No Claim Certificate Is Invalid If It Is A Pre-Condition To The Release Of Final Payment: Calcutta High Court

The Bench of Justice Krishna Rao held that a situation where the employer denies the payment of dues to the contractor unless it submits an undertaking to the employer not to make any further claims would fulfill the ingredients of Section 15 of the Indian Contract Act and the obtained undertaking would be invalid.

Facts

The parties entered into an agreement wherein the respondent agreed to carry out renovation and interior design work for the petitioner. During the execution of the project work, the respondent executed various extra work on the instructions of the petitioner.

There was a considerable delay in the payment of dues to the respondent. Subsequently, during a meeting, the petitioner agreed to pay a part of the total amount claimed by the respondent only on the condition that it would be full and final payment and the respondent would submit an undertaking to that effect.

Thereafter, the respondent sent a letter dated 01.07.2009 to the petitioner wherein it stated that due to extreme financial difficulties, it has no other option but to agree to the petitioners' directions.

Accordingly, the respondent submitted an undertaking / No Claim Certificate dated 13.07.2009. Even after the submission of the undertaking, the petitioner did not make the full payment to the respondent.

Aggrieved by the action of the petitioner in not releasing the full payment, the respondent invoked the arbitration and an arbitrator was accordingly appointed by the Court.

The respondent made several claims before the arbitrator including the extra work it carried out for which it had submitted the undertaking. The petitioner contested the claims of the petitioner primarily on the ground that it has submitted an undertaking regarding the claims, therefore, it cannot re-agitate the claims.

The arbitrator held that the undertaking submitted by the respondent was not valid as it was not submitted voluntarily but under coercion as the petitioner had denied the payment to the respondent and the respondent submitted it under extreme financial difficulties.

Accordingly, the arbitrator party allowed the claims of the respondent and dismissed the counter-claim of the petitioner.

The grounds of challenge

The petitioner challenged the award on the following grounds:

• The reason assigned by the arbitrator are not based on the material and documents available on record.
• In the absence of oral evidence, the arbitrator has passed the impugned award on the basis of presumption and assumption without determining the admissibility, relevance and weight of the documentary evidence available on record.
• The arbitrator has wrongly assumed that the undertaking was not voluntarily submitted merely on the basis that the letter dated 01.07.2009 was not replied by the petitioner.
• The arbitrator has merely accepted the analysis of rates provided by the respondent without taking into account the facts that those rates were without any supporting evidence.
• The petitioner had categorically stated in its letter dated 14.12.2009 that the rates submitted by the petitioner were unjustified and not acceptable to the department. Moreover, it had included claims in the final bill that were either already paid or not payable at all.

Analysis by the Court

The Court observed that before passing the impugned award, the arbitrator had inspected the work site. It is further observed that the award is based on evidence and appropriate reasons are assigned by the arbitrator.

The Court held that the main challenge of the petitioner is based on the validity of the undertaking given by the respondent. It held that the respondent in its letter dated 01.07.2009 had categorically mentioned in paragraph 2 that unless it submits the undertaking, the petitioner would not release the final payment.

The Court held that as the submission of undertaking was a pre-condition to the release of final payment and considering the fact that respondent was under dire financial need, the undertaking cannot be considered to be voluntarily submitted.

The Court held that the undertaking was invalid on account of 'Coercion' as it is submitted as a pre-condition to the release of final payment.

The Court held that a situation where the employer denies the payment of dues to the contractor unless it submits an undertaking to the employer not to make any further claims would fulfill the ingredients of Section 15 of the Indian Contract Act and the obtained undertaking would be invalid.

Accordingly, it dismissed the challenge to the award.

Cast Title: West Bengal Tourism Development Corporation Ltd. v. Supratik Banerjee and Anr. AP no. 206 of 2013

Date: 20.07.2022

Counsel for the Petitioner: Mr. Indranil Ray and Mr. Sunit Kr. Ray

Counsel for the Respondent: Mr. Sabyasachi Chowdhury Mr. Triptimoy Talukder Mr. Arjun Mookherjee Mr. Diptomoy Talukder Mr. Deborshi Das.

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