2013 (4) TMI 304 - HC - Companies Law

High Court Appoints Arbitrator to Decide No Claim Certificate Validity & Financial Duress

The High Court allowed the application under Section 11(6) and appointed Hon'ble Shri Justice S.C. Malte (Retired) as Arbitrator. The Arbitrator will ... Appointment of Arbitrator - The time limit for completion of contract has been stipulated to be essence of the contract imposing reciprocal obligation - No claim certificate is specifically denied by the applicant- Held that:- Upon careful perusal of para 52 of the judgment of the Supreme Court in the case of National Insurance Company Ltd. (), the case in hand will fall under clause III of the said paragraphs - Therefore, the contention of the counsel appearing for the respondents that the case of the applicant would fall in clause II of para 52 from the said judgment, cannot be accepted. Upon careful reading of the averments in the application and contents of the notice/letter/correspondence by the applicant with the respondent, it prima facie appears that said no claim certificate is under financial duress on account of condition of the employer that unless such certificate is issued by the applicant/contractor, he is not entitled to get the payment. Whether the claim made falls within arbitration clause or not, can be taken care of by the Arbitrator -Held that:- As stated by the Supreme Court in para 22.3 of the judgment in the case of National Insurance Company (supra). The issue (third category) as stated in paragraph which the Chief Justice/his designate should leave exclusively to the Arbitral Tribunal. When the facts of the case in hand are examined in the background of law as laid down by Apex Court in the case of National Insurance Company Ltd. (supra) - It cannot be said that the applicant has no prima facie case to seek a reference - The other details to which advocate Shri Godhamgaonkar wants to invite attention are disputed questions of facts and law, which can be looked into by Arbitrator - Hence, those facts and contentions or accompanying documents or evidence are kept open and it is for the Arbitrator to look into said details - The Arbitrator will also look into whether the parties have concluded the contract/transaction by recording satisfaction of their mutual right or obligation or by receiving final payment without objection or whether the claim is a dead (long barred) claim or a live claim. The issue (third category) whether the claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration) and merits of any claim involved in the arbitration will be looked into by the Arbitrator -Aapplication U/s 11(6) is allowed - Hon’ble Shri Justice S.C. Malte (Retired) is appointed as Arbitrator - Proceeding charges of Rs.5000/- be deposited within two weeks. Application is accordingly allowed and disposed of. Issues Involved:1. Appointment of Arbitral Tribunal2. Validity of No Claim Certificate3. Financial Duress Allegations4. Applicability of Arbitration Clause5. Jurisdiction of the High CourtDetailed Analysis:1. Appointment of Arbitral Tribunal:The applicant filed an arbitration application seeking the appointment of an Arbitral Tribunal to adjudicate disputes with the respondent. The applicant, a registered government contractor, was allotted work under an agreement dated 9.5.2007. Despite extensions, the work was completed on 15.4.2009. The applicant claimed delays were due to the respondent's actions and requested arbitration as per the contract terms. The respondent failed to appoint an arbitrator, leading to this application under Section 11 of the Arbitration and Conciliation Act, 1996.2. Validity of No Claim Certificate:The applicant denied issuing a no claim certificate, alleging it was signed under threats and financial duress. The respondent argued the certificate was issued voluntarily, precluding arbitration. The court noted that the applicant had consistently claimed the certificate was obtained under duress, making it a matter for the Arbitral Tribunal to decide. The Supreme Court in National Insurance Company Limited vs. Boghara Polyfab Private Limited held that disputes over the validity of such certificates are arbitrable.3. Financial Duress Allegations:The applicant alleged financial duress, stating the respondent withheld payments and threatened penal action to obtain the no claim certificate. The court found prima facie evidence supporting the applicant's claim of duress, warranting arbitration. The court referred to the Supreme Court's guidelines in National Insurance Company Limited, which recognized that certificates obtained under duress do not bar arbitration.4. Applicability of Arbitration Clause:The contract included an arbitration clause applicable to disputes not exceeding 20% of the contract value. The applicant restricted claims accordingly, reserving the right to seek legal recourse for additional claims. The respondent argued that the no claim certificate and clause 63 of the General Conditions of Contract (GCC) barred arbitration. The court held that whether the claim falls within the arbitration clause or is an excepted matter should be determined by the Arbitral Tribunal.5. Jurisdiction of the High Court:The court confirmed its jurisdiction, noting the applicant's residence in Nanded, within its territorial limits. The court found that the applicant had approached the appropriate High Court and that there was an arbitration agreement between the parties, satisfying the requirements for intervention under Section 11 of the Arbitration and Conciliation Act, 1996.Conclusion:The court allowed the application under Section 11(6), appointing Hon'ble Shri Justice S.C. Malte (Retired) as Arbitrator. The Arbitrator is to decide on the validity of the no claim certificate, the existence of financial duress, and whether the claims fall within the arbitration clause. The application was disposed of, with proceedings charges to be deposited within two weeks.