No Claim Certificate By Employee To Employer Under Compulsion Or Not, Issue Is Arbitrable: Telangana High Court

The Single Bench of Justice Ujjal Bhuyan held that in view of the decision of the Supreme Court in the case of Bharat Sanchar Nigam Limited versus M/s. Nortel Networks India Pvt. Limited (2021), the Court is only required to examine whether an arbitration agreement exists between the parties. The Court ruled that since the claim made by the party was not a deadwood, the dispute could be referred to arbitration.

The applicant M/s BPR Infrastructure Limited entered into an agreement with the respondent M/s RITES Ltd., a Government of India enterprise, for some construction work. Due to extension in the execution of work, the applicant issued a notice to the respondent for additional payment, which was denied by the respondent. After the contract was executed by the applicant, the applicant raised a final bill for the work executed by it.

The respondent intimated the applicant that unless a 'no claim certificate' was issued by the applicant, the final bill raised by the applicant would not be cleared. After the applicant furnished the said 'no claim certificate', its final bill was cleared.

Thereafter, the applicant sought additional payment from the respondent, which was rejected by the respondent on the ground that the applicant had submitted a no claim certificate. The applicant communicated to the respondent that it had submitted the said no claim certificate since it was in dire need of money. Thus, the applicant averred that the said no claim certificate was invalid since it was given by the applicant under coercion and on account of undue influence. However, the respondent rejected the claims made by the applicant.

The applicant, thereafter, invoked the arbitration clause and filed an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 (A&C Act) before the Telangana High Court for appointment of the arbitrator.

The respondent M/s RITES Ltd. submitted before the High Court that since the applicant had accepted the final bill in full and final settlement, as per the no claim certificate furnished by it, therefore, the claims raised by the applicant were not maintainable.

The applicant M/s BPR Infrastructure averred that the respondent was in a dominant position and if the applicant had not submitted the no claim certificate, the respondent would not have cleared its bill. The applicant contended that there was a valid arbitration agreement between the parties and thus the dispute could be referred to arbitration.

The Telangana High Court observed that the Supreme Court in the case of Union of India versus Master Construction Company (2011) had ruled that where the dispute raised by a party regarding the validity of the no claim certificate or the discharge voucher, prima facie, appears to be lacking in credibility, the Court may refuse to refer the dispute to arbitration.

The Court noted that the Supreme Court in the case of United India Insurance Company Limited versus Antique Art Exports Private Limited (2019) had held that where a discharge voucher was signed by a party, no dispute could be said to subsist which could be referred to arbitration. The Supreme Court had ruled that a mere plea that the said discharge voucher was signed by way of fraud, coercion or undue influence was not enough, and that the party was required to prima facie establish the same by placing satisfactory material on record.

The High Court observed that the Supreme Court in the case of Bharat Sanchar Nigam Limited versus M/s. Nortel Networks India Pvt. Limited (2021), after referring to the decision in Master Construction Company (2011), had considered the effect of the Arbitration and Conciliation (Amendment) Act, 2015. The Supreme Court had ruled that in view of Section 11(6A) of A&C Act, which was inserted by the Arbitration and Conciliation (Amendment) Act, 2015, the Court while considering an application for appointment of an arbitrator is only required to examine the existence of an arbitration agreement. Thus, the Supreme Court had held that post the 2015 amendment, the Courts are only required to ascertain whether an arbitration agreement is in existence or not, nothing more or nothing less.

The Court noted that the applicant had accepted the final bill as a full and final settlement even before the said bill was settled. The Court observed that thereafter the applicant had furnished a no claim certificate, unconditionally and unequivocally, in respect of the work executed by it.

The Court held that, prima facie, the applicant and the respondent did not stand on the same footing. The Court added that the bargaining power of the respondent/employer was much more because of its controlling position.

The Court ruled that whether the no claim certificate furnished by the applicant would debar the applicant from raising further claims and lead to discharge of the contract, or whether the no claim certificate should be considered to be furnished under compulsion or duress by the applicant, was an issue which could be arbitrated by the arbitrator.

Thus, the Court held that in view of the law laid down by the Supreme Court in the case of Bharat Sanchar Nigam Limited (2021), the said dispute raised by the applicant could be adjudicated by the arbitrator.

The Court ruled that since there was a valid arbitration agreement between the parties and the claim made by the applicant was not a deadwood, the dispute could be referred to arbitration.

The Court thus allowed the application and appointed a Sole Arbitrator.

Case Title: M/s BPR Infrastructure Limited versus M/s. RITES Ltd. and Anr.

Citation : 2022 LiveLaw (Tel) 48

Dated: 08.06.2022 (Telangana High Court)

Counsel for the Applicant: Mr. Kilashnath PSS

Counsel for the Respondents: Mr. C V Rajeeva Reddy and Mr. Gadi Praveen Kumar

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