2011 (4) TMI 1471 - SC - Indian Laws

Contractor's Acceptance of Final Payment Invalidates Arbitration Appointment

Union of India (UOI) and Ors. Versus Master Construction Co.

Union of India (UOI) and Ors. Versus Master Construction Co. - 2011 (5) SCR 853, 2011 (12) SCC 349, 2011 (5) JT 244, 2011 (5) SCALE 165 Issues Involved:1. Existence of arbitrable dispute after the submission of no-claim certificates and receipt of final payment.2. Validity of the appointment of the arbitrator by the Chief Justice under Section 11(6) of the Arbitration and Conciliation Act, 1996.Issue-wise Detailed Analysis:1. Existence of Arbitrable Dispute:The primary issue was whether an arbitrable dispute existed between the parties after the contractor submitted no-claim certificates and received full and final payment. The contractor argued that the no-claim certificates were given under financial duress and coercion, whereas the appellants contended that the certificates were submitted voluntarily, and thus, no dispute remained.The court referenced the decision in National Insurance Company Limited v. Boghara Polyfab Private Limited (2009) 1 SCC 267, which outlined the Chief Justice's jurisdiction under Section 11 of the 1996 Act. It stated that if a discharge voucher or no-claim certificate was issued under fraud, coercion, or undue influence, the contract was not discharged, and the dispute could be referred to arbitration. However, if the discharge was voluntary, no arbitration could be sought.The court examined the facts, noting that the contractor had received the final payment and issued certificates stating no further claims existed. It highlighted that the contractor raised no immediate grievance after receiving the final payment but only lodged claims after the bank guarantee was released. The court concluded that the contractor's conduct indicated the no-claim certificates were given voluntarily, and no arbitrable dispute existed.2. Appointment of Arbitrator by the Chief Justice:The appellants argued that the Chief Justice should have appointed an arbitrator according to the arbitration clause in the contract, which stipulated an Engineer Officer as the arbitrator. Instead, the Chief Justice appointed Mr. M.S. Liberahan, retired Chief Justice of Andhra Pradesh High Court, which was not in accordance with the arbitration agreement.Given the court's finding that no arbitrable dispute existed, it deemed it unnecessary to address the issue of the arbitrator's appointment. The court set aside the Chief Justice's order under Section 11(6) of the 1996 Act, which had appointed Mr. Liberahan as the arbitrator.Conclusion:The appeal was allowed, and the order dated December 8, 2006, by the Chief Justice of the High Court of Punjab and Haryana was set aside. The court found that the contractor voluntarily accepted the final payment and issued no-claim certificates, thereby discharging the contract. Consequently, no arbitrable dispute existed, and the appointment of the arbitrator was invalid. Each party was ordered to bear its own costs.