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2023 Supreme(Online)(Mad) 98958
MADRAS HIGH COURT
R. Sankaranarayanan, ASG
Union of India v. M/s.Maheswari Builders Rajasthan
Arb. O. P. (Com.Div.) No.150 of 2021
For the Appellants/Petitioners: Mr. R. Sankaranarayanan
For the Respondents: Ms. Rajeni Ramadass
Consent obtained under economic duress is not valid, warranting annulment of purported settlements.
Headnote:(A) The Arbitration and Conciliation Act, 1996 - Section 16 - Indian Contract Act, 1872 - Section 63 - Challenge to arbitral award - Jurisdictional issue raised by employer on grounds of lack of free consent - Contractor coerced into withdrawing claims for extension of time - Award upheld as per submissions in National Insurance Co. Ltd. v. M/s.Boghara Polyfab Pvt. Ltd. - No logical reason for contractor to withdraw claims when significant amounts were outstanding. (Paras 17-19)
(B) The award by the Arbitral Tribunal is not liable to be interfered with under Section 34 due to established coercion which voided the consent for settlements proposed between parties. (Para 20)
Facts of the case:
The employer and contractor executed a contract for construction valued at approximately Rs.13.99 crores, with completion phases running from 2009 to 2012, leading to disputes regarding extensions and claims which prompted arbitration.
Findings of Court:
The Arbitral Tribunal rejected the employer's claims of jurisdictional challenge as it found no voluntary agreement between parties due to coercion and lack of free consent.
Issues: The primary issue was the determination of whether the claims were settled under duress and the authority of the Arbitral Tribunal to accept those claims despite alleged settlements.
Ratio Decidendi: The court found that the contractor was coerced into agreeing to withdraw arbitration claims under the threat of non-release of payments, indicating that consent was not free, thus validating the tribunal's award against the employer's jurisdictional challenge.
Result: Petition dismissed without any order as to costs.
| Table of Content |
|---|
| 1. details of contractual obligations and claims. (Para 1 , 4) |
| 2. jurisdiction challenge based on alleged coercion. (Para 3 , 12 , 16) |
| 3. free consent evaluated through coercion. (Para 9 , 17) |
| 4. final ruling on arbitration and dismissal. (Para 19 , 20) |
1. The petitioner / employer awarded a contract to the respondent / contractor for the construction of quarters for cadets at Chennai. For ease of reference, the petitioner is referred to as the employer and the respondent as the contractor throughout this order. The total value of the contract was Rs.13,99,28,741.41. Work was to be executed in two phases: Phase - I to be completed by 22.01.2009 and Phase - II by 22.04.2010. In course of execution of Phase - I work, extensions of time were requested for and granted. By communication dated 07.09.2009, the employer informed the contractor that Phase - I work had been satisfactorily completed on 05.09.2009 subject to the rectification of defects listed in Appendix - A to said communication. The formal extension order for extension up to 05.09.2009 was issued by the employer on 16.04.2010 under condition 11 (A)(vii) of IAFW - 2249, General Conditions of Contract (the GCC). Similarly, in course of execution of Phase - II work, extensions of time were requested for and granted. The last extension that was granted while work was being carried on was up to 31.03.2012. All extensions were under condition 11 (A)(vii) of the GCC. Thereafter, by communication of 07.07.2012, the employer informed the contractor that work was completed on 05.07.2012 subject to rectification of the defects listed in Appendix A and B of said communication.
2. By communication dated 13.04.2015, the contractor invoked the arbitration clause in the contract and requested the employer to take necessary steps to form the arbitral tribunal to adjudicate 31 claims. As is evident from the narration in the preceding paragraph, while work was carried out and completed subject to defect rectification on 05.07.2012, extension of time for the period running from 01.04.2012 to 05.07.2012 had not been granted. Therefore, parties corresponded on said issue and the processing of the final bill. In that context, a letter dated 07.01.2016 and a letter dated 18.02.2016 enclosing an affidavit were issued by the contractor agreeing to withdraw all court cases and the request for appointment of an arbitrator. Pursuant thereto, as requested, extension of time was granted up to 05.07.2012. Meanwhile, pursuant to a communication dated 16.06.2016 from the Engineer - in - chief, the arbitrator entered upon reference and called upon parties to submit pleadings by notice dated 02.07.2016. In response, by letter dated 16.07.2016, the employer informed the arbitrator about the submission of an affidavit by the contractor agreeing to withdraw the request for arbitration, and the grant of extension of time pursuant thereto. Therefore, it was submitted that there are no claims / disputes requiring adjudication.
3. Thereafter, by communication dated 08.08.2016, the contractor informed the Arbitral Tribunal that the affidavit was given under pressure since the contractor was informed that extension of time would be granted only if such affidavit is provided, and that the final bill would be paid subject to such condition. An application under S.16 of the Arbitration and Conciliation Act, 1996 (the Arbitration Act) was filed by the employer in these facts and circumstances on 06.09.2016. By order dated 04.11.2016, the Arbitral Tribunal rejected the jurisdictional challenge on the ground that the letter dated 07.01.2016 and affidavit were not submitted under free consent. The arbitral proceedings continued and the contractor herein made 16 claims before the Arbitral Tribunal.
4. Claims 1 to 11 and 16 were claims for reimbursement of costs incurred in relation to work executed. Claim 12 pertained to amounts due and payable under the final bill. Claim 13 was for release of fixed deposits.
