Mr. Kushagra Bansal, Advocate v. THE ENGINEER IN CHIEF MILITARY ENGINEERING SERVICE

Judgment

1. This petition is filed on behalf of the Petitioner under Section 11(6) of the Arbitration and Conciliation Act, 1996 (‘1996 Act’) for appointment of a Sole Arbitrator to adjudicate the disputes between the parties. 2. As set out in the petition, case of the Petitioner is that being a successful bidder of a Tender floated by the Respondent, work of special repair of Building Nos. 19 to 22 at S.P. Marg and ‘A’ Block at Sangli Apartment was awarded to the Petitioner and a Contract Agreement was executed on 31.03.2014. Respondent issued Work Order No. 01 on

12.04.2014 mentioning the details of the timelines for handing over the site. Petitioner mobilized its resources within the stipulated time. From time to ARB.P. 297/2025 Signature Not Verified Digitally Signed by:KAMAL KUMAR Location: Signing Date:09.06.2025 19:01:32 time, Petitioner raised issues of non-availability of the work front at the project site as also other hindrances, leading to delay in execution of the work. On 29.12.2014, Respondent granted extension of time till 31.01.2015 for completion of the work under Phase-1. 3. Petitioner avers that subsequently Respondent issued deviation orders leading to extension of time for completion of work for Phases-1, 2 and 3, however, the inter se disputes continued till 2021. On 04.04.2021, Respondent issued completion certificate in respect of the last phase i.e., Phase-3 and on 14.07.2021, Petitioner raised the final bill, out of which Respondent paid a meagre sum of Rs.8,20,385/- on 31.10.2022. Thereafter, Petitioner invoked Arbitration Clause 70 of the IAFW-2249 and sent a notice dated 04.11.2024 to the Respondent, pointing out that in terms of the judgment of the Supreme Court in Perkins Eastman Architects DPC and Another v. HSCC (India) Limited, (2020) 20 SCC 760, a person having an interest in the dispute or in the outcome or the decision thereof, is ineligible to appoint an Arbitrator and therefore, Respondent could not appoint an Arbitrator under Clause 70 of IAFW-2249. Petitioner, therefore, requested the Respondent that Sole Arbitrator be appointed by mutual consent of the parties, but there was no response. 4. Reply has been filed on behalf of the Respondent. Placing reliance on

the reply, Mr. Shukla, learned CGSC submits that the petition deserves to be dismissed at the outset, being not maintainable. It is urged that no dispute survives between the parties, which needs reference to arbitration, in light of the fact that a sum of Rs. 7,84,83,084.78/-, which was the amount due to the Petitioner has been paid and Petitioner has signed the bill without protest or demur and issued a ‘No Claim Certificate’ in this regard. Present petition is ARB.P. 297/2025 Signature Not Verified Digitally Signed by:KAMAL KUMAR Location: Signing Date:09.06.2025 19:01:32 merely an afterthought and raises claims which are time barred and non-arbitrable. 5. Mr. Shukla further argues that Petitioner wrongly blames the Respondent for delay in work. The site in question for the entire Phase-1 work was duly handed over to the Petitioner on 26.04.2014, to enable it to commence work as per the Contract. However, progress of work was slow from the beginning due to inadequate material, resources and labour deployed at the site. Numerous notices were served on the Petitioner but there was no improvement in the progress of work. Extension of time was also granted on several occasions so that Petitioner could mobilize its resources and manpower but the work was not completed on time. In fact, it is an admitted position that work was delayed due to ill health of the contractor, for which, from time to time medical certificates were sent by Petitioner to the Respondent. Delay by the Petitioner resulted in grave prejudice to the Respondent inasmuch as the buildings which were to be handed over for the purpose of residence of the Army personnel within one year, were actually handed over after seven years. Mr. Shukla relies on the following judgments in his favour:- (i) Union of India and Others v. Bharat Enterprise, 2023 SCC OnLine SC 369; (ii) Union of India and Others v. Master Construction Company, (2011) 12 SCC 349; and (iii) Tirupati Constwell Private Limited v. Delhi States Employees Federation CGHS Ltd, ARB. P. 1029/2024, decided on 13.05.2025.

6. Learned counsel for the Petitioner per contra strenuously refutes the submissions made by Mr. Shukla. It is submitted that Petitioner is not ARB.P. 297/2025 Signature Not Verified Digitally Signed by:KAMAL KUMAR Location: Signing Date:09.06.2025 19:01:32 responsible for the delay in completion of the work, which is reflected from the communications exchanged between the parties at the relevant time. It is argued that Respondent is wrong in taking a stand that the entire outstanding payment has been made to the Petitioner since the total bill was for a sum of Rs.17,59,42,525/- as per the final invoice dated 14.07.2021, but only a sum of Rs.8,20,385/- has been paid and the balance is outstanding. Therefore, the dispute with respect to the outstanding payment survives and needs to be referred for arbitration. Insofar as the ‘No Claim Certificate’ is concerned, it is submitted that the certificate is a standard printed format signed in routine as a pre-condition for clearance of the bills and cannot amount to a full and final settlement of the amount payable to the Petitioner. Moreover, the ‘No Claim Certificate’ is in reference to bill dated 14.07.2021, which itself indicates that out of the outstanding amount, only a sum of Rs.8,20,385/- has been paid. In any event, this would be a matter for adjudication by the Arbitrator and cannot be decided by this Court in the present petition. 7. 8. Heard learned counsels for the parties. Broadly understood, the objections raised by the Respondent to the present petition are twofold: (a) delay in completion of the work is attributable to the Petitioner; and (b) Petitioner accepted and signed the final bill dated 14.07.2021 without any protest or dispute and issued ‘No Claim Certificate’ in this regard, which operates as a bar to invoke arbitration. 9. Insofar as the argument of the Respondent that the delay in completion of the work under Contract dated 31.03.2014 is attributable to the Petitioner and that no hindrances of any kind were caused by the Respondent is concerned, this is a dispute on merits of the claims raised by the Petitioner and can only be adjudicated by the Arbitrator. It is not in the ARB.P. 297/2025 Signature Not Verified Digitally Signed by:KAMAL KUMAR Location: Signing Date:09.06.2025 19:01:32 domain of a referral Court under Section 11 of 1996 Act to enter into merits of the rival claims. It is settled that the limited enquiry that a referral Court can enter into is with regard to the existence of the Arbitration Agreement and whether the petition under Section 11 of 1996 Act is barred by limitation. 10. Coming to the second objection of ‘accord and satisfaction’ and/or discharge of liabilities by reference to the ‘No Claim Certificate’ is concerned, this issue need not detain this Court as the same has been settled by the Supreme Court and in this context, I may allude to the judgment of the Supreme Court in SBI General Insurance Co. Ltd. v. Krish Spinning, 2024 SCC OnLine SC 1754, wherein it was held that dispute regarding ‘accord and satisfaction’ does not pertain to existence of the Arbitration Agreement and can only be adjudicated upon by the Arbitral Tribunal as a preliminary issue. The three questions arising for determination in the said case before the Supreme Court were as follows:- “D. ISSUES FOR DETERMINATION

34. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the following three questions fall for our consideration:— i. Whether the execution of a discharge voucher towards the full and final settlement between the parties would operate as a bar to invoke arbitration? ii. What is the scope and standard of judicial scrutiny that an application under Section 11(6) of the Act, 1996 can be subjected to when a plea of “accord and satisfaction” is taken by the defendant? iii. What is the effect of the decision of this Court in In Re : Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act, 1966 and the Indian Stamp Act 1899 on the scope of powers of the referral court under Section 11 of the Act, 1996?”

11. These questions arose in the context of consent letter by the ARB.P. 297/2025 Signature Not Verified Digitally Signed by:KAMAL KUMAR Location: Signing Date:09.06.2025 19:01:32 Respondent therein accepting a certain quantity of cotton bales as against the initial higher claim, followed by an advance discharge voucher accepting the receipt of Rs. 84,19,579/- from the Appellant, as full and final settlement towards the claim, subsequent to which the Appellant released the said amount. Case of the Appellant was that having signed the consent letter and the discharge voucher, it was not open to the Respondent to turn around and raise a dispute. The High Court held that the dispute was falling in the realm of adjudication and the same is the function to be discharged by an Arbitrator. 12. The Supreme Court held that whether or not there has been a discharge of the contract is a mixed question of law and fact and if any dispute arises as to whether the contract has been discharged, the same is arbitrable as per mechanism provided under the Arbitration Agreement. The Arbitration Agreement by virtue of presumption of separability survives the principal contract in which it is contained. This observation was basis Section 16(1) of 1996 Act which in turn is based on Article 16 of UNCETRAL Modern Law on International Commercial Arbitration, 1985, which embodies the presumption of separability and the judgment of the Supreme Court in National Agricultural Coop. Marketing Federation India Ltd. v. Gains Trading Ltd., (2007) 5 SCC 692. It was further observed that even if the contracting parties, in pursuance of a settlement, agree to discharge each other of any obligation under the contract, this does not ipso facto mean that the Arbitration Agreement too would come to an end, unless the parties expressly agree to do so. The intention of the parties in discharging a contract by ‘accord and satisfaction’ is to relieve each other of the existing or new obligations under the contract, but this cannot be ARB.P. 297/2025 Signature Not Verified Digitally Signed by:KAMAL KUMAR Location: Signing Date:09.06.2025 19:01:32 construed to mean that parties also intended to relieve each other of their obligations to settle any dispute pertaining to the original contract through arbitration. Although, ordinarily no arbitrable dispute may subsist after execution of a full and final settlement, yet any dispute pertaining to the settlement itself, by necessary implication being a dispute arising out of or in relation to or under the contract, would not be precluded from reference to arbitration. Relevant paragraphs of judgment in Krish Spinning (supra) are as follows:- “a. Whether the arbitration agreement contained in a substantive contract survives even after the underlying contract is discharged by “accord and satisfaction”?

48. Arbitration for the purpose of resolving any dispute pertaining to any claim which has been “fully and finally settled” between the parties can only be invoked if the arbitration agreement survives even after the discharge of the substantive contract.

49. The arbitration agreement, by virtue of the presumption of separability, survives the principal contract in which it was contained. Section 16(1) of the Act, 1996 which is based on Article 16 of the UNCITRAL Model Law on International Commercial Arbitration, 1985 (hereinafter, “Model Law”) embodies the presumption of separability. There are two aspects to the doctrine of separability as contained in the Act, 1996:— i. An arbitration clause forming part of a contract is treated as an agreement independent of the other terms of the contract. ii. A decision by the arbitral tribunal declaring the contract as null and void does not, ipso facto, make the arbitration clause invalid.

50. The doctrine of separability was not part of the legislative scheme under the Arbitration Act, 1940. However, with the enactment of the Act, 1996, the doctrine was expressly incorporated. This Court in National Agricultural Coop. Marketing Federation India Ltd. v. Gains Trading Ltd. reported in (2007) 5 SCC 692, while interpreting Section 16 of the Act, 1996, held that even if the underlying contract comes to an end, the arbitration agreement contained in such a contract survives for the purpose of resolution of disputes between the parties.

51. The fundamental premise governing the doctrine of separability is that the arbitration agreement is incorporated by the parties to a contract with ARB.P. 297/2025 Signature Not Verified Digitally Signed by:KAMAL KUMAR Location: Signing Date:09.06.2025 19:01:32 the mutual intention to settle any disputes that may arise under or in respect of or with regard to the underlying substantive contract, and thus by its inherent nature is independent of the substantive contract.

52. In Heyman v. Darwins Ltd. reported in [1942] A.C. 356, it was held by the House of Lords that the repudiation or breach of a contract does not extinguish the arbitration agreement as it survives for the purpose of resolution of any outstanding claims arising out of the breach. It was observed thus: “I am, accordingly, of the opinion that what is commonly called repudiation or total breach of a contract, whether acquiesced in by the other party or not, does not abrogate the contract, though it may relieve the injured party of the duty of further fulfilling the obligations which he has by the contract undertaken to the repudiating party. The contract is not put out of existence, though all further performance of the obligations undertaken by each party in favour of the other may cease. It survives for the purpose of measuring the claims arising out of the breach, and the arbitration clause survives for determining the mode of their settlement. The purposes of the contract have failed, but the arbitration clause is not one of the purposes of the contract.” (Emphasis supplied)

53. Thus, even if the contracting parties, in pursuance of a settlement, agree to discharge each other of any obligations arising under the contract, this does not ipso facto mean that the arbitration agreement too would come to an end, unless the parties expressly agree to do the same. The intention of the parties in discharging a contract by “accord and satisfaction” is to relieve each other of the existing or any new obligations under the contract. Such a discharge of obligations under the substantive contract cannot be construed to mean that the parties also intended to relieve each other of their obligation to settle any dispute pertaining to the original contract through arbitration.

54. Although ordinarily no arbitrable disputes may subsist after execution of a full and final settlement, yet any dispute pertaining to the full and final settlement itself, by necessary implication being a dispute arising out of or in relation to or under the substantive contract, would not be precluded from reference to arbitration as the arbitration agreement contained in the original contract continues to be in existence even after the parties have discharged the original contract by “accord and satisfaction”.

55. The aforesaid position of law has also been consistently followed by this Court as evident from many decisions. In Boghara Polyfab (supra), while rejecting the contention that the mere act of signing a “full and final ARB.P. 297/2025 Signature Not Verified Digitally Signed by:KAMAL KUMAR Location: Signing Date:09.06.2025 19:01:32 discharge voucher” would act as a bar to arbitration, this Court held as follows: “44. … None of the three cases relied on by the appellant lay down a proposition that mere execution of a full and final settlement receipt or a discharge voucher is a bar to arbitration, even when the validity thereof is challenged by the claimant on the ground of fraud, coercion or undue influence. Nor do they lay down a proposition that even if the discharge of contract is not genuine or legal, the claims cannot be referred to arbitration. […]”

56. Again, in R.L. Kalathia and Company v. State of Gujarat reported in (2011) 2 SCC 400, it was re-iterated that the mere issuance of the no-dues certificate would not operate as a bar against the raising of genuine claims even after the date of issuance of such certificate. The relevant observations are extracted hereinbelow: “13. From the above conclusions of this Court, the following principles emerge: (1) Merely because issued “no-dues certificate”, if there is an acceptable claim, the court cannot reject the same on the ground of issuance of “no-dues certificate”. the contractor has (ii) Inasmuch as it is common that unless a discharge certificate is given in advance by the contractor, payment of bills are generally delayed, hence such a clause in the contract would not be an absolute bar to a contractor raising claims which are genuine at a later date even after submission of such “no-claim certificate”. full and final discharge (iii) Even after execution of voucher/receipt by one of the parties, if the said party is able to establish that he is entitled to further amount for which he is having adequate materials, he is not barred from claiming such amount merely because of acceptance of the final bill by issuing “no-dues mentioning “without prejudice” or by certificate”. (Emphasis supplied)

57. The position that emerges from the aforesaid discussion is that there is no rule of an absolute kind which precludes arbitration in cases where a full and final settlement has been arrived at. In Boghara Polyfab (supra), discussing in the context of a case similar to the one at hand, wherein the discharge voucher was alleged to have been obtained on ground of coercion, it was observed that the discharge of a contract by full and final settlement by issuance of a discharge voucher or a no-dues certificate extends only to those vouchers or certificates which are validly and voluntarily executed. Thus, if the party said to have executed the discharge ARB.P. 297/2025 Signature Not Verified Digitally Signed by:KAMAL KUMAR Location: Signing Date:09.06.2025 19:01:32 voucher or the no dues certificate alleges that the execution was on account of fraud, coercion or undue influence exercised by the other party and is able to establish such an allegation, then the discharge of the contract by virtue of issuance of such a discharge voucher or no dues certificate is rendered void and cannot be acted upon.

58. It was further held in Boghara Polyfab (supra) that the mere execution of a full and final settlement receipt or a discharge voucher would not by itself operate as a bar to arbitration when the validity of such a receipt or voucher is challenged by the claimant on the ground of fraud, coercion or undue influence. In other words, where the parties are not ad idem over accepting the execution of the no-claim certificate or the discharge voucher, such disputed discharge voucher may itself give rise to an arbitrable dispute.

59. Once the full and final settlement of the original contract itself becomes a matter of dispute and disagreement between the parties, then such a dispute can be categorised as one arising “in relation to” or “in connection with” or “upon” the original contract which can be referred to arbitration in accordance with the arbitration clause contained in the original contract, notwithstanding the plea that there was a full and final settlement between the parties.”

13. The next question, as noted above, before the Supreme Court was on the scope and standard of judicial scrutiny by a Court under Section 11(6) of 1996 Act with respect to plea of ‘accord and satisfaction’. The Supreme Court first referred to the earlier decisions of the Supreme Court in Damodar Valley Corporation v. K.K. Kar, (1974) 1 SCC 141, and Bharat Heavy Electricals Limited Ranipur v. Amar Nath Bhan Prakash, (1982) 1 SCC 625, wherein it was held that any dispute arising in relation to validity of the discharge by ‘accord and satisfaction’ would be covered by the arbitration agreement contained in the original contract and thus should be referred to the Arbitral Tribunal for determination. The Supreme Court thereafter observed that the position in law witnessed a change with the subsequent decisions of the Supreme Court in M/s P.K. Ramaiah and Company v. Chairman & Managing Director, National Thermal Power ARB.P. 297/2025 Signature Not Verified Digitally Signed by:KAMAL KUMAR Location: Signing Date:09.06.2025 19:01:32 Corpn, 1994 Supp (3) SCC 126 and Nathani Steels Ltd. v. Associated Constructions, 1995 Supp (3) SCC 324. In both these decisions, the judgment in Damodar Valley (supra) was distinguished on facts and it was held that once “full and final settlement” is arrived at, no arbitral dispute subsists and hence there can be no reference to arbitration. In SBP & Co. v. Patel Engineering Ltd. and Another, (2005) 8 SCC 618 and National Insurance Company Limited v. Boghara Polyfab Private Limited, (2009) 1 SCC 267, the scope of referral Courts under Section 11 was substantially expanded and as noted in Krish Spinning (supra), the referral Courts were conferred with a discretion to conduct mini trials and indulge in appreciation of evidence on the issues concerned with the subject matter of the arbitration. 14. After referring to the aforesaid judgments, the Supreme Court in Krish Spinning (supra) referred to the 246th Report of the Law Commission of India, whereafter 1996 Act was amended in 2015, to incorporate Section 11(6-A) which albeit was omitted by the 2019 Amendment, but in the absence of the omission being notified, continued in the statute book. Reference was also made to the judgment of the Supreme Court in Duro Felguera, S.A. v. Gangavaram Port Limited, (2017) 9 SCC 729, wherein it was held: “The scope of the power under Section 11(6) of 1996 Act was considerable wide in view of the decisions in SBP and Co [(2005) 8 SCC 618] and Boghara Polyfab [(2009) 1 SCC 267]. This position continued till the amendment brought about in 2015. After the amendment, all that the Courts need to see is whether an arbitration agreement exists – nothing more, nothing less. The legislative policy and purpose is essentially to minimise the Court’s intervention at the stage of appointing the Arbitrator ARB.P. 297/2025 Signature Not Verified Digitally Signed by:KAMAL KUMAR Location: Signing Date:09.06.2025 19:01:32 and this intention as incorporated in Section 11(6-A) ought to be respected.” 15. It was observed that despite the decision in Duro (supra), the Supreme Court in United India Insurance Company Limited v. Antique Art Exports Private Limited, (2019) 5 SCC 362, held that mere bald allegation by a party that the discharge voucher was obtained under coercion or undue influence would not entitle it to seek reference of a dispute to arbitration unless it is able to produce prima facie evidence of the same during the course of proceedings under Section 11(6) of 1996 Act. It was further observed that in Mayavati Trading Private Limited v. Pradyut Deb Burman, (2019) 8 SCC 714, a three-Judge Bench of the Supreme Court overruled the decision in Antique Art (supra), holding that the position of law that existed prior to the 2015 amendment to the 1996 Act, under which referral Courts had the power to examine the aspect of ‘accord and satisfaction’, had come to be legislatively overruled by Section 11(6-A). 16. Finally, after referring to the decisions in Vidya Drolia and Others v. Durga Trading Corporation, (2021) 2 SCC 1 and DLF Home Developers Limited v. Rajapura Homes Private Limited and Another, (2021) 16 SCC 743, the Supreme Court examined the effect of the decision of the Seven-Judge Bench of the Supreme Court in In Re: Interplay Between Arbitration Agreements under Arbitration and Conciliation Act, 1996 and Stamp Act, 1899, 2023 SCC OnLine SC 1666 and held that scope of examination under Section 11(6-A) is confined to existence of an Arbitration Agreement on the basis of Section 7 of 1996 Act and the use of the term ‘examination’ is different from the term ‘rule’ under Section 16 of 1996 Act and is limited to prima facie scrutiny of the existence of the ARB.P. 297/2025 Signature Not Verified Digitally Signed by:KAMAL KUMAR Location: Signing Date:09.06.2025 19:01:32 Arbitration Agreement and does not include a contested or laborious enquiry, which is to be left to the Arbitral Tribunal under Section 16. This approach, according to the Supreme Court, serves two purposes: firstly, it allows the referral Court to weed out non-existent Arbitration Agreements and secondly, it protects jurisdictional competence of the Arbitral Tribunal to rule on the issue in depth. 17. In light of these observations in In Re: Interplay (supra), the Supreme Court held that dispute pertaining to ‘accord and satisfaction’ of the claims is not one which attacks or questions the existence of the Arbitration Agreement in any way and the Arbitration Agreement being separate and independent from the underlying substantive contract in which it is contained, continues to remain in existence even after the original contract stands discharged by ‘accord and satisfaction’. It was further held that ‘accord and satisfaction’ being a mixed question of law and fact, comes within the exclusive jurisdiction of the Arbitral Tribunal, if not otherwise agreed upon between the parties. The negative effect of Kompetenz- Kompetenz would require that matters falling within the exclusive domain of the Arbitral Tribunal should not be looked into by the referral Court, even for a prima facie determination, before the Tribunal first has had the opportunity of looking into it. Relevant passages from the judgment in Krish Spinning (supra) are extracted hereunder, for the ease of reference:- “73. The net effect of the decisions in SBP & Co. (supra) and Boghara Polyfab (supra) was that the scope for interference available to the referral courts when acting under Section 11 of the Act, 1996 was substantially expanded. The referral courts were conferred with the discretion to conduct mini trials and indulge in the appreciation of evidence on the issues concerned with the subject matter of arbitration. The Law Commission of India in its 246th report took note of the issue of significant delays being caused to the arbitral process due to enlarged ARB.P. 297/2025 Signature Not Verified Digitally Signed by:KAMAL KUMAR Location: Signing Date:09.06.2025 19:01:32 scope of judicial interference at the stage of appointment of arbitrator and suggested as follows: i. First, that the power of appointment conferred upon the Chief Justice be devolved on to the Supreme Court and the High Court, as the case may be; ii. Secondly, the power of appointment under Section 11 be clarified to be an administrative power and not a judicial one. iii. Thirdly, the scope of interference under Sections 8 and 11 respectively of the Act, 1996 be restricted only to those cases where the court finds that no arbitration agreement exists or is null and void.

74. The Law Commission suggested the insertion of Section 11(6-A) in the Act, 1996. The aforesaid recommendations of the Commission were taken note of by the Parliament and accordingly the Act, 1996 was amended in 2015 to incorporate Section 11(6-A), which reads thus: “(6A) The Supreme Court or, as the case may be, the High Court, while considering any application under subsection (4) or sub- section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement.”

75. Interestingly, Section 11(6-A) was omitted by the 2019 amendment to the Act, 1996 on the basis of a report of the High-Level Committee to Review the Institutionalisation of Arbitration Mechanism in India. However, in the absence of the omission being notified, Section 11(6-A) of the Act, 1996 continues to remain on the statute book and thus has to be given effect as such.

76. The impact of the addition of Section 11(6-A) was elaborately discussed by this Court in Duro Felguera, S.A. v. Gangavaram Port Ltd. reported in (2017) 9 SCC 729 as follows: “48. […] From a reading of Section 11(6-A), the intention of the legislature is crystal clear i.e. the court should and need only look into one aspect—the existence of an arbitration agreement. What are the factors for deciding as to whether there is an arbitration agreement is the next question. The resolution to that is simple—it needs to be seen if the agreement contains a clause which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement. xxx xxx xxx