Concept of economic duress- when the discharge/final and full settlement letter was excuted involutarly - he is entitled for appointment of arbitrator under sec.11[6] for ascertaing his claim
The Oriental Insurance Co. Ltd (hereafter “the insurer” or “the appellant”) appeals the decision of a single judge of the Bombay High Court, who allowed the respondent’s
application under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereafter “the Act”) and appointed an arbitrator. - The insurer’s objection about maintainability of the 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 there was no arbitrable dispute, was rejected.
Apex court held that
An overall reading of Dicitex’s application (under Section 11(6)) clearly shows that its grievance with respect to the involuntary nature of the discharge voucher was articulated. It
cannot be disputed, that several letters – spanning over two years stating that it was facing financial crisis on account of the delay in settling the claim, were addressed to the appellant. This
court is conscious of the fact that an application under Section 11(6) is in the form of a pleading which merely seeks an order of the court, for appointment of an arbitrator. It cannot be
conclusive of the pleas or contentions that the claimant or the concerned party can take, in the arbitral proceedings.
At this stage, therefore, the court which is required to ensure that an arbitrable dispute exists, has to be prima facie convinced about the genuineness or credibility of the plea of coercion; it cannot be
too particular about the nature of the plea, which necessarily has to be made and established in the substantive (read: arbitration) proceeding. If the court were to take a contrary approach and
minutely examine the plea and judge its credibility or reasonableness, there would be a danger of its denying a forum to the applicant altogether, because rejection of the application
would render the finding (about the finality of the discharge and its effect as satisfaction) final, thus, precluding the applicant of its right event to approach a civil court.
There are decisions of this court (Associated Construction v Pawanhans Helicopters
Ltd. (2008) 16 SCC 128 and Boghara Polyfab (supra) upheld the concept of economic duress. Having regard to the facts and circumstances, this court is of the opinion that the reasoning in
the impugned judgment cannot be faulted.
1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL No. 8550 OF 2019
(ARISING OUT OF SLP (C) NO. 34186 OF 2015)
THE ORIENTAL INSURANCE CO. LTD.
& ANR. ...APPELLANTS
VERSUS
DICITEX FURNISHING LTD. ...RESPONDENT
J U D G M E N T
S. RAVINDRA BHAT, J.
1. Leave granted. With the consent of counsel, the appeal was
heard finally. The Oriental Insurance Co. Ltd (hereafter “the
insurer” or “the appellant”) appeals the decision of a single judge
of the Bombay High Court, who allowed the respondent’s
application under Section 11(6) of the Arbitration and
Conciliation Act, 1996 (hereafter “the Act”) and appointed an
2
arbitrator. The insurer’s objection about maintainability of the
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 there was no arbitrable dispute, was rejected.
2. The relevant facts in this appeal are that on 17.09.2011,
Dicitex obtained a Standard Fire and Special Peril Policy; it was
issued by the appellant to cover the stocks of goods lying in its
three separate godowns located at Thane, Maharashtra, by three
separate endorsements. The total sum insured was @ 13 crores. ₹
Clause 13 of the terms and conditions of the said policy
contained an arbitration clause. On 25.05.2012, a fire broke 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
engulfed all of the appellant’s three godowns which had stored its
goods. All the stocks in all the three godowns were completely
destroyed. Dicitex informed the appellant on 26.05.2012, about
the fire and the consequential loss. The appellant appointed M/s.
C.P. Mehta & Co. as Surveyors and Assessors to survey the loss
suffered by Dicitex and to report on the claim to be lodged upon
3
the insurerappellant, by the said company. Dicitex lodged a total
and final claim upon the appellant for a sum of 14,88,14,327/ ₹
comprising 13,52,85,752/ towards cost of the materials ₹
destroyed and 1,35,28,575/ as overheads. Dicitex claims also ₹
to have submitted comprehensive documentary evidence and
detailed work sheets in support of the claim made to the insurer.
On 14.08.2012, after visiting Dicitex’s factory and the godowns,
and after scrutinizing the materials submitted by it in support of
its claim, the Surveyor appointed by the insurer filed a Final
Survey Report recommending that the claim be settled for an
amount of 12,93,26,704.98/ and that after deducting an ₹
amount of 5% towards compulsory deduction for excess, a net
amount of 12,28,60,369/ be paid over to Dicitex. The latter ₹
alleged that a copy of this survey report was not supplied to it, by
the insurer, or the surveyor.
3. On 20.09.2012, Dicitex addressed a letter to the appellant’s
chairman, informing him of the financial distress that it was
facing, requesting for settlement of the claim on priority basis.
Dicitex also informed him about a temporary loan obtained to
the tune of 10 crores from Union Bank of India for 3 months at ₹
4
a high rate of interest which was due for repayment in September
2012 and requested him that it would be a great financial help if
its claim could be settled on priority basis which would mitigate
their hardship. Again, on 25.10.2012, Dicitex informed the
insurer that the sale value of the goods destroyed was above 19 ₹
crores and that it had not only lost its goods but also its profits.
Dicitex informed that it had already submitted all the
documentary evidence supporting the claim to the Surveyor,
M/s. C.P. Mehta & Co., yet another letter was addressed to the
appellant’s chairman on 31.10.2012 placing on record that it had
understood from the surveyor M/s. C.P. Mehta & Co. that the
Head Office of the appellant asked for some more information in
connection with the claim. Dicitex stated that compiling,
organizing and sending various documents totalling around
35,000 in number, entailed voluminous work. It was stated that
the surveyor had already gone through those documents and had
picked up at random, sample of various concerned records.
Dicitex stated that it was arranging to compile the documents
and agreed to send them to the surveyor as soon as possible. In
other letters (dated 10.01.2012, 28.01.2013), again requests were
5
made to the insurer to release the amounts. Apparently, the
appellant appointed a Chartered Accountant (M/s Naveen Jhand
& Associates) to carry out a resurvey of the claim made by it
(Dicitex). The latter had already furnished 37,700 documents
physically, which showed the exact quantity of furnishing fabrics
in meters. Dicitex brought to the notice of the ChairmancumManaging Director that the new surveyors had asked for large
number of documents again and such documents could not be
supplied. On 09.02.2013, addressing the new surveyor M/s
Naveen Jhand, Dicitex submitted 37,700 documents and
submitted further documents to the said new surveyor. It
submitted that since the previous 9 months, it had been
providing different documents/information to different people
and submitted whatever was requested by the new surveyor in
broader form and requested them to submit their report at the
earliest.
4. In accordance with the format sent by the insurer and after
obtaining Dicitex’s signature, a cheque for 3.5 crores was ₹
handed over to it. Dicitex signed the discharge voucher on
04.03.2013, when the insurer paid the said sum of 3.5 crores to ₹
6
Dicitex as 'on account payment' in the matter of its claim. Union
Bank of India endorsed the said discharge voucher. According to
Dicitex, all data that was requisitioned by the new surveyor, was
provided by it. Several meetings took place between the
representatives of the new surveyor, the appellant and Dicitex.
Dicitex, mentioned several letters to the appellant, and the
surveyor, in 2013 regarding the release of the amounts. Dicitex
had also stated that it felt strongly that the new surveyor was
just not satisfied with whatever was provided by it though all the
data it submitted had proved its genuine claim and the intention
of the new surveyor was to somehow reduce the claim. In other
letters (such as the one dated 21.02.2014), Dicitex informed the
appellant that the surveyor was refusing to commit to any fixed
date within which they would be submitting their report and also
the appellant’s officials had no answers to its questions with
regard to when its claim would be settled. Dicitex requested the
General Manager to set a deadline to settle their claim at the
earliest. It wrote several letters to the appellant’s officers about
the huge financial losses suffered by it due to delay in settlement
7
of the claim. Dicitex informed the General Manager to settle the
claim within 15 days.
5. On 27th May, 2014, Dicitex received an email from the
appellant stating that a discharge voucher for the balance
amount of the claim payable as described was being enclosed. It
was requested to execute the voucher along with the bank's
discharge on the space earmarked on the left side and send the
scanned copy back. By the email dated 28.05.2014, Dicitex
replied to the email of 27.05.2014 and referred to the discharge
voucher sent by the appellant to it for signature. Dicitex placed
on record that its total claim was approximately 15 crores and ₹
the surveyor had assessed the same at approximately 12.93 ₹
crores. Dicitex stated that the basis for arriving at the figure of
₹7.16 crores was not explained (by the appellant). It requested
the Regional Manager of the appellant to provide the claim
assessment working for their understanding to enable Dicitex to
take up the matter with their Board of 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;
8
it, therefore, appointed M/s. Naveen Jhand and Associates to
have another look at the costing aspect and reconfirm/verify the
costing for loss assessment purpose. According to the said report
submitted by M/s. Naveen Jhand and Associates, the assessment
worked to 7,16,30,148/ and accordingly, the competent ₹
authority had granted the claim. The appellant enclosed the
working of the claim and requested Dicitex to go through it and
send an unconditional discharge voucher duly signed by it and
the bankers. Dicitex, the insured did not do so and informed the
appellant that it had noticed that what was given was just a
statement of calculation, without explanation/basis, that
adjustments had resultant deductions in Dicitex’s claim by more
than 50% as assessed by the surveyor appointed by the
appellant. Dicitex stated that since the appellant had taken 2
years to offer the final settlement of the claim, it (Dicitex) was
suffering from a huge financial constraint and had to pay bank
interest and installments, salaries and wages, hence, it was left
with no alternative but to accept the offer of the appellant
reluctantly and was accordingly sending the voucher duly
discharged by Dicitex and their bankers for doing the needful.
9
Dicitex alleged that since the appellant did not relent, and
insisted that any further payment would be made only if the
discharge voucher was executed exactly at the time and in the
form and manner as required by it as well as the letter dated
31.05.2014 was withdrawn. Dicitex stated that as it was in
urgent need of funds to meet its mounting liabilities, it was
coerced into withdrawing its earlier letter of 31.05.2014 and in
executing the discharge voucher exactly as dictated by the
respondents. By the letter dated 06.06.2014, addressed to the
Regional Manager, Dicitex withdrew the letter dated 31.05.2014
submitted along with the discharge voucher for a full and final
settlement of their claim. It requested the appellant to remit the
claim amount immediately. The discharge voucher was on the
letter head of the appellant, duly endorsed by Dicitex’s bankers.
In the discharge voucher, it was recorded that it accepted a sum
of 3,66,30,148/ in full and final settlement of its claim. It was ₹
also recorded that Dicitex voluntarily gave discharge receipt in
full and final settlement of their claim, present or future, arising
directly/indirectly in respect of the said loss/accident and
subrogated all their rights and remedies to appellant in respect of
10
the loss/damages. Further correspondence ensued whereby
Dicitex informed the appellant that since there was a huge
difference between the total amount claimed by it, and the final
claim settlement amount by the appellant, the same was required
to be discussed and resolved, failing which Dicitex would be
required to invoke the arbitration, as per clause 13 of the terms
and conditions attached to the policy. The appellant, by the letter
dated 17.07.2014 addressed to Dicitex, informed that it was
surprised by the proposal to invoke arbitration after the clean
discharge voucher was signed for the sum of 7,16,30,148/ in ₹
full and final settlement of the said loss. The respondents denied
that there existed any dispute of quantum in respect of the said
claim and contended that the amount due to Dicitex arising out
of indemnity, arising from the policy was duly verified and
assessed based on the documents submitted by Dicitex. The
appellant did not agree to Dicitex’s request for any differential
amount or request for proceeding for arbitration under the policy.
On 24.07.2014, by a letter addressed to the appellant, Dicitex
denied that the amount received by it was a clean discharge
voucher in full and final settlement of their claim and reiterated
11
that it suffered a major loss of 14,16,94,329/. The surveyor, ₹
M/s. C.P. Mehta & Co. had submitted their report assessing the
loss at 12.93 crores. Dicitex also placed on record that as ₹
against approximately 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 had occurred, and after a lapse of 27 months, the
appellant made "a take it or leave it" offer of 7.16 crores towards ₹
full and final settlement of their claim, the discharge was
accepted reluctantly by it. Dicitex alleged that upon meeting the
appellant’s officers, it was instructed to withdraw the letter of
protest and accept the claim settlement unconditionally which
was a proof of coercion.
6. The position taken by the appellant was that Dicitex was
paid 7,16,30,148/ in a clean discharge and full and final ₹
settlement of their claim and there existed no dispute with regard
to the quantum of claim and refused to appoint any arbitrator. In
these circumstances, Dicitex approached the Bombay High Court
under Section 11(6) of the Act, for appointment of an arbitrator.
Dicitex relied on the assessment of M/s C.P. Mehta & Co., which
had assessed the loss at 12.93 crores. It contended that the ₹
12
appellant released only 3.50 crores on 4.03.2013 i.e. almost 10 ₹
months after the loss suffered by Dicitex due to fire, and only
after a lapse of 27 months made "a take it or leave it" offer of
₹7.16 crores towards full and final settlement of their claim.
Dicitex stated that it had taken a loan of a substantial amount
and had to bear the extra burden of high interest and found itself
defaulting on timely loan repayments. It was further submitted
that Dicitex was unable to pay income tax on time, as a result of
which, it had to pay a sum of 23.90 lacs in the year 20122013 ₹
and a sum of 11.10 lakhs in the year 20132014 towards ₹
interest for the delayed payments of income tax. It was also
argued, on behalf of Dicitex, that it was subjected to economic
duress and coercion which resulted in the signing of the
discharge voucher, which could not preclude its invocation of the
arbitration agreement.
7. The appellant resisted the application, contending that
Dicitex had not demonstrated whether the second discharge
voucher signed by it was under economical or financial duress
under the arbitration agreement. It was urged that since Dicitex
had signed the discharge voucher and accepted the payment
13
made by the respondents unconditionally and confirmed that the
said payment was received in full and final settlement of their
claim, present or future, arising directly/indirectly in respect of
the said loss/accident and subrogated all their rights and
remedies to the appellant in respect of the loss/damages, there
exists no dispute between the parties which can be referred to
arbitration. It was argued that Dicitex having signed the
discharge voucher for 7,16,30,148/ in full and final settlement ₹
due to alleged loss suffered by Dicitex, the arbitration application
was not maintainable. It was submitted that the appellant had
replied to the letter dated 21.06.2014 stating that Dicitex had
withdrawn only discharge voucher dated 31.05.2014. The
appellant also stated that in the arbitration agreement itself,
Dicitex had to explain the exact correctness of the allegation of
coercion and duress with details and particulars about signing
the discharge voucher. It was further contended that though the
payment was received by Dicitex on 09.06.2014, it raised protest
only on 21.06.2014. Even in the letter dated 21st June 2014,
Dicitex referred to the discharge voucher dated 31.05.2014 which
was not admittedly acted upon by the insurer. Dicitex did not
14
resile from the discharge voucher dated 31.05.2014, and thus on
that ground also, this arbitration application is not maintainable.
8. The appellant relied on some decisions of this court (New
Indian Assurance Co. Ltd v Genus Power Infrastructure Ltd. (2015)
2 SCC 424. National Insurance Co. Ltd v Boghara Polyfab Pvt
Ltd (2009) 1 SCC 267; Union of India (UOI) and Ors. v Master
Construction Co. (2011) 12 SCC 349 etc.
9. In the impugned judgment, while allowing the application,
the single judge analysed the decisions of this court, including
Boghara Polyfab (supra). It was noted that a perusal of the
correspondence prima facie indicated that the first surveyor
appointed by the insurer had recommended the payment of more
than 12 crores in favour of Dicitex. For some reasons, the ₹
appellant did not accept the said report submitted by their own
surveyor and instead appointed M/s Naveen Jhand and
Associates to recompute the costings. It was also held that
Dicitex had furnished more than 37,700 documents to the
surveyor for their appraisal for submitting the report. Dicitex had
placed on record from time to time, documents to show that it
had taken loans from the banks who were pressurising it for
15
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 months
of the fire having taken place, which caused loss to Dicitex.
Dicitex had produced about 11 letters addressed by the banks to
Dicitex, calling upon Dicitex to regularize their bank accounts
and showing the excess amount drawn by it in various accounts.
Dicitex had also placed on record, the conduct of the second
surveyor, who was, according to it, demanding several other
documents which were unwarranted and/or already submitted
by it. The learned judge noticed that prima facie, Dicitex was
facing financial distress and economical duress and in view of its
various urgent business liabilities, it apparently signed the said
discharge voucher reluctantly. It is not in dispute that the
appellant refused to accept such discharge voucher signed by
Dicitex with letter of protest. Therefore, a few days later, a
discharge voucher was signed by Dicitex. It was, however,
Dicitex’s case that the appellant had insisted upon it to sign a
clean discharge voucher and to withdraw the letter of protest
addressed by it, failing which, the insurer would not release the
16
amount, even that was reflected in the discharge voucher. Dicitex
thereafter withdrew the letter dated 31.05.2014, and signed
another discharge voucher. After signing another discharge
voucher, Dicitex placed on record their objection that the same
was signed due to pressure of the respondents.
10. In view of the analysis made, the single judge allowed the
application, observing as follows:
“57. On perusal of the large number of
correspondence exchanged between Dicitex and
the respondents which were not disputed by the
respondents, in my prima facie view, it indicates
that Dicitex was facing the financial constraint
and economical and financial duress on the part
of the respondents in not sanctioning and paying
the final claim for 27 months from the date of fire.
Dicitex having faced pressure from their bankers
and suffering from other business liabilities
including the demand of income tax department,
Dicitex was under the economical and financial
duress and the said discharge voucher thus, in
my prima facie view, cannot be considered as an
unconditional discharge voucher thereby Dicitex
giving up their claim in future arising out of the
said discharge voucher.
58. In my view, if Dicitex would not have signed
such discharge voucher acknowledging the
payment of the lesser amount than what was
alleged to be due to Dicitex after 27 months of the
loss suffered, the respondents would not have
released even the said amount mentioned in the
discharge voucher. In my view, if according to the
17
respondents, Dicitex was not entitled to recover
the amount as claimed by Dicitex, but the lesser
amount, the respondents could have released the
amount as payable according to the respondents,
but could not have insisted for execution of a
discharge voucher as a precondition before
releasing such payment.
59. Learned counsel for the respondents could not
refer to any provision in the insurance policy or
any other provision of law in support of their claim
that the respondents were entitled to insist for
execution of such discharge voucher before
releasing any payment in favour of Dicitex with a
confirmation not to make any claim in future
arising out of the said claim. The Supreme Court
has already deprecated the practice followed by
the government departments, statutory
corporations and government companies for
obtaining such undated discharge voucher as the
condition for releasing lesser amount and has
held that the said procedure is unfair, irregular
and illegal. Though the Chief Justice or his
designate is empowered to decide the issue as to
whether the parties had concluded the contract by
recording satisfaction of their mutual rights and
obligations thereby receiving the final payment
without objection based on the affidavits and the
pleadings or can leave the said issue to be
decided by the arbitral tribunal, in my view, it
would be appropriate if the issue raised by the
respondents that Dicitex had signed such
discharge voucher unconditionally and the issue
raised by Dicitex that the same was under duress
and coercion is conclusively decided by the
arbitral tribunal and if necessary, by leading oral
evidence. The learned designate of the Chief
Justice in case of M/s.Yasho Industries Pvt. Ltd.
Vs. The New India Assurance Company Limited in
18
Arbitration Petition No.314 of 2014 decided on
24th June 2015 which is relied upon by one of the
party has taken a similar view. Special Leave
Petition against the said order is rejected.
60. In so far as the issue of arbitrability of the
claim raised by the respondents on the ground
that Dicitex proposed to make the claim amount
higher than the insured sum is concerned, if any
claim higher than the insured sum is made by
Dicitex before the arbitral tribunal, the
respondents can raise such issue of arbitrability
and the same can be decided by the arbitral
tribunal. The issue of arbitrability of claim on such
ground cannot be decided in these proceedings.
61. Clause 13 of the arbitration agreement of the
policy which provides that if any dispute or
difference shall arise as to the quantum to be paid
under the policy, such difference shall be referred
to the decision of a sole arbitrator to be appointed
in writing by the parties or if they cannot agree
upon a single arbitrator within 30 days of any
party invoking arbitration, the same shall be
referred to a panel of three arbitrators. Since the
respondents have refused to appoint any
arbitrator out of the names suggested by Dicitex in
their letter dated 14th July 2014 and had not
suggested any other name, this application filed
under Section 11 (6) of the Arbitration Act is
maintainable. In my view, the arbitration
agreement exists between 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) and having regard to the facts
19
and circumstances of this case, there can be no question
that any arbitrable dispute existed between the parties.
Having accepted the proffered amounts, and having
withdrawn the reservation and protest, Dicitex could not
have argued that it was subjected to coercion or that the
appellant forced it to sign the final discharge voucher.
Emphasis is placed on Dicitex’s letter dated 06.06.2014,
whereby it withdrew the previous letter dated 31.05.2014,
which had contained reservations about the amount offered
in full settlement.
12. Counsel for Dicitex urges that this court should not
interfere with the impugned judgment. It was urged that the
material in the form of the record, particularly the
consistent trend of letters, prior to the letter of 06.06.2014
as well as the correspondence after that, clearly reveal that
Dicitex was undergoing severe financial crisis and that the
prolonged process of settlement claim constrained it to issue
the said letter of 06.06.2014. However, the fact remained
that at the relevant time, it faced a crisis of existence. Its
acceptance was under financial compulsion which
20
amounted to economic coercion. Therefore, the learned
single judge very properly analysed all these materials and
held that prima facie, there was no full and final settlement
or discharge.
Analysis & Conclusions
13. The main theme of the appellant’s argument in this
case is that Dicitex could not have invoked the arbitration
clause, since it had fully and finally accepted the amount
offered (i.e..) and withdrawn its protests and reservations,
by the letter dated 06.06.2014. It cites the decisions in
Boghara Polyfab, Master Construction and Genus Power
(supra) in this regard.
14. The issue of the court’s jurisdiction to examine
whether a dispute is arbitrable, in the context of no
objection certificates or discharge vouchers, was examined
in Boghara Polyfab for the first time. This court in the
context of an application under Section 11(6) dealt with the
issue, holding that if there was accord and satisfaction due
to a no dues certificate, a reference under Section 11 was
not maintainable. It held, inter alia, that:
21
"51. Let us consider what a civil court would have
done in a case where the defendant puts forth the
defence of accord and satisfaction on the basis of
a full and final discharge voucher issued by the
plaintiff, and the plaintiff alleges that it was
obtained by fraud/coercion/undue influence and
therefore not valid. It would consider the evidence
as to whether there was any fraud, coercion or
undue influence. If it found that there was none, it
will accept the voucher as being in discharge of
the contract and reject the claim without
examining the claim on merits. On the other hand,
if it found that the discharge voucher had been
obtained by fraud/undue influence/coercion, it
will ignore the same, examine whether the
plaintiff had made out the claim on merits and
decide the matter accordingly. The position will be
the same even when there is a provision for
arbitration.
52. Some illustrations (not exhaustive) as to when
claims are arbitrable and when they are not,
when discharge of contract by accord and
satisfaction are disputed, to round up the
discussion on this subject:
(i) A claim is referred to a conciliation or a prelitigation Lok Adalat. The parties negotiate and
arrive at a settlement. The terms of settlement are
drawn up and signed by both the parties and
attested by the Conciliator or the members of the
Lok Adalat. After settlement by way of accord and
satisfaction, there can be no reference to
arbitration.
(ii) A claimant makes several claims. The admitted
or undisputed claims are paid. Thereafter
negotiations are held for settlement of the
disputed claims resulting in an agreement in
writing settling all the pending claims and
disputes. On such settlement, the amount agreed
22
is paid and the contractor also issues a discharge
voucher/no claim certificate/full and final receipt.
After the contract is discharged by such accord
and satisfaction, neither the contract nor any
dispute survives for consideration. There cannot
be any reference of any dispute to arbitration
thereafter.
(iii) A contractor executes the work and claims
payment of say Rupees Ten Lakhs as due in
terms of the contract. The employer admits the
claim only for Rupees six lakhs and informs the
contractor either in writing or orally that unless
the contractor gives a discharge voucher in the
prescribed format acknowledging receipt of
Rupees Six Lakhs in full and final satisfaction of
the contract, payment of the admitted amount will
not be released. The contractor who is hard
pressed for funds and keen to get the admitted
amount released, signs on the dotted line either in
a printed form or otherwise, stating that the
amount is received in full and final settlement. In
such a case, the discharge is under economic
duress on account of coercion employed by the
employer. Obviously, the discharge voucher
cannot be considered to be voluntary or as having
resulted in discharge of the contract by accord
and satisfaction. It will not be a bar to arbitration.
(iv) An insured makes a claim for loss suffered.
The claim is neither admitted nor rejected. But the
insured is informed during discussions that
unless the claimant gives a full and final voucher
for a specified amount (far lesser than the amount
claimed by the insured), the entire claim will be
rejected. Being in financial difficulties, the
claimant agrees to the demand and issues an
undated discharge voucher in full and final
settlement. Only a few days thereafter, the
admitted amount mentioned in the voucher is
paid. The accord and satisfaction in such a case
23
is not voluntary but under duress, compulsion and
coercion. The coercion is subtle, but very much
real. The `accord' is not by free consent. The
arbitration agreement can thus be invoked to refer
the disputes to arbitration.
(v) A claimant makes a claim for a huge sum, by
way of damages. The respondent disputes the
claim. The claimant who is keen to have a
settlement and avoid litigation, voluntarily
reduces the claim and requests for settlement. The
respondent agrees and settles the claim and
obtains a full and final discharge voucher. Here
even if the claimant might have agreed for
settlement due to financial compulsions and
commercial pressure or economic duress, the
decision was his free choice. There was no threat,
coercion or compulsion by the respondent.
Therefore, the accord and satisfaction is binding
and valid and there cannot be any subsequent
claim or reference to arbitration.
52. Let us now examine the receipt that has been
taken in this case. It is undated and is in a pro
forma furnished by the appellant containing
irrelevant and inappropriate statements. It states:
"I/we hereby assign to the company, my/our right
to the affected property stolen which shall, in the
event of their recovery, be the property of the
company". The claim was not in regard to theft of
any property nor was the claim being settled in
respect of a theft claim. We are referring to this
aspect only to show how claimants are required to
sign on the dotted line, and how such vouchers
are insisted and taken mechanically without
application of mind."
15. In Master Construction (supra), this Court held that:
24
"20. The Bench in Boghara Polyfab Private Limited
in paragraphs 42 and 43, with reference to the
cases cited before it, inter alia, noted that there
were two categories of the cited cases; (one)
where the Court after considering the facts found
that there was a full and final settlement resulting
in accord and satisfaction, and there was no
substance in the allegations of coercion/undue
influence and, consequently, it was held that
there could be no reference of any dispute to
arbitration and (two) where the court found some
substance in the contention of the claimants that
`no dues/claim certificates' or `full and final
settlement discharge vouchers' were insisted and
taken (either in printed format or otherwise) as a
condition precedent for release of the admitted
dues and thereby giving rise to an arbitrable
dispute.
21. In Boghara Polyfab Private Limited, the
consequences of discharge of the contract were
also considered. In para 25 (page 284), it was
explained that when a contract has been fully
performed, then there is a discharge of the
contract by performance and the contract comes to
an end and in regard to such a discharged
contract, nothing remains and there cannot be any
dispute and, consequently, there cannot be
reference to arbitration of any dispute arising from
a discharged contract. It was held that the
question 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, such question is
arbitrable. The Court, however, noted an exception
to this proposition. The exception noticed is that
where both the parties to a contract confirm in
writing that the contract has been fully and finally
discharged by performance of all obligations and
there are no outstanding claims or disputes,
25
courts will not refer any subsequent claim or
dispute to arbitration. Yet another exception noted
therein is with regard to those cases where one of
the parties to the contract issues a full and final
discharge voucher (or nodues 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. It was observed
that issuance of full and final discharge voucher
or nodues certificate of that kind amounts to
discharge of the contract by acceptance or
performance and the party issuing the discharge
voucher/certificate cannot thereafter make any
fresh claim or revive any settled claim nor can it
seek reference to arbitration in respect of any
claim.
22. In paragraph 26 (pages 284285), this Court in
Boghara Polyfab Private Limited held that if a
party which has executed the discharge
agreement or discharge voucher, alleges that the
execution of such document was on account of
fraud/coercion/undue influence practiced by the
other party, and if that party establishes the
same, then such discharge voucher or agreement
is rendered void and cannot be acted upon and
consequently, any dispute raised by such party
would be arbitrable.
23. In paragraph 24 (page 284) in Boghara
Polyfab Private Limited, this Court held that a
claim for arbitration cannot be rejected merely or
solely on the ground that a settlement agreement
or discharge voucher has been executed by the
claimant. The Court stated that such dispute will
have to be decided by the Chief Justice/his
designate in the proceedings under Section 11 of
the 1996 Act or by the Arbitral Tribunal.
24. In our opinion, there is no rule of the absolute
kind. In a case where the claimant contends that
26
a discharge voucher or noclaim certificate has
been obtained by fraud, coercion, duress or undue
influence and the other side contests the
correctness thereof, the Chief Justice/his
designate must look into this aspect to find out at
least, prima facie, whether or not the dispute is
bona fide and genuine. Where the dispute raised
by the claimant with regard to validity of the
discharge voucher or noclaim certificate or
settlement agreement, prima facie, appears to be
lacking in credibility, there may not be necessity
to refer the dispute for arbitration at all. It cannot
be overlooked that the cost of arbitration is quite
huge most of the time, it runs in six and seven
figures. It may not be proper to burden a party,
who contends that the dispute is not arbitrable on
account of discharge of contract, with huge cost of
arbitration merely because plea of fraud, coercion,
duress or undue influence has been taken by the
claimant. A bald plea of fraud, coercion, duress or
undue influence is not enough and the party who
sets up such plea must prima facie establish the
same by placing material before the Chief
Justice/his designate. If the Chief Justice/his
designate finds some merit in the allegation of
fraud, coercion, duress or undue influence, he
may decide the same or leave it to be decided by
the Arbitral Tribunal. On the other hand, if such
plea is found to be an afterthought, makebelieve
or lacking in credibility, the matter must be set at
rest then and there."
16. In Genus Power (supra), the relevant observations of
this court are as follows:
"8. It is therefore clear that a bald plea of fraud,
coercion, duress or undue influence is not enough
and the party who sets up a plea, must prime
facie establish the same by placing material
27
before the Chief Justice/his designate. Viewed
thus, the relevant averments in the petition filed
by the Respondent need to be considered, which
were to the following effect:
************** *************
(g) That the said surveyor, in connivance with the
Respondent Company, in order to make the
Respondent Company escape its full liability of
compensating the Petitioner of such huge loss,
acted in a biased manner, adopted coercion
undue influence and duress methods of assessing
the loss and forced the Petitioner to sign certain
documents including the Claim Form. The
Respondent Company also denied the just claim
of the Petitioner by their acts of omission and
commission and by exercising coercion and undue
influence and made the Petitioner Company sign
certain documents, including a preprepared
discharge voucher for the said amount in
advance, which the Petitioner Company were
forced to do so in the period of extreme financial
difficulty which prevailed during the said period.
As stated aforesaid, the Petitioner Company was
forced to sign several documents including a letter
accepting the loss amounting to Rs. 6,09,55,406/
and settle the claim of Rs. 5,96,08,179/ as
against the actual loss amount of Rs.
28,79,08,116/ against the interest of the
Petitioner company. The said letter and the
aforesaid preprepared discharge voucher stated
that the Petitioner had accepted the claim amount
in full and final settlement and thus, forced the
Petitioner company to unilateral acceptance the
same. The Petitioner company was forced to sign
the said document under duress and coercion by
the Respondent Company. The Respondent
Company further threatened the Petitioner
Company to accept the said amount in full and
final or the Respondent Company will not pay any
28
amount toward the fire policy. It was under such
compelling circumstances that the Petitioner
company was forced and under duress was made
to sign the acceptance letter.
9. In our considered view, the plea raised by the
Respondent is bereft of any details and
particulars, and cannot be anything but a bald
assertion. Given the fact that there was no protest
or demur raised around the time or soon after the
letter of subrogation was signed, that the notice
dated 31.03.2011 itself was nearly after three
weeks and that the financial condition of the
Respondent was not so precarious that it was left
with no alternative but to accept the terms as
suggested, we are of the firm view that the
discharge in the present case and signing of letter
of subrogation were not because of exercise of any
undue influence. Such discharge and signing of
letter of subrogation was voluntary and free from
any coercion or undue influence. In the
circumstances, we hold that upon execution of the
letter of subrogation, there was full and final
settlement of the claim. Since our answer to the
question, whether there was really accord and
satisfaction, is in the affirmative, in our view no
arbitrable dispute existed so as to exercise power
Under Section 11 of the Act. The High Court was
not therefore justified in exercising power Under
Section 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
29
Petrochemicals Ltd. v ANS Constructions Ltd. and Anr. (2018)
3 SCC 373, the court held as follows:
"24. From the materials on record, we find that the
contractee Company had issued the "No Dues/No
Claim Certificate" on 21.09.2012, it had received
the full amount of the final bill being Rs. 20.34
crores on 10.10.2012 and after 12 days
thereafter, i.e., only on 24.10.2012, the
contracteeCompany withdrew letter dated
21.09.2012 issuing "No Dues/No Claim
Certificate". Apart from it, we also find that the
Final Bill has been mutually signed by both the
parties to the Contract accepting the quantum of
work done, conducting final measurements as per
the Contract, arriving at final value of work, the
payments made and the final payment that was
required to be made. The contracteeCompany
accepted the final payment in full and final
satisfaction of all its claims. We are of the
considered opinion that in the presents facts and
circumstances, the raising of the Final Bill and
mutual agreement of the parties in that regard, all
claims, rights and obligation of the parties merge
with the Final Bill and nothing further remains to
be done. Further, the AppellantContractor issued
the Completion Certificate dated 19.06.2013
pursuant to which the AppellantContractor has
been discharged of all the liabilities. With regard
to the issue that the "NoDues Certificate" had
been given under duress and coercion, we are of
the opinion that there is nothing on record to prove
that the said Certificate had been given under
duress or coercion and as the Certificate itself
provided a clearance of no dues, the contractee
could not now turn around and say that any
further payment was still due on account of the
losses incurred during the execution of the
30
Contract. The story about duress was an
afterthought in the background that the losses
incurred during the execution of the Contract were
not visualised earlier by the contractee. As to
financial duress or coercion, nothing of this kind is
established prima facie. Mere allegation that noclaim certificates have been obtained under
financial duress and coercion, without there being
anything more to suggest that, does not lead to an
arbitrable dispute. The conduct of the contractee
clearly shows that "noclaim certificate" was given
by it voluntarily; the contractee accepted the
amount voluntarily and the contract was
discharged voluntarily.
Conclusion:
25. Admittedly, NoDues Certificate was
submitted by the contracteeCompany on
21.09.2012 and on their request Completion
Certificate was issued by the AppellantContractor. The contractee, after a gap of one
month, that is, on 24.10.2012, withdrew the No
Dues Certificate on the grounds of coercion and
duress and the claim for losses incurred during
execution of the Contract site was made vide letter
dated 12.01.2013, i.e., after a gap of 3 1/2 (three
and a half) months whereas the Final Bill was
settled on 10.10.2012. When the contractee
accepted the final payment in full and final
satisfaction of all its claims, there is no point in
raising the claim for losses incurred during the
execution of the Contract at a belated stage which
creates an iota of doubt as to why such claim was
not settled at the time of submitting Final Bills
that too in the absence of exercising duress or
coercion on the Contractee by the AppellantContractor. In our considered view, the plea raised
by the contracteeCompany is bereft of any details
and particulars, and cannot be anything but a
bald assertion. In the circumstances, there was
31
full and final settlement of the claim and there
was really accord and satisfaction and in our
view no arbitrable dispute existed so as to
exercise power Under Section 11 of the Act. The
High Court was not, therefore, justified in
exercising power Under Section 11 of the Act."
18. It is clear that in Boghara Polyfab (supra), no rule of
universal application was indicated. No doubt, subsequent
judgments which followed it, were in the context of the
facts as were presented to the court. Proposition (iii) of the
conclusions recorded in Boghara Polyfab (supra) visualize
duress or coercion on account of withholding of payments
due. The court – in more places than one, recognized that
an aggrieved party can be the victim of economic coercion
which results in its signing a document which discharges
the other party of its obligations. Master Construction
(supra) placed the matter in perspective, when the court
enunciated the principle in the following terms:
“In our opinion, there is no rule of the absolute
kind. In a case where the claimant contends that
a discharge voucher or noclaim certificate has
been obtained by fraud, coercion, duress or undue
influence and the other side contests the
correctness thereof, the Chief Justice/his
designate must look into this aspect to find out at
least, prima facie, whether or not the dispute is
32
bona fide and genuine. Where the dispute raised
by the claimant with regard to validity of the
discharge voucher or noclaim certificate or
settlement agreement, prima facie, appears to be
lacking in credibility, there may not be necessity
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
insufficient for a court to hold that the accord/satisfaction
or no dues certificate was involuntarily given.
19. A close look at the facts in the present case would
show that though the pleadings in the initial application
under Section 11(6) are weak, 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
facing financial crisis; it referred to credits obtained for its
business and the urgency to pay back the bank. It is a
matter of record that the Surveyor’s report, dated
14.08.2014, recommended payment of 12,93,26,704.98/ ₹
to Dicitex. Equally, it is a matter of record that the
appellant referred the matter to a chartered accountant’s
33
firm, to verify certain inventory and 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 Dicitex, by May, 2014. Dicitex’s application
under Section 11(6) is replete with references to the
number of letters written to the appellant, seeking release
of amounts; it also averred to inability to pay its 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 which led it to execute the no objection
discharge voucher, are reproduced below:
“31. The Respondents did not pay anything to
the Petitioner after the submission of its letter,
dated 31st May, 2014 and the submission of its
letter, dated 31st May, 2014 and therefore
several telephonic calls were made on behalf of
the Petitioner, to the Respondent’s Regional
Office at Mumbai in an effort to persuade the
Respondents to increase the settlement amount
so as to include the differential amount of about
Rs. 7 crores. The Petitioner also specifically
requested the Respondents not to, in any event,
insist on the execution of the Discharge Voucher
strictly as prescribed as a condition precedent
34
for the payment of any part of the balance
amount of claim.
32. Since, on the one hand, the Respondents
did not show any inclination to relent on any
count and instead continued to insist continued
to insist that any further payment would be
made to the Petitioner if and only if the
Discharge Voucher was executed exactly at the
time and in the form and manner as required by
the Respondents as well as the letter dated 31st
May, 2014 withdrawn and, on the other hand,
the Petitioner was in urgent need of funds to
meet its mounting liabilities the Petitioner was
forced to withdraw its earlier letter dated 31st
May, 2014 and coerced into executing the
Discharge Voucher exactly as dictated by the
Respondents. Accordingly, the Petitioner wrote a
letter dated 6th June, 2014 to the Respondent No.
2 stating therein that it was withdrawing its
letter dated 31st May, 214 and also enclosing
the duly executed discharge Voucher. The
Petitioner also requested that the claim amount
be paid over to it, immediately.”
The averments in the application, later are that the
appellant paid the amount. Dicitex, nevertheless later, by three
letters questioned the basis of reduction of the amount of claim.
It later alleged that it wrote a letter “dated 14th July, 2014 to the
respondents stating therein, inter alia, that since they were forced
to accept the offered amount and that since there was a dispute on
the quantum of claim settlement paid to the Petitioner, the
35
Petitioner was invoking arbitration proceedings under Clause 13 of
the said Policy to recover the differential amount.”
21. An overall reading of Dicitex’s application (under
Section 11(6)) clearly shows that its grievance with respect to the
involuntary nature of the discharge voucher was articulated. It
cannot be disputed, that several letters – spanning over two
years stating that it was facing financial crisis on account of the
delay in settling the claim, were addressed to the appellant. This
court is conscious of the fact that an application under Section
11(6) is in the form of a pleading which merely seeks an order of
the court, for appointment of an arbitrator. It cannot be
conclusive of the pleas or contentions that the claimant or the
concerned party can take, in the arbitral proceedings. At this
stage, therefore, the court which is required to ensure that an
arbitrable dispute exists, has to be prima facie convinced about
the genuineness or credibility of the plea of coercion; it cannot be
too particular about the nature of the plea, which necessarily has
to be made and established in the substantive (read: arbitration)
proceeding. If the court were to take a contrary approach and
minutely examine the plea and judge its credibility or
36
reasonableness, there would be a danger of its denying a forum
to the applicant altogether, because rejection of the application
would render the finding (about the finality of the discharge and
its effect as satisfaction) final, thus, precluding the applicant of
its right event to approach a civil court. There are decisions of
this court (Associated Construction v Pawanhans Helicopters
Ltd. (2008) 16 SCC 128 and Boghara Polyfab (supra) upheld the
concept of economic duress. Having regard to the facts and
circumstances, this court is of the opinion that the reasoning in
the impugned judgment cannot be faulted.
22. In view of the foregoing discussion, the appeal is held
to be unmerited; it is dismissed, without order as to costs.
........................................J.
[ARUN MISHRA]
........................................J.
[S. RAVINDRA BHAT]
New Delhi,
November 13, 2019.
The Oriental Insurance Co. Ltd (hereafter “the insurer” or “the appellant”) appeals the decision of a single judge of the Bombay High Court, who allowed the respondent’s
application under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereafter “the Act”) and appointed an arbitrator. - The insurer’s objection about maintainability of the 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 there was no arbitrable dispute, was rejected.
Apex court held that
An overall reading of Dicitex’s application (under Section 11(6)) clearly shows that its grievance with respect to the involuntary nature of the discharge voucher was articulated. It
cannot be disputed, that several letters – spanning over two years stating that it was facing financial crisis on account of the delay in settling the claim, were addressed to the appellant. This
court is conscious of the fact that an application under Section 11(6) is in the form of a pleading which merely seeks an order of the court, for appointment of an arbitrator. It cannot be
conclusive of the pleas or contentions that the claimant or the concerned party can take, in the arbitral proceedings.
At this stage, therefore, the court which is required to ensure that an arbitrable dispute exists, has to be prima facie convinced about the genuineness or credibility of the plea of coercion; it cannot be
too particular about the nature of the plea, which necessarily has to be made and established in the substantive (read: arbitration) proceeding. If the court were to take a contrary approach and
minutely examine the plea and judge its credibility or reasonableness, there would be a danger of its denying a forum to the applicant altogether, because rejection of the application
would render the finding (about the finality of the discharge and its effect as satisfaction) final, thus, precluding the applicant of its right event to approach a civil court.
There are decisions of this court (Associated Construction v Pawanhans Helicopters
Ltd. (2008) 16 SCC 128 and Boghara Polyfab (supra) upheld the concept of economic duress. Having regard to the facts and circumstances, this court is of the opinion that the reasoning in
the impugned judgment cannot be faulted.
1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL No. 8550 OF 2019
(ARISING OUT OF SLP (C) NO. 34186 OF 2015)
THE ORIENTAL INSURANCE CO. LTD.
& ANR. ...APPELLANTS
VERSUS
DICITEX FURNISHING LTD. ...RESPONDENT
J U D G M E N T
S. RAVINDRA BHAT, J.
1. Leave granted. With the consent of counsel, the appeal was
heard finally. The Oriental Insurance Co. Ltd (hereafter “the
insurer” or “the appellant”) appeals the decision of a single judge
of the Bombay High Court, who allowed the respondent’s
application under Section 11(6) of the Arbitration and
Conciliation Act, 1996 (hereafter “the Act”) and appointed an
2
arbitrator. The insurer’s objection about maintainability of the
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 there was no arbitrable dispute, was rejected.
2. The relevant facts in this appeal are that on 17.09.2011,
Dicitex obtained a Standard Fire and Special Peril Policy; it was
issued by the appellant to cover the stocks of goods lying in its
three separate godowns located at Thane, Maharashtra, by three
separate endorsements. The total sum insured was @ 13 crores. ₹
Clause 13 of the terms and conditions of the said policy
contained an arbitration clause. On 25.05.2012, a fire broke 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
engulfed all of the appellant’s three godowns which had stored its
goods. All the stocks in all the three godowns were completely
destroyed. Dicitex informed the appellant on 26.05.2012, about
the fire and the consequential loss. The appellant appointed M/s.
C.P. Mehta & Co. as Surveyors and Assessors to survey the loss
suffered by Dicitex and to report on the claim to be lodged upon
3
the insurerappellant, by the said company. Dicitex lodged a total
and final claim upon the appellant for a sum of 14,88,14,327/ ₹
comprising 13,52,85,752/ towards cost of the materials ₹
destroyed and 1,35,28,575/ as overheads. Dicitex claims also ₹
to have submitted comprehensive documentary evidence and
detailed work sheets in support of the claim made to the insurer.
On 14.08.2012, after visiting Dicitex’s factory and the godowns,
and after scrutinizing the materials submitted by it in support of
its claim, the Surveyor appointed by the insurer filed a Final
Survey Report recommending that the claim be settled for an
amount of 12,93,26,704.98/ and that after deducting an ₹
amount of 5% towards compulsory deduction for excess, a net
amount of 12,28,60,369/ be paid over to Dicitex. The latter ₹
alleged that a copy of this survey report was not supplied to it, by
the insurer, or the surveyor.
3. On 20.09.2012, Dicitex addressed a letter to the appellant’s
chairman, informing him of the financial distress that it was
facing, requesting for settlement of the claim on priority basis.
Dicitex also informed him about a temporary loan obtained to
the tune of 10 crores from Union Bank of India for 3 months at ₹
4
a high rate of interest which was due for repayment in September
2012 and requested him that it would be a great financial help if
its claim could be settled on priority basis which would mitigate
their hardship. Again, on 25.10.2012, Dicitex informed the
insurer that the sale value of the goods destroyed was above 19 ₹
crores and that it had not only lost its goods but also its profits.
Dicitex informed that it had already submitted all the
documentary evidence supporting the claim to the Surveyor,
M/s. C.P. Mehta & Co., yet another letter was addressed to the
appellant’s chairman on 31.10.2012 placing on record that it had
understood from the surveyor M/s. C.P. Mehta & Co. that the
Head Office of the appellant asked for some more information in
connection with the claim. Dicitex stated that compiling,
organizing and sending various documents totalling around
35,000 in number, entailed voluminous work. It was stated that
the surveyor had already gone through those documents and had
picked up at random, sample of various concerned records.
Dicitex stated that it was arranging to compile the documents
and agreed to send them to the surveyor as soon as possible. In
other letters (dated 10.01.2012, 28.01.2013), again requests were
5
made to the insurer to release the amounts. Apparently, the
appellant appointed a Chartered Accountant (M/s Naveen Jhand
& Associates) to carry out a resurvey of the claim made by it
(Dicitex). The latter had already furnished 37,700 documents
physically, which showed the exact quantity of furnishing fabrics
in meters. Dicitex brought to the notice of the ChairmancumManaging Director that the new surveyors had asked for large
number of documents again and such documents could not be
supplied. On 09.02.2013, addressing the new surveyor M/s
Naveen Jhand, Dicitex submitted 37,700 documents and
submitted further documents to the said new surveyor. It
submitted that since the previous 9 months, it had been
providing different documents/information to different people
and submitted whatever was requested by the new surveyor in
broader form and requested them to submit their report at the
earliest.
4. In accordance with the format sent by the insurer and after
obtaining Dicitex’s signature, a cheque for 3.5 crores was ₹
handed over to it. Dicitex signed the discharge voucher on
04.03.2013, when the insurer paid the said sum of 3.5 crores to ₹
6
Dicitex as 'on account payment' in the matter of its claim. Union
Bank of India endorsed the said discharge voucher. According to
Dicitex, all data that was requisitioned by the new surveyor, was
provided by it. Several meetings took place between the
representatives of the new surveyor, the appellant and Dicitex.
Dicitex, mentioned several letters to the appellant, and the
surveyor, in 2013 regarding the release of the amounts. Dicitex
had also stated that it felt strongly that the new surveyor was
just not satisfied with whatever was provided by it though all the
data it submitted had proved its genuine claim and the intention
of the new surveyor was to somehow reduce the claim. In other
letters (such as the one dated 21.02.2014), Dicitex informed the
appellant that the surveyor was refusing to commit to any fixed
date within which they would be submitting their report and also
the appellant’s officials had no answers to its questions with
regard to when its claim would be settled. Dicitex requested the
General Manager to set a deadline to settle their claim at the
earliest. It wrote several letters to the appellant’s officers about
the huge financial losses suffered by it due to delay in settlement
7
of the claim. Dicitex informed the General Manager to settle the
claim within 15 days.
5. On 27th May, 2014, Dicitex received an email from the
appellant stating that a discharge voucher for the balance
amount of the claim payable as described was being enclosed. It
was requested to execute the voucher along with the bank's
discharge on the space earmarked on the left side and send the
scanned copy back. By the email dated 28.05.2014, Dicitex
replied to the email of 27.05.2014 and referred to the discharge
voucher sent by the appellant to it for signature. Dicitex placed
on record that its total claim was approximately 15 crores and ₹
the surveyor had assessed the same at approximately 12.93 ₹
crores. Dicitex stated that the basis for arriving at the figure of
₹7.16 crores was not explained (by the appellant). It requested
the Regional Manager of the appellant to provide the claim
assessment working for their understanding to enable Dicitex to
take up the matter with their Board of 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;
8
it, therefore, appointed M/s. Naveen Jhand and Associates to
have another look at the costing aspect and reconfirm/verify the
costing for loss assessment purpose. According to the said report
submitted by M/s. Naveen Jhand and Associates, the assessment
worked to 7,16,30,148/ and accordingly, the competent ₹
authority had granted the claim. The appellant enclosed the
working of the claim and requested Dicitex to go through it and
send an unconditional discharge voucher duly signed by it and
the bankers. Dicitex, the insured did not do so and informed the
appellant that it had noticed that what was given was just a
statement of calculation, without explanation/basis, that
adjustments had resultant deductions in Dicitex’s claim by more
than 50% as assessed by the surveyor appointed by the
appellant. Dicitex stated that since the appellant had taken 2
years to offer the final settlement of the claim, it (Dicitex) was
suffering from a huge financial constraint and had to pay bank
interest and installments, salaries and wages, hence, it was left
with no alternative but to accept the offer of the appellant
reluctantly and was accordingly sending the voucher duly
discharged by Dicitex and their bankers for doing the needful.
9
Dicitex alleged that since the appellant did not relent, and
insisted that any further payment would be made only if the
discharge voucher was executed exactly at the time and in the
form and manner as required by it as well as the letter dated
31.05.2014 was withdrawn. Dicitex stated that as it was in
urgent need of funds to meet its mounting liabilities, it was
coerced into withdrawing its earlier letter of 31.05.2014 and in
executing the discharge voucher exactly as dictated by the
respondents. By the letter dated 06.06.2014, addressed to the
Regional Manager, Dicitex withdrew the letter dated 31.05.2014
submitted along with the discharge voucher for a full and final
settlement of their claim. It requested the appellant to remit the
claim amount immediately. The discharge voucher was on the
letter head of the appellant, duly endorsed by Dicitex’s bankers.
In the discharge voucher, it was recorded that it accepted a sum
of 3,66,30,148/ in full and final settlement of its claim. It was ₹
also recorded that Dicitex voluntarily gave discharge receipt in
full and final settlement of their claim, present or future, arising
directly/indirectly in respect of the said loss/accident and
subrogated all their rights and remedies to appellant in respect of
10
the loss/damages. Further correspondence ensued whereby
Dicitex informed the appellant that since there was a huge
difference between the total amount claimed by it, and the final
claim settlement amount by the appellant, the same was required
to be discussed and resolved, failing which Dicitex would be
required to invoke the arbitration, as per clause 13 of the terms
and conditions attached to the policy. The appellant, by the letter
dated 17.07.2014 addressed to Dicitex, informed that it was
surprised by the proposal to invoke arbitration after the clean
discharge voucher was signed for the sum of 7,16,30,148/ in ₹
full and final settlement of the said loss. The respondents denied
that there existed any dispute of quantum in respect of the said
claim and contended that the amount due to Dicitex arising out
of indemnity, arising from the policy was duly verified and
assessed based on the documents submitted by Dicitex. The
appellant did not agree to Dicitex’s request for any differential
amount or request for proceeding for arbitration under the policy.
On 24.07.2014, by a letter addressed to the appellant, Dicitex
denied that the amount received by it was a clean discharge
voucher in full and final settlement of their claim and reiterated
11
that it suffered a major loss of 14,16,94,329/. The surveyor, ₹
M/s. C.P. Mehta & Co. had submitted their report assessing the
loss at 12.93 crores. Dicitex also placed on record that as ₹
against approximately 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 had occurred, and after a lapse of 27 months, the
appellant made "a take it or leave it" offer of 7.16 crores towards ₹
full and final settlement of their claim, the discharge was
accepted reluctantly by it. Dicitex alleged that upon meeting the
appellant’s officers, it was instructed to withdraw the letter of
protest and accept the claim settlement unconditionally which
was a proof of coercion.
6. The position taken by the appellant was that Dicitex was
paid 7,16,30,148/ in a clean discharge and full and final ₹
settlement of their claim and there existed no dispute with regard
to the quantum of claim and refused to appoint any arbitrator. In
these circumstances, Dicitex approached the Bombay High Court
under Section 11(6) of the Act, for appointment of an arbitrator.
Dicitex relied on the assessment of M/s C.P. Mehta & Co., which
had assessed the loss at 12.93 crores. It contended that the ₹
12
appellant released only 3.50 crores on 4.03.2013 i.e. almost 10 ₹
months after the loss suffered by Dicitex due to fire, and only
after a lapse of 27 months made "a take it or leave it" offer of
₹7.16 crores towards full and final settlement of their claim.
Dicitex stated that it had taken a loan of a substantial amount
and had to bear the extra burden of high interest and found itself
defaulting on timely loan repayments. It was further submitted
that Dicitex was unable to pay income tax on time, as a result of
which, it had to pay a sum of 23.90 lacs in the year 20122013 ₹
and a sum of 11.10 lakhs in the year 20132014 towards ₹
interest for the delayed payments of income tax. It was also
argued, on behalf of Dicitex, that it was subjected to economic
duress and coercion which resulted in the signing of the
discharge voucher, which could not preclude its invocation of the
arbitration agreement.
7. The appellant resisted the application, contending that
Dicitex had not demonstrated whether the second discharge
voucher signed by it was under economical or financial duress
under the arbitration agreement. It was urged that since Dicitex
had signed the discharge voucher and accepted the payment
13
made by the respondents unconditionally and confirmed that the
said payment was received in full and final settlement of their
claim, present or future, arising directly/indirectly in respect of
the said loss/accident and subrogated all their rights and
remedies to the appellant in respect of the loss/damages, there
exists no dispute between the parties which can be referred to
arbitration. It was argued that Dicitex having signed the
discharge voucher for 7,16,30,148/ in full and final settlement ₹
due to alleged loss suffered by Dicitex, the arbitration application
was not maintainable. It was submitted that the appellant had
replied to the letter dated 21.06.2014 stating that Dicitex had
withdrawn only discharge voucher dated 31.05.2014. The
appellant also stated that in the arbitration agreement itself,
Dicitex had to explain the exact correctness of the allegation of
coercion and duress with details and particulars about signing
the discharge voucher. It was further contended that though the
payment was received by Dicitex on 09.06.2014, it raised protest
only on 21.06.2014. Even in the letter dated 21st June 2014,
Dicitex referred to the discharge voucher dated 31.05.2014 which
was not admittedly acted upon by the insurer. Dicitex did not
14
resile from the discharge voucher dated 31.05.2014, and thus on
that ground also, this arbitration application is not maintainable.
8. The appellant relied on some decisions of this court (New
Indian Assurance Co. Ltd v Genus Power Infrastructure Ltd. (2015)
2 SCC 424. National Insurance Co. Ltd v Boghara Polyfab Pvt
Ltd (2009) 1 SCC 267; Union of India (UOI) and Ors. v Master
Construction Co. (2011) 12 SCC 349 etc.
9. In the impugned judgment, while allowing the application,
the single judge analysed the decisions of this court, including
Boghara Polyfab (supra). It was noted that a perusal of the
correspondence prima facie indicated that the first surveyor
appointed by the insurer had recommended the payment of more
than 12 crores in favour of Dicitex. For some reasons, the ₹
appellant did not accept the said report submitted by their own
surveyor and instead appointed M/s Naveen Jhand and
Associates to recompute the costings. It was also held that
Dicitex had furnished more than 37,700 documents to the
surveyor for their appraisal for submitting the report. Dicitex had
placed on record from time to time, documents to show that it
had taken loans from the banks who were pressurising it for
15
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 months
of the fire having taken place, which caused loss to Dicitex.
Dicitex had produced about 11 letters addressed by the banks to
Dicitex, calling upon Dicitex to regularize their bank accounts
and showing the excess amount drawn by it in various accounts.
Dicitex had also placed on record, the conduct of the second
surveyor, who was, according to it, demanding several other
documents which were unwarranted and/or already submitted
by it. The learned judge noticed that prima facie, Dicitex was
facing financial distress and economical duress and in view of its
various urgent business liabilities, it apparently signed the said
discharge voucher reluctantly. It is not in dispute that the
appellant refused to accept such discharge voucher signed by
Dicitex with letter of protest. Therefore, a few days later, a
discharge voucher was signed by Dicitex. It was, however,
Dicitex’s case that the appellant had insisted upon it to sign a
clean discharge voucher and to withdraw the letter of protest
addressed by it, failing which, the insurer would not release the
16
amount, even that was reflected in the discharge voucher. Dicitex
thereafter withdrew the letter dated 31.05.2014, and signed
another discharge voucher. After signing another discharge
voucher, Dicitex placed on record their objection that the same
was signed due to pressure of the respondents.
10. In view of the analysis made, the single judge allowed the
application, observing as follows:
“57. On perusal of the large number of
correspondence exchanged between Dicitex and
the respondents which were not disputed by the
respondents, in my prima facie view, it indicates
that Dicitex was facing the financial constraint
and economical and financial duress on the part
of the respondents in not sanctioning and paying
the final claim for 27 months from the date of fire.
Dicitex having faced pressure from their bankers
and suffering from other business liabilities
including the demand of income tax department,
Dicitex was under the economical and financial
duress and the said discharge voucher thus, in
my prima facie view, cannot be considered as an
unconditional discharge voucher thereby Dicitex
giving up their claim in future arising out of the
said discharge voucher.
58. In my view, if Dicitex would not have signed
such discharge voucher acknowledging the
payment of the lesser amount than what was
alleged to be due to Dicitex after 27 months of the
loss suffered, the respondents would not have
released even the said amount mentioned in the
discharge voucher. In my view, if according to the
17
respondents, Dicitex was not entitled to recover
the amount as claimed by Dicitex, but the lesser
amount, the respondents could have released the
amount as payable according to the respondents,
but could not have insisted for execution of a
discharge voucher as a precondition before
releasing such payment.
59. Learned counsel for the respondents could not
refer to any provision in the insurance policy or
any other provision of law in support of their claim
that the respondents were entitled to insist for
execution of such discharge voucher before
releasing any payment in favour of Dicitex with a
confirmation not to make any claim in future
arising out of the said claim. The Supreme Court
has already deprecated the practice followed by
the government departments, statutory
corporations and government companies for
obtaining such undated discharge voucher as the
condition for releasing lesser amount and has
held that the said procedure is unfair, irregular
and illegal. Though the Chief Justice or his
designate is empowered to decide the issue as to
whether the parties had concluded the contract by
recording satisfaction of their mutual rights and
obligations thereby receiving the final payment
without objection based on the affidavits and the
pleadings or can leave the said issue to be
decided by the arbitral tribunal, in my view, it
would be appropriate if the issue raised by the
respondents that Dicitex had signed such
discharge voucher unconditionally and the issue
raised by Dicitex that the same was under duress
and coercion is conclusively decided by the
arbitral tribunal and if necessary, by leading oral
evidence. The learned designate of the Chief
Justice in case of M/s.Yasho Industries Pvt. Ltd.
Vs. The New India Assurance Company Limited in
18
Arbitration Petition No.314 of 2014 decided on
24th June 2015 which is relied upon by one of the
party has taken a similar view. Special Leave
Petition against the said order is rejected.
60. In so far as the issue of arbitrability of the
claim raised by the respondents on the ground
that Dicitex proposed to make the claim amount
higher than the insured sum is concerned, if any
claim higher than the insured sum is made by
Dicitex before the arbitral tribunal, the
respondents can raise such issue of arbitrability
and the same can be decided by the arbitral
tribunal. The issue of arbitrability of claim on such
ground cannot be decided in these proceedings.
61. Clause 13 of the arbitration agreement of the
policy which provides that if any dispute or
difference shall arise as to the quantum to be paid
under the policy, such difference shall be referred
to the decision of a sole arbitrator to be appointed
in writing by the parties or if they cannot agree
upon a single arbitrator within 30 days of any
party invoking arbitration, the same shall be
referred to a panel of three arbitrators. Since the
respondents have refused to appoint any
arbitrator out of the names suggested by Dicitex in
their letter dated 14th July 2014 and had not
suggested any other name, this application filed
under Section 11 (6) of the Arbitration Act is
maintainable. In my view, the arbitration
agreement exists between 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) and having regard to the facts
19
and circumstances of this case, there can be no question
that any arbitrable dispute existed between the parties.
Having accepted the proffered amounts, and having
withdrawn the reservation and protest, Dicitex could not
have argued that it was subjected to coercion or that the
appellant forced it to sign the final discharge voucher.
Emphasis is placed on Dicitex’s letter dated 06.06.2014,
whereby it withdrew the previous letter dated 31.05.2014,
which had contained reservations about the amount offered
in full settlement.
12. Counsel for Dicitex urges that this court should not
interfere with the impugned judgment. It was urged that the
material in the form of the record, particularly the
consistent trend of letters, prior to the letter of 06.06.2014
as well as the correspondence after that, clearly reveal that
Dicitex was undergoing severe financial crisis and that the
prolonged process of settlement claim constrained it to issue
the said letter of 06.06.2014. However, the fact remained
that at the relevant time, it faced a crisis of existence. Its
acceptance was under financial compulsion which
20
amounted to economic coercion. Therefore, the learned
single judge very properly analysed all these materials and
held that prima facie, there was no full and final settlement
or discharge.
Analysis & Conclusions
13. The main theme of the appellant’s argument in this
case is that Dicitex could not have invoked the arbitration
clause, since it had fully and finally accepted the amount
offered (i.e..) and withdrawn its protests and reservations,
by the letter dated 06.06.2014. It cites the decisions in
Boghara Polyfab, Master Construction and Genus Power
(supra) in this regard.
14. The issue of the court’s jurisdiction to examine
whether a dispute is arbitrable, in the context of no
objection certificates or discharge vouchers, was examined
in Boghara Polyfab for the first time. This court in the
context of an application under Section 11(6) dealt with the
issue, holding that if there was accord and satisfaction due
to a no dues certificate, a reference under Section 11 was
not maintainable. It held, inter alia, that:
21
"51. Let us consider what a civil court would have
done in a case where the defendant puts forth the
defence of accord and satisfaction on the basis of
a full and final discharge voucher issued by the
plaintiff, and the plaintiff alleges that it was
obtained by fraud/coercion/undue influence and
therefore not valid. It would consider the evidence
as to whether there was any fraud, coercion or
undue influence. If it found that there was none, it
will accept the voucher as being in discharge of
the contract and reject the claim without
examining the claim on merits. On the other hand,
if it found that the discharge voucher had been
obtained by fraud/undue influence/coercion, it
will ignore the same, examine whether the
plaintiff had made out the claim on merits and
decide the matter accordingly. The position will be
the same even when there is a provision for
arbitration.
52. Some illustrations (not exhaustive) as to when
claims are arbitrable and when they are not,
when discharge of contract by accord and
satisfaction are disputed, to round up the
discussion on this subject:
(i) A claim is referred to a conciliation or a prelitigation Lok Adalat. The parties negotiate and
arrive at a settlement. The terms of settlement are
drawn up and signed by both the parties and
attested by the Conciliator or the members of the
Lok Adalat. After settlement by way of accord and
satisfaction, there can be no reference to
arbitration.
(ii) A claimant makes several claims. The admitted
or undisputed claims are paid. Thereafter
negotiations are held for settlement of the
disputed claims resulting in an agreement in
writing settling all the pending claims and
disputes. On such settlement, the amount agreed
22
is paid and the contractor also issues a discharge
voucher/no claim certificate/full and final receipt.
After the contract is discharged by such accord
and satisfaction, neither the contract nor any
dispute survives for consideration. There cannot
be any reference of any dispute to arbitration
thereafter.
(iii) A contractor executes the work and claims
payment of say Rupees Ten Lakhs as due in
terms of the contract. The employer admits the
claim only for Rupees six lakhs and informs the
contractor either in writing or orally that unless
the contractor gives a discharge voucher in the
prescribed format acknowledging receipt of
Rupees Six Lakhs in full and final satisfaction of
the contract, payment of the admitted amount will
not be released. The contractor who is hard
pressed for funds and keen to get the admitted
amount released, signs on the dotted line either in
a printed form or otherwise, stating that the
amount is received in full and final settlement. In
such a case, the discharge is under economic
duress on account of coercion employed by the
employer. Obviously, the discharge voucher
cannot be considered to be voluntary or as having
resulted in discharge of the contract by accord
and satisfaction. It will not be a bar to arbitration.
(iv) An insured makes a claim for loss suffered.
The claim is neither admitted nor rejected. But the
insured is informed during discussions that
unless the claimant gives a full and final voucher
for a specified amount (far lesser than the amount
claimed by the insured), the entire claim will be
rejected. Being in financial difficulties, the
claimant agrees to the demand and issues an
undated discharge voucher in full and final
settlement. Only a few days thereafter, the
admitted amount mentioned in the voucher is
paid. The accord and satisfaction in such a case
23
is not voluntary but under duress, compulsion and
coercion. The coercion is subtle, but very much
real. The `accord' is not by free consent. The
arbitration agreement can thus be invoked to refer
the disputes to arbitration.
(v) A claimant makes a claim for a huge sum, by
way of damages. The respondent disputes the
claim. The claimant who is keen to have a
settlement and avoid litigation, voluntarily
reduces the claim and requests for settlement. The
respondent agrees and settles the claim and
obtains a full and final discharge voucher. Here
even if the claimant might have agreed for
settlement due to financial compulsions and
commercial pressure or economic duress, the
decision was his free choice. There was no threat,
coercion or compulsion by the respondent.
Therefore, the accord and satisfaction is binding
and valid and there cannot be any subsequent
claim or reference to arbitration.
52. Let us now examine the receipt that has been
taken in this case. It is undated and is in a pro
forma furnished by the appellant containing
irrelevant and inappropriate statements. It states:
"I/we hereby assign to the company, my/our right
to the affected property stolen which shall, in the
event of their recovery, be the property of the
company". The claim was not in regard to theft of
any property nor was the claim being settled in
respect of a theft claim. We are referring to this
aspect only to show how claimants are required to
sign on the dotted line, and how such vouchers
are insisted and taken mechanically without
application of mind."
15. In Master Construction (supra), this Court held that:
24
"20. The Bench in Boghara Polyfab Private Limited
in paragraphs 42 and 43, with reference to the
cases cited before it, inter alia, noted that there
were two categories of the cited cases; (one)
where the Court after considering the facts found
that there was a full and final settlement resulting
in accord and satisfaction, and there was no
substance in the allegations of coercion/undue
influence and, consequently, it was held that
there could be no reference of any dispute to
arbitration and (two) where the court found some
substance in the contention of the claimants that
`no dues/claim certificates' or `full and final
settlement discharge vouchers' were insisted and
taken (either in printed format or otherwise) as a
condition precedent for release of the admitted
dues and thereby giving rise to an arbitrable
dispute.
21. In Boghara Polyfab Private Limited, the
consequences of discharge of the contract were
also considered. In para 25 (page 284), it was
explained that when a contract has been fully
performed, then there is a discharge of the
contract by performance and the contract comes to
an end and in regard to such a discharged
contract, nothing remains and there cannot be any
dispute and, consequently, there cannot be
reference to arbitration of any dispute arising from
a discharged contract. It was held that the
question 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, such question is
arbitrable. The Court, however, noted an exception
to this proposition. The exception noticed is that
where both the parties to a contract confirm in
writing that the contract has been fully and finally
discharged by performance of all obligations and
there are no outstanding claims or disputes,
25
courts will not refer any subsequent claim or
dispute to arbitration. Yet another exception noted
therein is with regard to those cases where one of
the parties to the contract issues a full and final
discharge voucher (or nodues 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. It was observed
that issuance of full and final discharge voucher
or nodues certificate of that kind amounts to
discharge of the contract by acceptance or
performance and the party issuing the discharge
voucher/certificate cannot thereafter make any
fresh claim or revive any settled claim nor can it
seek reference to arbitration in respect of any
claim.
22. In paragraph 26 (pages 284285), this Court in
Boghara Polyfab Private Limited held that if a
party which has executed the discharge
agreement or discharge voucher, alleges that the
execution of such document was on account of
fraud/coercion/undue influence practiced by the
other party, and if that party establishes the
same, then such discharge voucher or agreement
is rendered void and cannot be acted upon and
consequently, any dispute raised by such party
would be arbitrable.
23. In paragraph 24 (page 284) in Boghara
Polyfab Private Limited, this Court held that a
claim for arbitration cannot be rejected merely or
solely on the ground that a settlement agreement
or discharge voucher has been executed by the
claimant. The Court stated that such dispute will
have to be decided by the Chief Justice/his
designate in the proceedings under Section 11 of
the 1996 Act or by the Arbitral Tribunal.
24. In our opinion, there is no rule of the absolute
kind. In a case where the claimant contends that
26
a discharge voucher or noclaim certificate has
been obtained by fraud, coercion, duress or undue
influence and the other side contests the
correctness thereof, the Chief Justice/his
designate must look into this aspect to find out at
least, prima facie, whether or not the dispute is
bona fide and genuine. Where the dispute raised
by the claimant with regard to validity of the
discharge voucher or noclaim certificate or
settlement agreement, prima facie, appears to be
lacking in credibility, there may not be necessity
to refer the dispute for arbitration at all. It cannot
be overlooked that the cost of arbitration is quite
huge most of the time, it runs in six and seven
figures. It may not be proper to burden a party,
who contends that the dispute is not arbitrable on
account of discharge of contract, with huge cost of
arbitration merely because plea of fraud, coercion,
duress or undue influence has been taken by the
claimant. A bald plea of fraud, coercion, duress or
undue influence is not enough and the party who
sets up such plea must prima facie establish the
same by placing material before the Chief
Justice/his designate. If the Chief Justice/his
designate finds some merit in the allegation of
fraud, coercion, duress or undue influence, he
may decide the same or leave it to be decided by
the Arbitral Tribunal. On the other hand, if such
plea is found to be an afterthought, makebelieve
or lacking in credibility, the matter must be set at
rest then and there."
16. In Genus Power (supra), the relevant observations of
this court are as follows:
"8. It is therefore clear that a bald plea of fraud,
coercion, duress or undue influence is not enough
and the party who sets up a plea, must prime
facie establish the same by placing material
27
before the Chief Justice/his designate. Viewed
thus, the relevant averments in the petition filed
by the Respondent need to be considered, which
were to the following effect:
************** *************
(g) That the said surveyor, in connivance with the
Respondent Company, in order to make the
Respondent Company escape its full liability of
compensating the Petitioner of such huge loss,
acted in a biased manner, adopted coercion
undue influence and duress methods of assessing
the loss and forced the Petitioner to sign certain
documents including the Claim Form. The
Respondent Company also denied the just claim
of the Petitioner by their acts of omission and
commission and by exercising coercion and undue
influence and made the Petitioner Company sign
certain documents, including a preprepared
discharge voucher for the said amount in
advance, which the Petitioner Company were
forced to do so in the period of extreme financial
difficulty which prevailed during the said period.
As stated aforesaid, the Petitioner Company was
forced to sign several documents including a letter
accepting the loss amounting to Rs. 6,09,55,406/
and settle the claim of Rs. 5,96,08,179/ as
against the actual loss amount of Rs.
28,79,08,116/ against the interest of the
Petitioner company. The said letter and the
aforesaid preprepared discharge voucher stated
that the Petitioner had accepted the claim amount
in full and final settlement and thus, forced the
Petitioner company to unilateral acceptance the
same. The Petitioner company was forced to sign
the said document under duress and coercion by
the Respondent Company. The Respondent
Company further threatened the Petitioner
Company to accept the said amount in full and
final or the Respondent Company will not pay any
28
amount toward the fire policy. It was under such
compelling circumstances that the Petitioner
company was forced and under duress was made
to sign the acceptance letter.
9. In our considered view, the plea raised by the
Respondent is bereft of any details and
particulars, and cannot be anything but a bald
assertion. Given the fact that there was no protest
or demur raised around the time or soon after the
letter of subrogation was signed, that the notice
dated 31.03.2011 itself was nearly after three
weeks and that the financial condition of the
Respondent was not so precarious that it was left
with no alternative but to accept the terms as
suggested, we are of the firm view that the
discharge in the present case and signing of letter
of subrogation were not because of exercise of any
undue influence. Such discharge and signing of
letter of subrogation was voluntary and free from
any coercion or undue influence. In the
circumstances, we hold that upon execution of the
letter of subrogation, there was full and final
settlement of the claim. Since our answer to the
question, whether there was really accord and
satisfaction, is in the affirmative, in our view no
arbitrable dispute existed so as to exercise power
Under Section 11 of the Act. The High Court was
not therefore justified in exercising power Under
Section 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
29
Petrochemicals Ltd. v ANS Constructions Ltd. and Anr. (2018)
3 SCC 373, the court held as follows:
"24. From the materials on record, we find that the
contractee Company had issued the "No Dues/No
Claim Certificate" on 21.09.2012, it had received
the full amount of the final bill being Rs. 20.34
crores on 10.10.2012 and after 12 days
thereafter, i.e., only on 24.10.2012, the
contracteeCompany withdrew letter dated
21.09.2012 issuing "No Dues/No Claim
Certificate". Apart from it, we also find that the
Final Bill has been mutually signed by both the
parties to the Contract accepting the quantum of
work done, conducting final measurements as per
the Contract, arriving at final value of work, the
payments made and the final payment that was
required to be made. The contracteeCompany
accepted the final payment in full and final
satisfaction of all its claims. We are of the
considered opinion that in the presents facts and
circumstances, the raising of the Final Bill and
mutual agreement of the parties in that regard, all
claims, rights and obligation of the parties merge
with the Final Bill and nothing further remains to
be done. Further, the AppellantContractor issued
the Completion Certificate dated 19.06.2013
pursuant to which the AppellantContractor has
been discharged of all the liabilities. With regard
to the issue that the "NoDues Certificate" had
been given under duress and coercion, we are of
the opinion that there is nothing on record to prove
that the said Certificate had been given under
duress or coercion and as the Certificate itself
provided a clearance of no dues, the contractee
could not now turn around and say that any
further payment was still due on account of the
losses incurred during the execution of the
30
Contract. The story about duress was an
afterthought in the background that the losses
incurred during the execution of the Contract were
not visualised earlier by the contractee. As to
financial duress or coercion, nothing of this kind is
established prima facie. Mere allegation that noclaim certificates have been obtained under
financial duress and coercion, without there being
anything more to suggest that, does not lead to an
arbitrable dispute. The conduct of the contractee
clearly shows that "noclaim certificate" was given
by it voluntarily; the contractee accepted the
amount voluntarily and the contract was
discharged voluntarily.
Conclusion:
25. Admittedly, NoDues Certificate was
submitted by the contracteeCompany on
21.09.2012 and on their request Completion
Certificate was issued by the AppellantContractor. The contractee, after a gap of one
month, that is, on 24.10.2012, withdrew the No
Dues Certificate on the grounds of coercion and
duress and the claim for losses incurred during
execution of the Contract site was made vide letter
dated 12.01.2013, i.e., after a gap of 3 1/2 (three
and a half) months whereas the Final Bill was
settled on 10.10.2012. When the contractee
accepted the final payment in full and final
satisfaction of all its claims, there is no point in
raising the claim for losses incurred during the
execution of the Contract at a belated stage which
creates an iota of doubt as to why such claim was
not settled at the time of submitting Final Bills
that too in the absence of exercising duress or
coercion on the Contractee by the AppellantContractor. In our considered view, the plea raised
by the contracteeCompany is bereft of any details
and particulars, and cannot be anything but a
bald assertion. In the circumstances, there was
31
full and final settlement of the claim and there
was really accord and satisfaction and in our
view no arbitrable dispute existed so as to
exercise power Under Section 11 of the Act. The
High Court was not, therefore, justified in
exercising power Under Section 11 of the Act."
18. It is clear that in Boghara Polyfab (supra), no rule of
universal application was indicated. No doubt, subsequent
judgments which followed it, were in the context of the
facts as were presented to the court. Proposition (iii) of the
conclusions recorded in Boghara Polyfab (supra) visualize
duress or coercion on account of withholding of payments
due. The court – in more places than one, recognized that
an aggrieved party can be the victim of economic coercion
which results in its signing a document which discharges
the other party of its obligations. Master Construction
(supra) placed the matter in perspective, when the court
enunciated the principle in the following terms:
“In our opinion, there is no rule of the absolute
kind. In a case where the claimant contends that
a discharge voucher or noclaim certificate has
been obtained by fraud, coercion, duress or undue
influence and the other side contests the
correctness thereof, the Chief Justice/his
designate must look into this aspect to find out at
least, prima facie, whether or not the dispute is
32
bona fide and genuine. Where the dispute raised
by the claimant with regard to validity of the
discharge voucher or noclaim certificate or
settlement agreement, prima facie, appears to be
lacking in credibility, there may not be necessity
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
insufficient for a court to hold that the accord/satisfaction
or no dues certificate was involuntarily given.
19. A close look at the facts in the present case would
show that though the pleadings in the initial application
under Section 11(6) are weak, 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
facing financial crisis; it referred to credits obtained for its
business and the urgency to pay back the bank. It is a
matter of record that the Surveyor’s report, dated
14.08.2014, recommended payment of 12,93,26,704.98/ ₹
to Dicitex. Equally, it is a matter of record that the
appellant referred the matter to a chartered accountant’s
33
firm, to verify certain inventory and 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 Dicitex, by May, 2014. Dicitex’s application
under Section 11(6) is replete with references to the
number of letters written to the appellant, seeking release
of amounts; it also averred to inability to pay its 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 which led it to execute the no objection
discharge voucher, are reproduced below:
“31. The Respondents did not pay anything to
the Petitioner after the submission of its letter,
dated 31st May, 2014 and the submission of its
letter, dated 31st May, 2014 and therefore
several telephonic calls were made on behalf of
the Petitioner, to the Respondent’s Regional
Office at Mumbai in an effort to persuade the
Respondents to increase the settlement amount
so as to include the differential amount of about
Rs. 7 crores. The Petitioner also specifically
requested the Respondents not to, in any event,
insist on the execution of the Discharge Voucher
strictly as prescribed as a condition precedent
34
for the payment of any part of the balance
amount of claim.
32. Since, on the one hand, the Respondents
did not show any inclination to relent on any
count and instead continued to insist continued
to insist that any further payment would be
made to the Petitioner if and only if the
Discharge Voucher was executed exactly at the
time and in the form and manner as required by
the Respondents as well as the letter dated 31st
May, 2014 withdrawn and, on the other hand,
the Petitioner was in urgent need of funds to
meet its mounting liabilities the Petitioner was
forced to withdraw its earlier letter dated 31st
May, 2014 and coerced into executing the
Discharge Voucher exactly as dictated by the
Respondents. Accordingly, the Petitioner wrote a
letter dated 6th June, 2014 to the Respondent No.
2 stating therein that it was withdrawing its
letter dated 31st May, 214 and also enclosing
the duly executed discharge Voucher. The
Petitioner also requested that the claim amount
be paid over to it, immediately.”
The averments in the application, later are that the
appellant paid the amount. Dicitex, nevertheless later, by three
letters questioned the basis of reduction of the amount of claim.
It later alleged that it wrote a letter “dated 14th July, 2014 to the
respondents stating therein, inter alia, that since they were forced
to accept the offered amount and that since there was a dispute on
the quantum of claim settlement paid to the Petitioner, the
35
Petitioner was invoking arbitration proceedings under Clause 13 of
the said Policy to recover the differential amount.”
21. An overall reading of Dicitex’s application (under
Section 11(6)) clearly shows that its grievance with respect to the
involuntary nature of the discharge voucher was articulated. It
cannot be disputed, that several letters – spanning over two
years stating that it was facing financial crisis on account of the
delay in settling the claim, were addressed to the appellant. This
court is conscious of the fact that an application under Section
11(6) is in the form of a pleading which merely seeks an order of
the court, for appointment of an arbitrator. It cannot be
conclusive of the pleas or contentions that the claimant or the
concerned party can take, in the arbitral proceedings. At this
stage, therefore, the court which is required to ensure that an
arbitrable dispute exists, has to be prima facie convinced about
the genuineness or credibility of the plea of coercion; it cannot be
too particular about the nature of the plea, which necessarily has
to be made and established in the substantive (read: arbitration)
proceeding. If the court were to take a contrary approach and
minutely examine the plea and judge its credibility or
36
reasonableness, there would be a danger of its denying a forum
to the applicant altogether, because rejection of the application
would render the finding (about the finality of the discharge and
its effect as satisfaction) final, thus, precluding the applicant of
its right event to approach a civil court. There are decisions of
this court (Associated Construction v Pawanhans Helicopters
Ltd. (2008) 16 SCC 128 and Boghara Polyfab (supra) upheld the
concept of economic duress. Having regard to the facts and
circumstances, this court is of the opinion that the reasoning in
the impugned judgment cannot be faulted.
22. In view of the foregoing discussion, the appeal is held
to be unmerited; it is dismissed, without order as to costs.
........................................J.
[ARUN MISHRA]
........................................J.
[S. RAVINDRA BHAT]
New Delhi,
November 13, 2019.
