No Claim Certificate (NCC) Must Be Examined In The Context Of Relevant Documents And The Covering Letter Under Which It Is Issued: Delhi HC

The Single Bench of Justice Vibhu Bakhru further held that while adjudicating an application under S. 34 of the Arbitration & Conciliation Act, the Court must be mindful of the fact the Indian Evidence Act, 1872 and strict rules of evidence are not applicable in arbitration and the tribunal enjoys considerable discretion to take a view on the quality and sufficiency of the evidence.

Facts

The Ministry of Railway had awarded a Contract to the petitioner. The petitioner in turn awarded a part of the contract to the respondent. The contract was to be completed within a specified period, however, there was a delay in its completion. This gave rise to a dispute between the parties.

The respondent issued a No Claim Certificate in favour of the petitioner, however, it subsequently raised certain additional claims in respect of losses suffered by it due to the delays on part of the petitioner and sought a response from the petitioner. On receiving no response from the petitioner, it invoked the dispute resolution clause in the agreement and sought reference to arbitration.

The arbitrator partially allowed the claims of the respondent, aggrieved by the award, the petitioner challenged it under S. 34 of the Arbitration & Conciliation Act as being patently illegal.

Contention of the parties

The petitioner challenged the award on the following grounds:

• That the arbitrator failed to appreciate the fact that the NCC was issued at a time when only less than 1% of the total payment was pending, therefore, there was no economic duress. Consequently, the award suffers from patent illegality.
• That the arbitrator wrongly allowed the claim of the respondent for prolongation of work based on a Chartered Accountant Certificate contents of which were neither proved nor the said CA was examined before the tribunal, therefore, the finding of the tribunal was without any evidence falling under the rubric of patent illegality.
• That the tribunal wrongly allowed the delay claims of the respondent when it held that the delay was attributable to both the parties.

The respondent countered the contention of the petitioner on the following grounds:

• That the NCC was issued under duress as is evidenced by the covering letter in which it was sent.
• That the CA certificates were supported by various documents including bills and vouchers establishing quantification of the amounts as reflected in the Certificates issued by the CA.
• That the tribunal had employed the principle of apportionment while allowing the delay claims of the respondent.

Analysis by the Court

The Court observed that while dealing with the issue of NCC, the arbitral had referred to a letter that was sent four days before the issuance of NCC, it also referred to the covering letter under which the NCC was sent and held that both the documents clearly indicate that NCC was issued under economic duress and that certain claims were under preparation and the respondent had clearly indicated that it would be preferring those claims.

The Court was also not impressed with the argument that only a small fraction of the amount was unpaid so it could not be a situation of duress. The court agreed with the finding of the tribunal that not only some amount was due but the petitioner had also recovered amount on account of Liquidated Damages which the Respondent was ready to refund back only on respondent signing the NCC. The respondent also feared the invocation of the bank guarantee by the petitioner. Therefore, the respondent could not be presumed to have waived off its right to claim damages nor it could be precluded from raising claims based on the NCC issued under duress.

The Court reiterated that the "scope of interference on the ground of patent illegality under Section 34(2A) of the A&C Act does not extend to re-appreciating the material before the Arbitral Tribunal and re-adjudicating the disputes."

While dealing with the issue of CA certificates, the Court held "that the Indian Evidence Act, 1872 and the strict rules of evidence are inapplicable to arbitral proceedings" and the arbitral tribunal enjoys substantial discretion "to take a view on the quality and sufficient of evidence". It further held that the petitioner "did not raise any specific objection regarding the reasonableness of the expenditure as mentioned in the Certificate of the independent Chartered Accountant including the Statement of Expenses forming part of the said Certificate."

Lastly, the Court held that there is no infirmity in the approach of the tribunal when it found that the critical delay in completion of the contract was attributable to the petitioner, therefore, it applied the doctrine of apportionment to partially allow the claims of the respondent.

Case Title: IRCON International Limited v. GPT-Rahee JV

Citation: 2022 LiveLaw (Del) 270

Date: 25/03/2022

Counsel for the Petitioner: Mr. Suman K. Doval

Counsel for the Respondent: Mr. Gourab Banerjee, Senior Advocate

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