2004 (1) TMI 672 - SC - Companies Law

Whether an arbitration clause in a contract agreement survives despite purported satisfaction?thereof? Held that - The fact situation in the present case would lead to the conclusion that the arbitration agreement subsists because disputes as regard final bill arose prior to its acceptance thereof in view the fact that the same was prepared by the respondent but was not agreed upon in its entirety by the appellant herein. The appellant has not pleaded that upon submission of the final bill by the respondent herein any negotiation or settlement took place as a result whereof the final bill as prepared by the appellant was accepted by the respondent unequivocally and without any reservation therefor. The respondent herein immediately after receiving the payment of the final bill lodged its protest and reiterated its claims. Interpretation and/or application of clause 52 of the agreement would constitute a dispute which would fall for consideration of the arbitrator. The effect of the correspondences between the parties would have to be determined by the arbitrator particularly as regard the claim of the respondent that the final bill was accepted by it without prejudice. The appellant never made out a case that any novation of the contract agreement took place or the the contract agreement was substituted by a new agreement. Only in the event a case of creation of new agreement is made out the question of challenging the same by the respondent would have arisen. The conduct of the appellant would show that on receipt of the notice of the respondent through its advocate dated 21.12.1991 the same was not rejected outright but existence of disputes was accepted and the matter was sought to be referred to the arbitration.Only when the clarificatory letter was issued the plea of settlement of final bill was raised. The finding of the High Court that a prima facie in the sense that there are triable issues before the Arbitrator so as to invoke the provisions of Section 20 of the Arbitration Act 1940 cannot be said to be perverse or unreasonable so as to warrant interference in exercise of extraordinary jurisdiction under Article 136 of the Constitution of India. The jurisdiction of the arbitrator under the 1940 Act although emanates from the reference it is trite that in a given situation the arbitrator can determine all questions of law and fact including the construction of the contract agreement. Appeal dismissed.

Issues Involved:
1. Whether the arbitration clause in a contract agreement survives despite purported satisfaction thereof.
2. Whether disputes can be referred to arbitration after the contract comes to an end by completion of the work and issuance of a "No Demand Certificate".
3. Whether the arbitration clause in the agreement perished with the contract.

Detailed Analysis:

Issue 1: Survival of Arbitration Clause Despite Purported Satisfaction
The primary question in this appeal is whether an arbitration clause in a contract agreement survives despite the purported satisfaction thereof. The parties entered into an agreement for a project, and upon completion, the respondent submitted a final bill, which was allegedly not accepted by the appellant. The appellant prepared a final bill and forwarded it with a "No Demand Certificate" signed by the respondent. Despite this, the respondent sent a letter on the same day stating that the certificate was signed under coercion and without prejudice to their rights and claims. The respondent later invoked the arbitration clause to resolve disputes under several heads.

Issue 2: Reference to Arbitration Post-Completion and Issuance of "No Demand Certificate"
The appellant argued that the contract ended upon the execution of the "No Demand Certificate," and thus the arbitration clause also perished. The respondent contended that despite the contract's end, the arbitration clause survives, and all questions arising out of or in relation to the execution of the contract are referable to arbitration. The Supreme Court examined precedents, including Damodar Valley Corporation vs. K.K. Kar, which held that whether there has been a full and final settlement of a claim under the contract is itself a dispute arising upon or in relation to the contract. The Court concluded that normally, an accord and satisfaction would not affect the arbitration clause unless the contract itself does not subsist. If the contract survives, the arbitration clause can be invoked.

Issue 3: Perishing of Arbitration Clause with the Contract
The Court considered whether the arbitration clause perished with the contract. It was noted that the appellant did not raise a question of novation of the contract. The conduct of the parties, including correspondences and the letter dated 20.12.1990 from the respondent, indicated that the final bill was signed under coercion. The Court emphasized that even when rights and obligations of the parties are worked out, the contract does not come to an end for the purpose of determining disputes, and thus, the arbitration agreement can be invoked.

Conclusion:
1. Existence of Triable Issues: The Court concluded that triable issues were raised that needed to be determined by the arbitrator. The respondent's assertion of coercion was not an afterthought, and the arbitration clause survived despite the purported satisfaction of the contract.
2. Arbitration Agreement Subsists: The fact situation indicated that the arbitration agreement subsisted. Disputes arose prior to the acceptance of the final bill, and there was no unequivocal acceptance of the final bill by the respondent. The appellant's conduct showed that disputes were acknowledged and referred to arbitration.
3. No Novation of Contract: The appellant did not make out a case of novation or substitution of the contract agreement. The High Court's finding that there were triable issues before the arbitrator was not perverse or unreasonable.

The Supreme Court dismissed the appeal, affirming the High Court's judgment, and held that the arbitration clause in the contract agreement survived despite the purported satisfaction thereof. The appeal was dismissed with no costs.

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