the Petitioner particularly in paragraphs
18 and 19 of the Petition would be relevant. It has been stated
therein that in the month of January 2007 the Petitioner was orally
informed that the final instalment of the claim would be paid within
next few days in furtherance to which the Petitioner, vide letter dated
19th January 2007, had empowered Mr. Yogesh M Dave, Deputy
General Manager to accept the payment, but the payment was not
forthcoming. On 30th January 2007 the Respondents had asked for
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filing of the declaration as per the format given and at no point of time
the amount was mutually decided, but the declaration was obtained
under compulsive circumstances and the Petitioner had no choice but
to submit the declaration as large amounts were due from the
Respondents. The amount in paragraph 4 of the declaration was kept
blank which was ordered to be filled in subsequently, the amount
being Rs.15,32,84,353/-.
6. In reply to these two paragraphs, the allegations are
denied by the Respondent and it is stated that the Petitioner was
aware of the amount and declaration was necessary before the
payment was released. It is denied that the amount was informed to
them telephonically. Be that as it may, the fact of the matter is that
the format of the declaration was furnished by the Respondents to the
Petitioner. The parties are at serious dispute with regard to the
manner and method adopted for filing of declaration and as to
whether the declaration was as a result of a free will and voluntary
action on the part of the Petitioner. Another important facet of the
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case is that the Surveyors had approved the claim of the Petitioner to
the extent of Rs.16,11,59,530/- and there is no explanation on record
including the reply as to why the balance claim was denied and the
reasons thereof. As already noticed, from the judgment of the
Supreme Court in the case of Nathani Steels Ltd. (supra), the
Respondents can hardly derive any advantage as there the Court had
arrived at a finding of fact in that case that the settlement was not
questioned and was valid in law. As such, in face of the legal
settlement, reference to arbitration was not possible.
7. In the case of National Insurance Co. Ltd. vs M/s Boghara
Polyfab Pvt. Ltd (supra) the Supreme Court reiterated the principle that
when reference is made to a discharge of a contract by agreement
signed by the parties or by execution of a full and final discharge
voucher/receipt by one of the parties, such reference is to an
agreement or discharge voucher which is validly and voluntarily
executed. (Emphasis supplied). A voucher issued on account of
compulsion, more so when the company is in dominant position to
require execution of documents under the threat of non payment of
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legal dues payable to the Petitioner, would have the effect of
rendering the document being executed involuntarily. These matters
in any case can be gone into in a greater detail after the parties have
been granted opportunity to lead evidence before the Arbitrator. At
this stage, the Court is only concerned whether the arbitration
agreement between the parties is existing and binding. In fact, the
plea of extinguishment of liability has not even been raised in the
present Petition and the settlement voucher by itself would not have
the effect of taking away right of making an arbitration reference.
8. Consequently, this Petition is allowed leaving the parties
to bear their own costs. Mrs. Justice Sujata V. Manohar, former
Judge of the Supreme Court, is hereby appointed as Sole Arbitrator to
enter upon the reference and adjudicate the dispute between the
parties.
CHIEF JUSTICE
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uday/judgment/arb36-07.sxw
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