2008 (5) TMI 684 - SC - Indian Laws

Supreme Court Restores Contractor's Compensation for Delay, Recognizes Duress in 'No Claim Certificate' Issuance.

The SC set aside the Division Bench's judgment and restored the Single Judge's order, recognizing the contractor's entitlement to compensation for delays ... Arbitration Proceedings - Construction of a compound wall and a bridge over a nala - clauses 18 and 34 of the contract - Payment of escalation charges as the work had not been completed within four months - delay had been caused by the opposite party - contractor served a notice on Pawanhans invoking the clause relating to arbitration - payment rejected by observing that as a 'No Dues Certificate' had been submitted by the contractor - 'No Dues Certificate' under duress - HELD THAT:- We are of the opinion, 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 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. We are further of the opinion that clause 43 and 43 (1) 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 the other provisions. 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 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 to the undertaking that the enquiry would be completed within 2 months but complaining that nothing had been done and on the contrary on 8th 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 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 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 'No Dues Certificate' under duress being an after thought is not acceptable. We are therefore of the opinion that the judgment of 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 ever deeper into the chasm, the contractor will have its costs which are computed at ₹ 10,000/-. The appeals are accordingly allowed. Issues Involved:1. Delay in the completion of the contract.2. Claim for escalation charges.3. Issuance of 'No Claim Certificate' under duress.4. Scope of judicial interference in arbitration awards.Issue-wise Analysis:1. Delay in the completion of the contract:The respondent, a Government of India undertaking, floated tenders for constructing a compound wall and a bridge over a nala. The contractor's tenders were accepted, and formal agreements were signed on 12th October 1999, requiring completion within four months. The work was delayed due to factors attributable to the respondent, as highlighted in various letters by the contractor. Despite repeated requests for facilities and payments, the work was not completed on time.2. Claim for escalation charges:The contractor submitted a bill on 23rd June 1991, expecting compensation for the variation in contract terms. The respondent advised submitting a final bill, which was verified with objections. The contractor disputed the verification and reserved the right to seek arbitration. The respondent demanded a 'No Claim Certificate' for releasing the balance payment. The contractor issued the certificate under duress but still did not receive the payment. The matter was referred to arbitration, and the arbitrators awarded certain amounts to the contractor. The Single Judge held that clauses 18 and 34 allowed for escalation charges due to the respondent's fault. However, the Division Bench set aside this order, stating that the clauses did not visualize any claim for escalation and prohibited extra amounts due to price fluctuation.3. Issuance of 'No Claim Certificate' under duress:The contractor argued that the 'No Claim Certificate' was issued under economic duress, as evidenced by the correspondence. The Division Bench found no evidence of duress. However, the Supreme Court, upon reviewing the letters, concluded that the contractor was indeed under duress, as the respondent withheld payments and insisted on the certificate. The contractor's repeated requests and the desperate tone in the letters supported this claim.4. Scope of judicial interference in arbitration awards:The Supreme Court emphasized that the scope for judicial interference in non-speaking arbitration awards is limited. The court should not sit as an appellate body over the arbitrator's decisions. The arbitrator's view, if permissible, should not be interfered with, even if a different view is possible. The court highlighted that unforeseen situations in commercial transactions might warrant compensation beyond the contract period, especially when delays are attributable to one party.Conclusion:The Supreme Court set aside the Division Bench's judgment, restoring the Single Judge's order. The court recognized the contractor's right to compensation due to delays caused by the respondent and acknowledged the duress under which the 'No Claim Certificate' was issued. The contractor was awarded costs of Rs. 10,000, and the appeals were allowed.