THE ORIENTAL INSURANCE CO. LTD. & ANR. versus DICITEX FURNISHING LTD.

[2019] 14 S.C.R. 389

THE ORIENTAL INSURANCE CO. LTD. & ANR.

DICITEX FURNISHING LTD.

(Civil Appeal No. 8550 of 2019)

NOVEMBER 13, 2019

[ARUN MISHRA AND S. RAVINDRA BHAT, JJ.]

Arbitration and Conciliation Act, 1996 – s.11(6) – Applicationunder, for appointment of arbitrator – Court’s jurisdiction to examinethe arbitrability of the dispute in the context of no objectioncertificates/discharge vouchers given by the insured to the insurerin discharge of the claim – Economic duress or coercion, if exists –In 2011, the respondent-insured obtained Standard Fire and SpecialPeril Policy from the appellant to cover the stocks of goods lying inits three separate godowns– Total sum insured was @ ` 13 crores–On 25.05.12, fire broke out destroying the stock in the godowns –Appellant appointed surveyor – Respondent lodged claim for ` 14.88crores – Surveyor recommended payment of ` 12.93 crores to therespondent– However, the appellant appointed new surveyor –Appellant released ` 3.50 crores on 04.03.13 – Respondent signedthe discharge voucher – As per new surveyor’s report, the assessmentworked to ` 7.16 crores which was offered to the respondent inMay 2014, in full and final settlement of the claim – Acceptedreluctantly by the respondent – By letter dtd. 06.06.14, the respondentwithdrew the letter dtd. 31.05.14 submitted along with the dischargevoucher for full and final settlement of the claim –Respondent informed the appellant that the huge difference betweenthe total amount claimed and the final claim settlement amount needsto be resolved, failing which the respondent would invoke thearbitration, as per the terms and conditions of the Policy –Respondent filed application u/s.11(6) for appointment of arbitrator– Allowed by Single Judge – On appeal, held: An aggrieved partycan be the victim of economic coercion which results in its signing adocument which discharges the other party of its obligations –Several letters spanning over two years stating that the respondentwas facing financial crisis on account of the delay in settling theclaim,were addressed to the appellant – Overall reading ofrespondent’s application u/s. 11(6) clearly shows that its grievance

Awith respect to the involuntary nature of the discharge voucher wasarticulated– At this stage, the Court is required to ensure that anarbitrable dispute exists, has to be prima facie convinced about thegenuineness/credibility of the plea of coercion – It cannot be tooparticular about the nature of the plea, which necessarily has to bemade and established in the substantive (arbitration) proceeding –BReasoning in the impugned judgment cannot be faulted.

Dismissing the appeal, the Court

HELD: 1.1 Proposition (iii) of the conclusions recorded inBoghara Polyfab visualize duress or coercion on account ofCwithholding of payments due. The court – in more places thanone, recognized that an aggrieved party can be the victim ofeconomic coercion which results in its signing document whichdischarges the other party of its obligations. [Para 18][410-C-D]

National Insurance Co. Ltd v Boghara Polyfab Pvt LtdD(2009) 1 SCC 267 : [2008] 13 SCR 638 – relied on.New Indian Assurance Co. Ltd v Genus PowerInfrastructure Ltd. (2015) 2 SCC 424 : [2014] 12 SCR360; Union of India (UOI) and Ors. v MasterConstruction Co. (2011) 12 SCC 349 : [2011] 5 SCRE853; Velugubanti Hari Babu v. Parvathini NarasimhaRao & Anr. (2016) 14 SCC 126 : [2016] 3 SCR 228;ONGC Mangalore Petrochemicals Ltd. v ANSConstructions Ltd. and Anr. (2018) 3 SCC 373 : [2018]2 SCR 598 – referred to.

F1.2 Though the pleadings in the initial application underSection 11(6), Arbitration and Conciliation Act, 1996 are weak,nevertheless, the materials on the record, in the form of copiesof the inter se correspondence of the parties– which span over 2years, clearly show that respondent kept repeatedly stating thatit was facing financial crisis; it referred to credits obtained for itsGbusiness and the urgency to pay back the bank. The Surveyor’sreport, dated 14.08.2014, recommended payment of` 12,93,26,704.98/- to respondent. The appellant referred thematter to chartered accountant’s firm, to verify certain inventoryand sales figures. It went by the report of the latter, who stated

that the estimate of loss could not be more than ` 7,16,30,148/-.This is what was offered to respondent, by May, 2014.Respondent’s application under Section 11(6) is replete withreferences to the number of letters written to the appellant,seeking release of amounts; it also averred to inability to pay itsincome tax dues, the pressure from bankers (in support of which,copies of letters of bankers were produced along with theapplication). [Para 19][410-H; 411-A-C]

1.3 An overall reading of respondent’s application (underSection 11(6)) clearly shows that its grievance with respect tothe involuntary nature of the discharge voucher was articulated.Several letters – spanning over two years- stating that it wasfacing financial crisis on account of the delay in settling the claim,were addressed to the appellant. An application under Section11(6) is in the form of pleading which merely seeks an order ofthe court, for appointment of an arbitrator. It cannot be conclusiveof the pleas or contentions that the claimant or the concernedparty can take, in the arbitral proceedings. At this stage,therefore, the court- which is required to ensure that an arbitrabledispute exists, has to be prima facie convinced about thegenuineness or credibility of the plea of coercion; it cannot betoo particular about the nature of the plea, which necessarily hasto be made and established in the substantive (read: arbitration)proceeding. If the court were to take contrary approach andminutely examine the plea and judge its credibility orreasonableness, there would be danger of its denying forumto the applicant altogether, because rejection of the applicationwould render the finding (about the finality of the discharge andits effect as satisfaction) final, thus, precluding the applicant ofits right event to approach civil court. There are decisions ofthis court (Associated Construction v Pawanhans Helicopters Ltd.(2008) 16 SCC 128 and Boghara Polyfab upheld the concept ofeconomic duress. Having regard to the facts and circumstances,this court is of the opinion that the reasoning in the impugnedjudgment cannot be faulted. [Para 21][412-D-H; 413-H]

Associated Construction v Pawanhans Helicopters Ltd.(2008) 16 SCC 128 – referred to.

Case Law Reference

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 8550Cof 2019.

From the Judgment and Order dated 13.10.2015 of the HighCourt of Judicature at Bombay in Arbitration Application No. 5 of 2015.

S. L. Gupta, Kuldep Singh Tomar, Asutosh Sharma, M. S. Mangla,Brahm Shankar Kumar, Neeraj Srivastava, Mataprasad Singh,DMs. Ranjana R. Singh, Varinder Kumar Sharma, Advs. for the Appellants.

Shrish Kumar Misra, Rajesh Mehta, Ms. Deepika Mishra, BimleshPandey, Advs. for the Respondent.

The Judgment of the Court was delivered by

ES. RAVINDRA BHAT, J.

1. Leave granted. With the consent of counsel, the appeal washeard finally. The Oriental Insurance Co. Ltd (hereafter “the insurer” or“the appellant”) appeals the decision of single judge of the BombayHigh Court, who allowed the respondent’s application under Section 11(6)Fof the Arbitration and Conciliation Act, 1996 (hereafter “the Act”) andappointed an arbitrator. The insurer’s objection about maintainability ofthe application on the ground that the respondent (hereafter “Dicitex”)had signed the discharge voucher and accepted the amount offered,thus, signifying accord and satisfaction, which in turn meant that therewas no arbitrable dispute, was rejected.G

2. The relevant facts in this appeal are that on 17.09.2011, Dicitexobtained Standard Fire and Special Peril Policy; it was issued by theappellant to cover the stocks of goods lying in its three separate godownslocated at Thane, Maharashtra, by three separate endorsements. Thetotal sum insured was @ ` 13 crores. Clause 13 of the terms and conditions

of the said policy contained an arbitration clause. On 25.05.2012, firebroke out at night on the ground floor of the building occupied by RFCL,which fire spread to the first floor of the building and completely engulfedall of the appellant’s three godowns which had stored its goods. All thestocks in all the three godowns were completely destroyed. Dicitexinformed the appellant on 26.05.2012, about the fire and the consequentialloss. The appellant appointed M/s. C.P. Mehta & Co. as Surveyors andAssessors to survey the loss suffered by Dicitex and to report on theclaim to be lodged upon the insurer-appellant, by the said company. Dicitexlodged total and final claim upon the appellant for sum of` 14,88,14,327/- comprising ` 13,52,85,752/- towards cost of the materialsdestroyed and ` 1,35,28,575/- as overheads. Dicitex claims also to havesubmitted comprehensive documentary evidence and detailed work sheetsin support of the claim made to the insurer. On 14.08.2012, after visitingDicitex’s factory and the godowns, and after scrutinizing the materialssubmitted by it in support of its claim, the Surveyor appointed by theinsurer filed Final Survey Report recommending that the claim be settledfor an amount of ` 12,93,26,704.98/- and that after deducting an amountof 5% towards compulsory deduction for excess, net amount of` 12,28,60,369/- be paid over to Dicitex. The latter alleged that copy ofthis survey report was not supplied to it, by the insurer, or the surveyor.3. On 20.09.2012, Dicitex addressed letter to the appellant’schairman, informing him of the financial distress that it was facing,requesting for settlement of the claim on priority basis. Dicitex alsoinformed him about temporary loan obtained -to the tune of 10 crores-from Union Bank of India for 3 months at high rate of interest whichwas due for repayment in September 2012 and requested him that itwould be great financial help if its claim could be settled on prioritybasis which would mitigate their hardship. Again, on 25.10.2012, Dicitexinformed the insurer that the sale value of the goods destroyed wasabove ` 19 crores and that it had not only lost its goods but also itsprofits. Dicitex informed that it had already submitted all the documentaryevidence supporting the claim to the Surveyor, M/s. C.P. Mehta & Co.,yet another letter was addressed to the appellant’s chairman on 31.10.2012placing on record that it had understood from the surveyor M/s. C.P.Mehta & Co. that the Head Office of the appellant asked for somemore information in connection with the claim. Dicitex stated thatcompiling, organizing and sending various documents totalling around35,000 in number, entailed voluminous work. It was stated that the

Asurveyor had already gone through those documents and had picked upat random, sample of various concerned records. Dicitex stated that itwas arranging to compile the documents and agreed to send them to thesurveyor as soon as possible. In other letters (dated 10.01.2012,28.01.2013), again requests were made to the insurer to release theamounts. Apparently, the appellant appointed Chartered AccountantB(M/s Naveen Jhand & Associates) to carry out resurvey of the claimmade by it (Dicitex). The latter had already furnished 37,700 documentsphysically, which showed the exact quantity of furnishing fabrics in meters.Dicitex brought to the notice of the Chairman-cum-Managing Directorthat the new surveyors had asked for large number of documents againCand such documents could not be supplied. On 09.02.2013, addressingthe new surveyor M/s Naveen Jhand, Dicitex submitted 37,700documents and submitted further documents to the said new surveyor.It submitted that since the previous 9 months, it had been providingdifferent documents/information to different people and submittedwhatever was requested by the new surveyor in broader form andDrequested them to submit their report at the earliest.

4. In accordance with the format sent by the insurer and afterobtaining Dicitex’s signature, cheque for ` 3.5 crores was handedover to it. Dicitex signed the discharge voucher on 04.03.2013, when theinsurer paid the said sum of ` 3.5 crores to Dicitex as ‘on accountEpayment’ in the matter of its claim. Union Bank of India endorsed thesaid discharge voucher. According to Dicitex, all data that wasrequisitioned by the new surveyor, was provided by it. Several meetingstook place between the representatives of the new surveyor, the appellantand Dicitex. Dicitex, mentioned several letters to the appellant, and thesurveyor, in 2013 regarding the release of the amounts. Dicitex had alsoFstated that it felt strongly that the new surveyor was just not satisfiedwith whatever was provided by it though all the data it submitted hadproved its genuine claim and the intention of the new surveyor was tosomehow reduce the claim. In other letters (such as the one dated21.02.2014), Dicitex informed the appellant that the surveyor was refusingGto commit to any fixed date within which they would be submitting theirreport and also the appellant’s officials had no answers to its questionswith regard to when its claim would be settled. Dicitex requested theGeneral Manager to set deadline to settle their claim at the earliest. Itwrote several letters to the appellant’s officers about the huge financiallosses suffered by it due to delay in settlement of the claim. DicitexHinformed the General Manager to settle the claim within 15 days.5. On 27[th ]May, 2014, Dicitex received an email from the appellantstating that discharge voucher for the balance amount of the claimpayable as described was being enclosed. It was requested to executethe voucher along with the bank’s discharge on the space earmarked onthe left side and send the scanned copy back. By the email dated28.05.2014, Dicitex replied to the email of 27.05.2014 and referred tothe discharge voucher sent by the appellant to it for signature. Dicitexplaced on record that its total claim was approximately ` 15 crores andthe surveyor had assessed the same at approximately ` 12.93 crores.Dicitex stated that the basis for arriving at the figure of ` 7.16 croreswas not explained (by the appellant). It requested the Regional Managerof the appellant to provide the claim assessment working for theirunderstanding to enable Dicitex to take up the matter with their Boardof Directors for consideration. The appellant, by email dated 29.05.2014,alleged that M/s. C. P. Mehta & Co. had initially assessed the loss at

` 12,28,60,369/-. However, it had certain issues on the costing; it,therefore, appointed M/s. Naveen Jhand and Associates to have anotherlook at the costing aspect and reconfirm/verify the costing for lossassessment purpose. According to the said report submitted byM/s. Naveen Jhand and Associates, the assessment worked to

` 7,16,30,148/- and accordingly, the competent authority had granted theclaim. The appellant enclosed the working of the claim and requestedDicitex to go through it and send an unconditional discharge voucherduly signed by it and the bankers. Dicitex, the insured did not do so andinformed the appellant that it had noticed that what was given was just astatement of calculation, without explanation/basis, that adjustments hadresultant deductions in Dicitex’s claim by more than 50% as assessedby the surveyor appointed by the appellant. Dicitex stated that since theappellant had taken 2 years to offer the final settlement of the claim, it(Dicitex) was suffering from huge financial constraint and had to paybank interest and installments, salaries and wages, hence, it was leftwith no alternative but to accept the offer of the appellantreluctantly and was accordingly sending the voucher duly discharged byDicitex and their bankers for doing the needful. Dicitex alleged thatsince the appellant did not relent, and insisted that any further paymentwould be made only if the discharge voucher was executed exactly atthe time and in the form and manner as required by it as well as theletter dated 31.05.2014 was withdrawn. Dicitex stated that as it was inurgent need of funds to meet its mounting liabilities, it was coercedinto withdrawing its earlier letter of 31.05.2014 and in executing

EFGH

Athe discharge voucher exactly as dictated by the respondents. By theletter dated 06.06.2014, addressed to the Regional Manager, Dicitexwithdrew the letter dated 31.05.2014 submitted along with the dischargevoucher for full and final settlement of their claim. It requested theappellant to remit the claim amount immediately. The discharge voucherwas on the letter head of the appellant, duly endorsed by Dicitex’sBbankers. In the discharge voucher, it was recorded that it accepted asum of ` 3,66,30,148/- in full and final settlement of its claim. It was alsorecorded that Dicitex voluntarily gave discharge receipt in full and finalsettlement of their claim, present or future, arising directly/indirectly inrespect of the said loss/accident and subrogated all their rights andCremedies to appellant in respect of the loss/damages. Furthercorrespondence ensued whereby Dicitex informed the appellant thatsince there was huge difference between the total amount claimed byit, and the final claim settlement amount by the appellant, the same wasrequired to be discussed and resolved, failing which Dicitex would berequired to invoke the arbitration, as per clause 13 of the terms andDconditions attached to the policy. The appellant, by the letter dated17.07.2014 addressed to Dicitex, informed that it was surprised by theproposal to invoke arbitration after the clean discharge voucher wassigned for the sum of ` 7,16,30,148/- in full and final settlement of thesaid loss. The respondents denied that there existed any dispute ofEquantum in respect of the said claim and contended that the amount dueto Dicitex arising out of indemnity, arising from the policy was duly verifiedand assessed based on the documents submitted by Dicitex. The appellantdid not agree to Dicitex’s request for any differential amount or requestfor proceeding for arbitration under the policy. On 24.07.2014, by letteraddressed to the appellant, Dicitex denied that the amount received by itFwas clean discharge voucher in full and final settlement of their claimand reiterated that it suffered major loss of ` 14,16,94,329/-. Thesurveyor, M/s. C.P. Mehta & Co. had submitted their report assessingthe loss at ` 12.93 crores. Dicitex also placed on record that as againstapproximately the claim of ` 14.70 crores, the appellant released only `3.50 crores on 04.03.2013 i.e. almost 10 months after the loss hadGoccurred, and after lapse of 27 months, the appellant made “a take itor leave it” offer of ` 7.16 crores towards full and final settlement oftheir claim, the discharge was accepted reluctantly by it. Dicitex allegedthat upon meeting the appellant’s officers, it was instructed to withdrawthe letter of protest and accept the claim settlement unconditionally whichHwas proof of coercion.

6. The position taken by the appellant was that Dicitex was paid` 7,16,30,148/- in clean discharge and full and final settlement of theirclaim and there existed no dispute with regard to the quantum of claimand refused to appoint any arbitrator. In these circumstances, Dicitexapproached the Bombay High Court under Section 11(6) of the Act, forappointment of an arbitrator. Dicitex relied on the assessment ofM/s C.P. Mehta & Co., which had assessed the loss at ` 12.93 crores.It contended that the appellant released only ` 3.50 crores on 4.03.2013i.e. almost 10 months after the loss suffered by Dicitex due to fire, andonly after lapse of 27 months made “a take it or leave it” offer of` 7.16 crores towards full and final settlement of their claim. Dicitexstated that it had taken loan of substantial amount and had to bearthe extra burden of high interest and found itself defaulting on timelyloan repayments. It was further submitted that Dicitex was unable topay income tax on time, as result of which, it had to pay sum of` 23.90 lacs in the year 2012-2013 and sum of ` 11.10 lakhs in theyear 2013-2014 towards interest for the delayed payments of incometax. It was also argued, on behalf of Dicitex, that it was subjected toeconomic duress and coercion which resulted in the signing of thedischarge voucher, which could not preclude its invocation of thearbitration agreement.

7. The appellant resisted the application, contending that Dicitexhad not demonstrated whether the second discharge voucher signed byit was under economical or financial duress under the arbitrationagreement. It was urged that since Dicitex had signed the dischargevoucher and accepted the payment made by the respondentsunconditionally and confirmed that the said payment was received in fulland final settlement of their claim, present or future, arisingdirectly/indirectly in respect of the said loss/accident and subrogated alltheir rights and remedies to the appellant in respect of the loss/damages,there exists no dispute between the parties which can be referred toarbitration. It was argued that Dicitex having signed the dischargevoucher for ` 7,16,30,148/- in full and final settlement due to alleged losssuffered by Dicitex, the arbitration application was not maintainable. Itwas submitted that the appellant had replied to the letter dated 21.06.2014stating that Dicitex had withdrawn only discharge voucher dated31.05.2014. The appellant also stated that in the arbitration agreementitself, Dicitex had to explain the exact correctness of the allegation ofcoercion and duress with details and particulars about signing the

Adischarge voucher. It was further contended that though the paymentwas received by Dicitex on 09.06.2014, it raised protest only on21.06.2014. Even in the letter dated 21st June 2014, Dicitex referred tothe discharge voucher dated 31.05.2014 which was not admittedly actedupon by the insurer. Dicitex did not resile from the discharge voucherdated 31.05.2014, and thus on that ground also, this arbitration applicationBis not maintainable.

8. The appellant relied on some decisions of this court (New IndianAssurance Co. Ltd v Genus Power Infrastructure Ltd. (2015) 2 SCC424. National Insurance Co. Ltd v Boghara Polyfab Pvt Ltd (2009) 1SCC 267; Union of India (UOI) and Ors. v Master Construction Co.C(2011) 12 SCC 349 etc.

9. In the impugned judgment, while allowing the application, thesingle judge analysed the decisions of this court, including BogharaPolyfab (supra). It was noted that perusal of the correspondenceprima facie indicated that the first surveyor appointed by the insurerD`had recommended the payment of more than 12 crores in favour ofDicitex. For some reasons, the appellant did not accept the said reportsubmitted by their own surveyor and instead appointed M/s NaveenJhand and Associates to re-compute the costings. It was also held thatDicitex had furnished more than 37,700 documents to the surveyor forEtheir appraisal for submitting the report. Dicitex had placed on recordfrom time to time, documents to show that it had taken loans from thebanks who were pressurising it for repayment of those loans and interest.The account of Dicitex with those banks had drawn the excess amount.The final amount was sanctioned by the respondents only after 27 monthsof the fire having taken place, which caused loss to Dicitex. Dicitex hadFproduced about 11 letters addressed by the banks to Dicitex, callingupon Dicitex to regularize their bank accounts and showing the excessamount drawn by it in various accounts. Dicitex had also placed onrecord, the conduct of the second surveyor, who was, according to it,demanding several other documents which were unwarranted and/orGalready submitted by it. The learned judge noticed that prima facie,Dicitex was facing financial distress and economical duress and in viewof its various urgent business liabilities, it apparently signed the saiddischarge voucher reluctantly. It is not in dispute that the appellant refusedto accept such discharge voucher signed by Dicitex with letter of protest.Therefore, few days later, discharge voucher was signed by Dicitex.

It was, however, Dicitex’s case that the appellant had insisted upon it tosign clean discharge voucher and to withdraw the letter of protestaddressed by it, failing which, the insurer would not release the amount,even that was reflected in the discharge voucher. Dicitex thereafterwithdrew the letter dated 31.05.2014, and signed another dischargevoucher. After signing another discharge voucher, Dicitex placed onrecord their objection that the same was signed due to pressure of therespondents.

10. In view of the analysis made, the single judge allowed theapplication, observing as follows:

“57. On perusal of the large number of correspondenceexchanged between Dicitex and the respondents which werenot disputed by the respondents, in my prima facie view, itindicates that Dicitex was facing the financial constraint andeconomical and financial duress on the part of the respondentsin not sanctioning and paying the final claim for 27 monthsfrom the date of fire. Dicitex having faced pressure from theirbankers and suffering from other business liabilities includingthe demand of income tax department, Dicitex was under theeconomical and financial duress and the said dischargevoucher thus, in my prima facie view, cannot be consideredas an unconditional discharge voucher thereby Dicitex givingup their claim in future arising out of the said dischargevoucher.58. In my view, if Dicitex would not have signed such dischargevoucher acknowledging the payment of the lesser amount thanwhat was alleged to be due to Dicitex after 27 months of theloss suffered, the respondents would not have released eventhe said amount mentioned in the discharge voucher. In myview, if according to the respondents, Dicitex was not entitledto recover the amount as claimed by Dicitex, but the lesseramount, the respondents could have released the amount aspayable according to the respondents, but could not haveinsisted for execution of discharge voucher as pre-condition before releasing such payment.

59. Learned counsel for the respondents could not refer toany provision in the insurance policy or any other provision

of law in support of their claim that the respondents wereentitled to insist for execution of such discharge voucherbefore releasing any payment in favour of Dicitex with aconfirmation not to make any claim in future arising out ofthe said claim. The Supreme Court has already deprecatedthe practice followed by the government departments,statutory corporations and government companies forobtaining such undated discharge voucher as the conditionfor releasing lesser amount and has held that the saidprocedure is unfair, irregular and illegal. Though the ChiefJustice or his designate is empowered to decide the issue asto whether the parties had concluded the contract byrecording satisfaction of their mutual rights and obligationsthereby receiving the final payment without objection basedon the affidavits and the pleadings or can leave the said issueto be decided by the arbitral tribunal, in my view, it would beappropriate if the issue raised by the respondents that Dicitexhad signed such discharge voucher unconditionally and theissue raised by Dicitex that the same was under duress andcoercion is conclusively decided by the arbitral tribunal andif necessary, by leading oral evidence. The learned designateof the Chief Justice in case of M/s.Yasho Industries Pvt. Ltd.Vs. The New India Assurance Company Limited in ArbitrationPetition No.314 of 2014 decided on 24th June 2015 which isrelied upon by one of the party has taken similar view.Special Leave Petition against the said order is rejected.

60. In so far as the issue of arbitrability of the claim raisedby the respondents on the ground that Dicitex proposed tomake the claim amount higher than the insured sum isconcerned, if any claim higher than the insured sum is madeby Dicitex before the arbitral tribunal, the respondents canraise such issue of arbitrability and the same can be decidedby the arbitral tribunal. The issue of arbitrability of claim onsuch ground cannot be decided in these proceedings.

61. Clause 13 of the arbitration agreement of the policy whichprovides that if any dispute or difference shall arise as to thequantum to be paid under the policy, such difference shall bereferred to the decision of sole arbitrator to be appointed

in writing by the parties or if they cannot agree upon singlearbitrator within 30 days of any party invoking arbitration,the same shall be referred to panel of three arbitrators.Since the respondents have refused to appoint any arbitratorout of the names suggested by Dicitex in their letter dated14th July 2014 and had not suggested any other name, thisapplication filed under Section 11 (6) of the Arbitration Actis maintainable. In my view, the arbitration agreement existsbetween the parties.”

11. The appellant urges that the impugned judgment is erroneous.It is pointed out that the effect of the decisions in Boghara Polyfab,Master Construction and Genus Power Infrastructure (supra) andhaving regard to the facts and circumstances of this case, there can beno question that any arbitrable dispute existed between the parties. Havingaccepted the proffered amounts, and having withdrawn the reservationand protest, Dicitex could not have argued that it was subjected tocoercion or that the appellant forced it to sign the final discharge voucher.Emphasis is placed on Dicitex’s letter dated 06.06.2014, whereby itwithdrew the previous letter dated 31.05.2014, which had containedreservations about the amount offered in full settlement.

12. Counsel for Dicitex urges that this court should not interferewith the impugned judgment. It was urged that the material in the formof the record, particularly the consistent trend of letters, prior to theletter of 06.06.2014 as well as the correspondence after that, clearlyreveal that Dicitex was undergoing severe financial crisis and that theprolonged process of settlement claim constrained it to issue the saidletter of 06.06.2014. However, the fact remained that at the relevanttime, it faced crisis of existence. Its acceptance was under financialcompulsion which amounted to economic coercion. Therefore, the learnedsingle judge very properly analysed all these materials and held thatprima facie, there was no full and final settlement or discharge.

Analysis & Conclusions

13. The main theme of the appellant’s argument in this case isthat Dicitex could not have invoked the arbitration clause, since it hadfully and finally accepted the amount offered (i.e..) and withdrawn itsprotests and reservations, by the letter dated 06.06.2014. It cites thedecisions in Boghara Polyfab, Master Construction and Genus Power(supra) in this regard.

A14. The issue of the court’s jurisdiction to examine whether adispute is arbitrable, in the context of no objection certificates or dischargevouchers, was examined in Boghara Polyfab for the first time. Thiscourt in the context of an application under Section 11(6) dealt with theissue, holding that if there was accord and satisfaction due to no duescertificate, reference under Section 11 was not maintainable. It held,Binter alia, that:

“51. Let us consider what civil court would have done in acase where the defendant puts forth the defence of accordand satisfaction on the basis of full and final dischargevoucher issued by the plaintiff, and the plaintiff alleges thatit was obtained by fraud/coercion/undue influence andtherefore not valid. It would consider the evidence as towhether there was any fraud, coercion or undue influence. Ifit found that there was none, it will accept the voucher asbeing in discharge of the contract and reject the claim withoutexamining the claim on merits. On the other hand, if it foundthat the discharge voucher had been obtained by fraud/undueinfluence/coercion, it will ignore the same, examine whetherthe plaintiff had made out the claim on merits and decide thematter accordingly. The position will be the same even whenthere is provision for arbitration.

52. Some illustrations (not exhaustive) as to when claims arearbitrable and when they are not, when discharge of contractby accord and satisfaction are disputed, to round up thediscussion on this subject:

(i) claim is referred to conciliation or pre-litigation LokAdalat. The parties negotiate and arrive at settlement. Theterms of settlement are drawn up and signed by both the partiesand attested by the Conciliator or the members of the LokAdalat. After settlement by way of accord and satisfaction,there can be no reference to arbitration.

(ii) claimant makes several claims. The admitted orundisputed claims are paid. Thereafter negotiations are heldfor settlement of the disputed claims resulting in an agreementin writing settling all the pending claims and disputes. Onsuch settlement, the amount agreed is paid and the contractor

also issues discharge voucher/no claim certificate/full andfinal receipt. After the contract is discharged by such accordand satisfaction, neither the contract nor any dispute survivesfor consideration. There cannot be any reference of any disputeto arbitration thereafter.

(iii) contractor executes the work and claims payment ofsay Rupees Ten Lakhs as due in terms of the contract. Theemployer admits the claim only for Rupees six lakhs andinforms the contractor either in writing or orally that unlessthe contractor gives discharge voucher in the prescribedformat acknowledging receipt of Rupees Six Lakhs in full andfinal satisfaction of the contract, payment of the admittedamount will not be released. The contractor who is hardpressed for funds and keen to get the admitted amountreleased, signs on the dotted line either in printed form orotherwise, stating that the amount is received in full and finalsettlement. In such case, the discharge is under economicduress on account of coercion employed by the employer.Obviously, the discharge voucher cannot be considered to bevoluntary or as having resulted in discharge of the contractby accord and satisfaction. It will not be bar to arbitration.

(iv) An insured makes claim for loss suffered. The claim isneither admitted nor rejected. But the insured is informedduring discussions that unless the claimant gives full andfinal voucher for specified amount (far lesser than theamount claimed by the insured), the entire claim will berejected. Being in financial difficulties, the claimant agreesto the demand and issues an undated discharge voucher infull and final settlement. Only few days thereafter, theadmitted amount mentioned in the voucher is paid. The accordand satisfaction in such case is not voluntary but underduress, compulsion and coercion. The coercion is subtle, butvery much real. The ‘accord’ is not by free consent. Thearbitration agreement can thus be invoked to refer the disputesto arbitration.

(v) claimant makes claim for huge sum, by way ofdamages. The respondent disputes the claim. The claimantwho is keen to have settlement and avoid litigation,

voluntarily reduces the claim and requests for settlement. Therespondent agrees and settles the claim and obtains fulland final discharge voucher. Here even if the claimant mighthave agreed for settlement due to financial compulsions andcommercial pressure or economic duress, the decision washis free choice. There was no threat, coercion or compulsionby the respondent. Therefore, the accord and satisfaction isbinding and valid and there cannot be any subsequent claimor reference to arbitration.

52. Let us now examine the receipt that has been taken in thiscase. It is undated and is in pro forma furnished by theappellant containing irrelevant and inappropriate statements.It states: “I/we hereby assign to the company, my/our right tothe affected property stolen which shall, in the event of theirrecovery, be the property of the company”. The claim was notin regard to theft of any property nor was the claim beingsettled in respect of theft claim. We are referring to thisaspect only to show how claimants are required to sign on thedotted line, and how such vouchers are insisted and takenmechanically without application of mind.”

15. In Master Construction (supra), this Court held that:

“20. The Bench in Boghara Polyfab Private Limited inparagraphs 42 and 43, with reference to the cases cited beforeit, inter alia, noted that there were two categories of the citedcases; (one) where the Court after considering the facts foundthat there was full and final settlement resulting in accordand satisfaction, and there was no substance in the allegationsof coercion/undue influence and, consequently, it was heldthat there could be no reference of any dispute to arbitrationand (two) where the court found some substance in thecontention of the claimants that `no dues/claim certificates’or `full and final settlement discharge vouchers’ were insistedand taken (either in printed format or otherwise) as conditionprecedent for release of the admitted dues and thereby givingrise to an arbitrable dispute.

21. In Boghara Polyfab Private Limited, the consequences ofdischarge of the contract were also considered. In para 25

(page 284), it was explained that when contract has beenfully performed, then there is discharge of the contract byperformance and the contract comes to an end and in regardto such discharged contract, nothing remains and therecannot be any dispute and, consequently, there cannot bereference to arbitration of any dispute arising from adischarged contract. It was held that the question whetherthe contract has been discharged by performance or not is amixed question of fact and law, and if there is dispute inregard to that question, such question is arbitrable. The Court,however, noted an exception to this proposition. The exceptionnoticed is that where both the parties to contract confirm inwriting that the contract has been fully and finally dischargedby performance of all obligations and there are nooutstanding claims or disputes, courts will not refer anysubsequent claim or dispute to arbitration. Yet anotherexception noted therein is with regard to those cases whereone of the parties to the contract issues full and finaldischarge voucher (or no-dues certificate, as the case maybe) confirming that he has received the payment in full andfinal satisfaction of all claims, and he has no outstandingclaim. It was observed that issuance of full and final dischargevoucher or no-dues certificate of that kind amounts todischarge of the contract by acceptance or performance andthe party issuing the discharge voucher/certificate cannotthereafter make any fresh claim or revive any settled claimnor can it seek reference to arbitration in respect of any claim.22. In paragraph 26 (pages 284-285), this Court in BogharaPolyfab Private Limited held that if party which has executedthe discharge agreement or discharge voucher, alleges thatthe execution of such document was on account of fraud/coercion/undue influence practiced by the other party, and ifthat party establishes the same, then such discharge voucheror agreement is rendered void and cannot be acted upon andconsequently, any dispute raised by such party would bearbitrable.

23. In paragraph 24 (page 284) in Boghara Polyfab PrivateLimited, this Court held that claim for arbitration cannot be

rejected merely or solely on the ground that settlementagreement or discharge voucher has been executed by theclaimant. The Court stated that such dispute will have to bedecided by the Chief Justice/his designate in the proceedingsunder Section 11 of the 1996 Act or by the Arbitral Tribunal.

24. In our opinion, there is no rule of the absolute kind. In acase where the claimant contends that discharge voucheror no-claim certificate has been obtained by fraud, coercion,duress or undue influence and the other side contests thecorrectness thereof, the Chief Justice/his designate must lookinto this aspect to find out at least, prima facie, whether ornot the dispute is bona fide and genuine. Where the disputeraised by the claimant with regard to validity of the dischargevoucher or no-claim certificate or settlement agreement, primafacie, appears to be lacking in credibility, there may not benecessity to refer the dispute for arbitration at all. It cannotbe overlooked that the cost of arbitration is quite huge - most

of the time, it runs in six and seven figures. It may not beproper to burden party, who contends that the dispute isnot arbitrable on account of discharge of contract, with hugecost of arbitration merely because plea of fraud, coercion,duress or undue influence has been taken by the claimant. Abald plea of fraud, coercion, duress or undue influence isnot enough and the party who sets up such plea must primafacie establish the same by placing material before the ChiefJustice/his designate. If the Chief Justice/his designate findssome merit in the allegation of fraud, coercion, duress or undueinfluence, he may decide the same or leave it to be decidedby the Arbitral Tribunal. On the other hand, if such plea isfound to be an after-thought, make-believe or lacking incredibility, the matter must be set at rest then and there.”

16. In Genus Power (supra), the relevant observations of thiscourt are as follows:

“8. It is therefore clear that bald plea of fraud, coercion,duress or undue influence is not enough and the party whosets up plea, must prime facie establish the same by placingmaterial before the Chief Justice/his designate. Viewed thus,

the relevant averments in the petition filed by the Respondentneed to be considered, which were to the following effect: ************** *************

(g) That the said surveyor, in connivance with the RespondentCompany, in order to make the Respondent Company escapeits full liability of compensating the Petitioner of such hugeloss, acted in biased manner, adopted coercion undueinfluence and duress methods of assessing the loss and forcedthe Petitioner to sign certain documents including the ClaimForm. The Respondent Company also denied the just claimof the Petitioner by their acts of omission and commissionand by exercising coercion and undue influence and madethe Petitioner Company sign certain documents, including apre-prepared discharge voucher for the said amount inadvance, which the Petitioner Company were forced to do soin the period of extreme financial difficulty which prevailedduring the said period. As stated aforesaid, the PetitionerCompany was forced to sign several documents including aletter accepting the loss amounting to Rs. 6,09,55,406/- andsettle the claim of Rs. 5,96,08,179/- as against the actual lossamount of Rs. 28,79,08,116/- against the interest of thePetitioner company. The said letter and the aforesaid pre-prepared discharge voucher stated that the Petitioner hadaccepted the claim amount in full and final settlement andthus, forced the Petitioner company to unilateral acceptancethe same. The Petitioner company was forced to sign the saiddocument under duress and coercion by the RespondentCompany. The Respondent Company further threatened thePetitioner Company to accept the said amount in full and finalor the Respondent Company will not pay any amount towardthe fire policy. It was under such compelling circumstancesthat the Petitioner company was forced and under duress wasmade to sign the acceptance letter.

9. In our considered view, the plea raised by the Respondentis bereft of any details and particulars, and cannot beanything but bald assertion. Given the fact that there wasno protest or demur raised around the time or soon after the

letter of subrogation was signed, that the notice dated31.03.2011 itself was nearly after three weeks and that thefinancial condition of the Respondent was not so precariousthat it was left with no alternative but to accept the terms assuggested, we are of the firm view that the discharge in thepresent case and signing of letter of subrogation were notbecause of exercise of any undue influence. Such dischargeand signing of letter of subrogation was voluntary and freefrom any coercion or undue influence. In the circumstances,we hold that upon execution of the letter of subrogation, therewas full and final settlement of the claim. Since our answer tothe question, whether there was really accord and satisfaction,is in the affirmative, in our view no arbitrable dispute existedso as to exercise power Under Section 11 of the Act. The HighCourt was not therefore justified in exercising power UnderSection 11 of the Act.”

17. In Velugubanti Hari Babu v. Parvathini Narasimha Rao &Anr. (2016) 14 SCC 126, the line of judgments in Boghara Polyfab(supra) was followed. Later, in ONGC Mangalore PetrochemicalsLtd. v ANS Constructions Ltd. and Anr. (2018) 3 SCC 373, the courtheld as follows:

“24. From the materials on record, we find that the contractee-Company had issued the “No Dues/No Claim Certificate” on21.09.2012, it had received the full amount of the final billbeing Rs. 20.34 crores on 10.10.2012 and after 12 daysthereafter, i.e., only on 24.10.2012, the contractee-Companywithdrew letter dated 21.09.2012 issuing “No Dues/No ClaimCertificate”. Apart from it, we also find that the Final Bill hasbeen mutually signed by both the parties to the Contractaccepting the quantum of work done, conducting finalmeasurements as per the Contract, arriving at final value ofwork, the payments made and the final payment that wasrequired to be made. The contractee-Company accepted thefinal payment in full and final satisfaction of all its claims.We are of the considered opinion that in the presents factsand circumstances, the raising of the Final Bill and mutualagreement of the parties in that regard, all claims, rights andobligation of the parties merge with the Final Bill and nothing

further remains to be done. Further, the Appellant-Contractorissued the Completion Certificate dated 19.06.2013 pursuantto which the Appellant-Contractor has been discharged ofall the liabilities. With regard to the issue that the “No-DuesCertificate” had been given under duress and coercion, weare of the opinion that there is nothing on record to provethat the said Certificate had been given under duress orcoercion and as the Certificate itself provided clearance ofno dues, the contractee could not now turn around and saythat any further payment was still due on account of the lossesincurred during the execution of the Contract. The story aboutduress was an afterthought in the background that the lossesincurred during the execution of the Contract were notvisualised earlier by the contractee. As to financial duress orcoercion, nothing of this kind is established prima facie. Mereallegation that no-claim certificates have been obtained underfinancial duress and coercion, without there being anythingmore to suggest that, does not lead to an arbitrable dispute.The conduct of the contractee clearly shows that “no-claimcertificate” was given by it voluntarily; the contracteeaccepted the amount voluntarily and the contract wasdischarged voluntarily.

Conclusion:

25. Admittedly, No-Dues Certificate was submitted by thecontractee-Company on 21.09.2012 and on their requestCompletion Certificate was issued by the Appellant-Contractor. The contractee, after gap of one month, that is,on 24.10.2012, withdrew the No Dues Certificate on thegrounds of coercion and duress and the claim for lossesincurred during execution of the Contract site was made videletter dated 12.01.2013, i.e., after gap of 3 1/2 (three and ahalf) months whereas the Final Bill was settled on 10.10.2012.When the contractee accepted the final payment in full andfinal satisfaction of all its claims, there is no point in raisingthe claim for losses incurred during the execution of theContract at belated stage which creates an iota of doubt asto why such claim was not settled at the time of submittingFinal Bills that too in the absence of exercising duress or

410SUPREME COURT REPORTS

Acoercion on the Contractee by the Appellant-Contractor. Inour considered view, the plea raised by the contractee-Company is bereft of any details and particulars, and cannotbe anything but bald assertion. In the circumstances, therewas full and final settlement of the claim and there was reallyaccord and satisfaction and in our view no arbitrable disputeBexisted so as to exercise power Under Section 11 of the Act.The High Court was not, therefore, justified in exercising powerUnder Section 11 of the Act.”18. It is clear that in Boghara Polyfab (supra), no rule of universalapplication was indicated. No doubt, subsequent judgments whichCfollowed it, were in the context of the facts as were presented to thecourt. Proposition (iii) of the conclusions recorded in Boghara Polyfab(supra) visualize duress or coercion on account of withholding ofpayments due. The court – in more places than one, recognized that anaggrieved party can be the victim of economic coercion which results inDits signing document which discharges the other party of its obligations.Master Construction (supra) placed the matter in perspective, whenthe court enunciated the principle in the following terms:

“In our opinion, there is no rule of the absolute kind. In acase where the claimant contends that discharge voucherEor no-claim certificate has been obtained by fraud, coercion,duress or undue influence and the other side contests thecorrectness thereof, the Chief Justice/his designate must lookinto this aspect to find out at least, prima facie, whether ornot the dispute is bona fide and genuine. Where the disputeraised by the claimant with regard to validity of the dischargeFvoucher or no-claim certificate or settlement agreement, primafacie, appears to be lacking in credibility, there may not benecessity to refer the dispute for arbitration at all.”

Likewise, in Genus Power (supra), the court cautioned that a“bald plea” of coercion, without any supporting material is insufficientGfor court to hold that the accord/satisfaction or no dues certificate wasinvoluntarily given.

19. close look at the facts in the present case would show thatthough the pleadings in the initial application under Section 11(6) areweak, nevertheless, the materials on the record, in the form of copies of

the inter se correspondence of the parties – which span over 2 years,clearly show that Dicitex kept repeatedly stating that it was facingfinancial crisis; it referred to credits obtained for its business and theurgency to pay back the bank. It is matter of record that the Surveyor’sreport, dated 14.08.2014, recommended payment of ` 12,93,26,704.98/-to Dicitex. Equally, it is matter of record that the appellant referred thematter to chartered accountant’s firm, to verify certain inventory andsales figures. It went by the report of the latter, who stated that theestimate of loss could not be more than ` 7,16,30,148/-. This is whatwas offered to Dicitex, by May, 2014. Dicitex’s application under Section11(6) is replete with references to the number of letters written to theappellant, seeking release of amounts; it also averred to inability to payits income tax dues, the pressure from bankers (in support of which,copies of letters of bankers were produced along with the application).

20. The averments by Dicitex, regarding the circumstances whichled it to execute the no objection discharge voucher, are reproducedbelow:

“31. The Respondents did not pay anything to the Petitionerafter the submission of its letter, dated 31[st] May, 2014 andthe submission of its letter, dated 31[st] May, 2014 and thereforeseveral telephonic calls were made on behalf of the Petitioner,to the Respondent’s Regional Office at Mumbai in an effortto persuade the Respondents to increase the settlement amountso as to include the differential amount of about Rs. 7 crores.The Petitioner also specifically requested the Respondentsnot to, in any event, insist on the execution of the DischargeVoucher strictly as prescribed as condition precedent forthe payment of any part of the balance amount of claim.32. Since, on the one hand, the Respondents did not showany inclination to relent on any count and instead continuedto insist continued to insist that any further payment wouldbe made to the Petitioner if and only if the Discharge Voucherwas executed exactly at the time and in the form and manneras required by the Respondents as well as the letter dated 31[st]May, 2014 withdrawn and, on the other hand, the Petitionerwas in urgent need of funds to meet its mounting liabilitiesthe Petitioner was forced to withdraw its earlier letter dated31[st] May, 2014 and coerced into executing the Discharge

AVoucher exactly as dictated by the Respondents. Accordingly,the Petitioner wrote letter dated 6[th] June, 2014 to theRespondent No. 2 stating therein that it was withdrawing itsletter dated 31[st] May, 2-14 and also enclosing the dulyexecuted discharge Voucher. The Petitioner also requestedthat the claim amount be paid over to it, immediately.”

The averments in the application, later are that the appellant paidthe amount. Dicitex, nevertheless later, by three letters questioned thebasis of reduction of the amount of claim. It later alleged that it wrote aletter “dated 14[th] July, 2014 to the respondents stating therein, interalia, that since they were forced to accept the offered amount andCthat since there was dispute on the quantum of claim settlementpaid to the Petitioner, the Petitioner was invoking arbitrationproceedings under Clause 13 of the said Policy to recover thedifferential amount.”

21. An overall reading of Dicitex’s application (under Section 11(6))Dclearly shows that its grievance with respect to the involuntary nature ofthe discharge voucher was articulated. It cannot be disputed, that severalletters – spanning over two years- stating that it was facing financialcrisis on account of the delay in settling the claim, were addressed to theappellant. This court is conscious of the fact that an application underESection 11(6) is in the form of pleading which merely seeks an order ofthe court, for appointment of an arbitrator. It cannot be conclusive of thepleas or contentions that the claimant or the concerned party can take,in the arbitral proceedings. At this stage, therefore, the court- which isrequired to ensure that an arbitrable dispute exists, has to be primafacie convinced about the genuineness or credibility of the plea ofFcoercion; it cannot be too particular about the nature of the plea, whichnecessarily has to be made and established in the substantive (read:arbitration) proceeding. If the court were to take contrary approachand minutely examine the plea and judge its credibility or reasonableness,there would be danger of its denying forum to the applicant altogether,Gbecause rejection of the application would render the finding (about thefinality of the discharge and its effect as satisfaction) final, thus, precludingthe applicant of its right event to approach civil court. There aredecisions of this court (Associated Construction v PawanhansHelicopters Ltd. (2008) 16 SCC 128 and Boghara Polyfab (supra)upheld the concept of economic duress. Having regard to the facts andH

circumstances, this court is of the opinion that the reasoning in theimpugned judgment cannot be faulted.

22. In view of the foregoing discussion, the appeal is held to beunmerited; it is dismissed, without order as to costs.

Divya Pandey

Appeal dismissed.