Delhi High Court
Supermint Exports Pvt Ltd vs New India Assurance Co Ltd. & Ors on 16 March, 2026
Author: C. Hari Shankar
Bench: C. Hari Shankar
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 10 March 2026
Pronounced on: 16 March 2026
+ FAO(OS) (COMM) 286/2022
SUPERMINT EXPORTS PVT LTD .....Appellant
Through: Mr. Sudhir Nandrajog, Sr. Adv.
with Mr. Bhaskar Tiwari, Mr. Ramakant
Shukla and Ms. Priscilla Kom, Advs.
versus
NEW INDIA ASSURANCE
CO LTD. & ORS. .....Respondents
Through: Mr. Saurav Agrawal, Mr. Rajat
Dasgupta, Ms. Sidhika Dwivedi, Ms. Anadi
Mishra, Ms. Raadhika Chawla and Mr.
Tushar Nair, Advs.
CORAM:
HON'BLE MR. JUSTICE C. HARI SHANKAR
HON'BLE MR. JUSTICE OM PRAKASH SHUKLA
JUDGMENT
% 16.03.2026
C. HARI SHANKAR, J.
A. Facts
1. The appellant manufactures and deals in mint and pine based
essential oil. It was the beneficiary of an Insurance policy issued by
the respondent New India Assurance Company Ltd., which has been
impleaded at three addresses. The policy insured the appellant for a
total sum of ₹ 32,25,00,000/- and covered fire and risks involving the
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building, plants and machinery, stocks, furniture and fixtures and
fittings of the appellant. The policy was to remain in force from 20
August 2012 to 19 August 2013.
2. On 13 February 2013, a fire broke out in the appellant’s
premises, resulting in loss of the building, plant and machinery and
stocks.
3. The appellant lodged a claim with the respondent for ₹
27,08,30,874.13.
4. The respondent appointed a spot surveyor who conducted an
initial survey of the loss suffered by the appellant, followed by a final
survey by M/s. J. Basheer and Associates. The Final Survey Report1
assessed the loss suffered by the appellant to be ₹ 12,18,21,908. This
amount was paid to the appellant.
5. Asserting its claim of ₹ 27,08,30,874.13, as originally claimed,
the appellant sought arbitration of its entitlement for the balance
amount invoking the arbitration clause contained in the insurance
policy. A former Chief Justice of a High Court was appointed as the
Arbitrator. The learned Arbitrator rendered his award on 28 December
2019.
6. Before the learned Arbitrator, in its statement of defence, the
respondent disputed the appellant’s entitlement on the ground, inter
alia, that the appellant had executed two discharge vouchers dated 30
1 ‘FSR’, hereinafter
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March 2014 and 2 July 2014 in which the appellant had accepted an
amount of ₹ 12,18,21,908/- towards full and final settlement of the
claim due to it. Having thus executed and signed the said discharge
vouchers, the respondent contended that the appellant was estopped
from claiming any higher amount. The respondent further submitted
that the discharge vouchers had been executed by the appellant
voluntarily and without any pressure, coercion, undue influence or
duress. The claim of the appellant, therefore, stood discharged by
accord and satisfaction and was not therefore any more open to
arbitration.
7. The appellant, before the learned Arbitrator, did not dispute the
factum of execution of the afore-noted discharge vouchers dated 30
March 2014 and 2 July 2014. However, the appellant submitted that it
had executed the discharge vouchers under compulsion, duress and
financial distress as the respondent was not releasing the claim
without the execution of the full and final discharge vouchers by the
appellant. The appellant submitted that it was under tremendous
pressure from creditors and that, consequent on the fire, there was
severe depletion of its credit facilities resulting in considerable
financial distress. It was also submitted that the appellant’s bankers
had downgraded its accounts and started charging heavy penal
interests, seriously hampering the appellant’s business operations and
practically bringing its factory to the brink of closure. Under such
straitened circumstances, it was submitted that the appellant had no
option but to sign the discharge vouchers. They could not, therefore,
be regarded as having been voluntarily executed.
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B. The Arbitral Award
8. The learned Arbitrator framed the following issues as arising
for adjudication :
“1. Whether the disputes forming the subject matter of the
present arbitration are arbitrable and whether this tribunal has
jurisdiction to adjudicate upon the said disputes in the light of the
various factual and legal pleas raised by the respondent in its
statement of defence as well in its Section 16 Application, that the
claimant is guilty of violating certain policy conditions?
2. Depending upon the finding on issue No. 1, is the claimant
entitled to its claim or any part thereof? And if so, whether with
interest, and if yes at what rate and for what period?
3. Relief and costs”
9. The learned Arbitrator first took up the issue of whether the
appellant’s claim stood discharged by accord and satisfaction in view
of the discharge vouchers executed by it. For this purpose, the learned
Arbitrator first reproduced the said discharge vouchers as under:
Discharge voucher dated 30-03-2014
“I/we registered owner/authorized signatory of M/s. Supermint
Exports private limited Rampur having held under bank interest
with bank of Baroda, Rampur hereby consciously give our consent
for the full and final settlement of the claim for the sum of Rs. 12,
19, 56, 766/which amount is to be paid by the New India
Assurance Company limited in respect of full and final satisfaction
and settlement of the above claim made by me/us for the
losses/damages to the property/factory situated at 4th km….
I/we agree that the sum is paid to me/us with a denial of any legal
liability or otherwise too as a result of above accident/loss at
present or in future on the part of the insurers and the New India
Assurance Company Limited is absolutely and finally free and
discharged from all or any other claims of every nature and kind
whatsoever in my/our behalf arising or given rise out of the said
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occurrence”
Discharge Voucher dated 02-07-2014
“I/we registered/authorised signatory of M/s. Supermint Exports
Private Limited Rampur having held under bank interest with bank
of Baroda, Rampur hereby consciously give our consent for the full
and final settlement of the claim for the sum of Rs. 12, 18, 21,
908/after being deducted by you of Rs. 77249/in respect of
reinstatement premium and applicable service tax of Rs. 8498 from
the approved amount of Rs. 12,18,99,157/.”
This net amount of Rs. 12,18,21,908/is to be paid by the New India
Assurance Company Limited to our Financer Bank, ie, bank of
Baroda, Rampur in our loan account No.05850500000781………..”
I/we agree that the sum of Rs. 12,18,21,908/ is paid to me/us with a
denial of any legal liability or otherwise too as a result of above
loss at present or in future on the part of the insurers and the New
India Assurance Co Ltd is absolutely and finally free and discharge
from all or any other claims of every nature and kind whatsoever ”
It was also noted that the first discharge voucher dated 30 March 2014
was signed by the appellant alone whereas the second discharge was
signed by the appellant as well as by the Chief Manager of the Bank
of Baroda2.
10. In these circumstances, the learned Arbitrator identified the
issue arising before him for consideration apropos the afore-noted
discharge vouchers thus:
“The fact of the aforesaid discharge vouchers being signed and
executed by the claimant not having been denied or disputed by the
claimant and the only defence being put up that the claimant was
compelled and constrained by respondent to execute these
discharge vouchers on account of the claimant’s economic/financial
distress which have been elaborately explained in the statement of
claim and elsewhere, this tribunal has now to consider whether the2 ‘the Bank’, hereinafter
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execution of the aforesaid discharge vouchers was voluntary on the
part of the claimant or whether it was involuntary. Undoubtedly if
this tribunal comes to a conclusion that the aforesaid discharge
vouchers had been executed by the claimant voluntarily, the
necessary consequences will follow but if the tribunal comes to the
conclusion that indeed the claimant was forced and compelled as
well as constrained either by the circumstances attributable to the
Respondent or by the respondent to execute the aforesaid discharge
vouchers, the consequences would be different”
11. The findings of the learned Arbitrator on the afore-noted
aspects were as under:
“First and foremost, I have no hesitation in holding, on an
appreciation of the evidence on record and based upon the
pleadings of the parties and various other documents filed by the
parties before this tribunal that there is no material on record at all
to suggest, point out or establish that the respondent in any manner
by any conscious act on its part either compelled the claimant to
sign the discharge vouchers or created a situation where the
claimant had no option but to sign these discharge vouchers.
Nothing has been pointed out to this tribunal by the claimant
whereby this tribunal can take a view or form an opinion that the
respondent had done any act of omission or commission resulting
in the claimant being compelled or constrained to sign the
discharge vouchers. This having been found by the tribunal thus
that for the signing of the discharge vouchers by the claimant, as
far as the respondent is concerned it did not do any act, consciously
or otherwise, purposely or deliberately or otherwise, the tribunal
has now to look for the other important angle of whether the
signing of the discharge vouchers by the claimant was a voluntary
act on the part of the claimant and whether before or at the time of
the signing of the discharge vouchers circumstances did exist
which conclusively pointed out that the claimant had in fact either
agreed for accepting the lower approved claim or that the claimant
at no stage, at no point of time either disputed such lower amount
of claim or represented or pleaded with the respondent that the
claim amount being lower, the claimant should be paid higher
claim amount. A very important aspect emanating therefrom is
whether at any point before signing the discharge vouchers, had the
claimant reserved to itself the right to claim an enhanced
compensation after receiving the amount covered by the discharge
vouchers or the claimant represented to the respondent that it was
receiving the amount in question without prejudice to its rights and
contentions for any future action that the claimant may bring
against the respondent for claiming the enhanced compensation
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amount. Let us look at the facts.
On 05/03/2014, the claimant wrote a letter to the surveyor in which
it clearly conveyed to him that the assessed compensation of ₹
10,05,68,218/- towards the loss on stock was acceptable to the
claimant. This was conveyed to the surveyor by the claimant
through Mr Sanjay Chaturvedi, the general manager of the
claimant. Mr Chaturvedi appeared as a witness also in this case and
in the course of his cross-examination by the respondent he
admitted to have written the aforesaid letter to the surveyor (refer
question Nos. 8 and 9 in cross-examination). Interestingly, this
letter was not filed by the claimant in these proceedings but was
produced by the respondent. The respondent has rightly accused
the claimant of suppressing this letter and thereby causing material
concealment of a relevant fact before this tribunal.
After the final survey report was submitted by the surveyor, the
claimant submitted a new bill for an amount of ₹ 13.78 lac and the
respondent rather than getting this new bill processed, considered
and examined by the surveyor itself increased the claim amount
based on this new bill for an additional amount of ₹ 8.25 lac. It is
the admitted case of the claimant that it received a copy of the final
survey report from the surveyor and despite being in possession of
the copy of the final survey report in which the recommended claim
amount was clearly mentioned, the claimant at no point of time
either objected to this assessment on the part of the surveyor or
represented to the respondent that the compensation amount being
assessed was on the lower side and that it should be increased
substantially or by any other extent. A very important fact which
conclusively would establish that the claimant at no point of time
objected to the assessment being on the lower side or that it being
deficient as compared to the actual claim of the claimant is this. On
27/05/2014, after the claimant had signed the 1st discharge
voucher but before it signed the 2nd discharge voucher, the
claimant sent an email communication to the Chairman-cum-
Managing Director (CMD) of the respondent company requesting
only for early settlement of the claim and for arranging the
payment of the claim amount very very expeditiously. It is
noteworthy to mention that in this communication and in various
other representations, the claimant had been repeatedly
clamouring for the settlement of the claim case and for payment of
the claim amount very very expeditiously because, according to the
claimant, the claimant was in dire financial crisis and it was
imperative that the claim amount be paid to the claimant
immediately so as to enable it to tide over its financial difficulties.
In this representation to the CMD of the respondent company
which was sent more than 2 months after the claimant had in its
possession the copy of the final survey report, the claimant did not
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make any misgiving of the assessed claim amount being on the
lower side or that the claimant was deprived of its legitimate dues
linked with the loss caused. An important as well as equally
interesting aspect of the matter is that a meeting of the Board of
Directors of the claimant company was held on 20/03/2014 in
which the Board noticed that the respondent had proposed to pay
only a sum of ₹ 12,19,56,766/- towards full and final settlement of
the claimant’s actual claim of ₹ 27,08,30,874.13. The claimant
company recorded the minutes of the aforesaid Board meeting, the
following portion whereof being important is reproduced herein
below:
“Keeping in view above crucial financial condition of the
company, board of directors of the company is of the view
that at present this amount should be taken from the
insurance company and for this purpose it is decided to
submit the consent cum legal discharged loss payment
voucher for the time being and persue for the balance
amount with the insurance company after receiving of Rs.
12, 19, 56, 766.00 and necessary action including legal
assistants be taken and the following resolution was passed;
“resolved that Mr Sanjay Gupta, one of the directors of the
company be and is hereby authorised to issue the discharge
voucher to the insurance company to avoid the distress
proceedings. SEPL may take up the matter for recovery of
balance claim amount with New India Assurance Company
limited after receiving the amount”.
All this happened in the internal meeting of the Board of Directors
of the claimant company. It is the undisputed case of the parties
before this tribunal that at no point of time did the claimant ever
inform the respondent that it was, being in any dire economic and
financial distress as well as duress was accepting the aforesaid
amount under compulsion, keeping all its options open to take
recourse to legal proceedings at a later point of time for the
recovery of the balance claim amount. This decision of the Board
of Directors of the claimant company clearly manifests the fact that
the claimant company despite its reservations about the approved
claim amount being lower than its expectations as well as lower
than what had been claimed, decided to accept this amount. This
Board resolution also clearly indicates that the respondent had
offered this amount to the claimant and the claimant decided to
accept the said offer of the respondent. What however is strange as
well as interesting is that the claimant did not convey any
reservation about this amount being accepted by it subject to any
conditions or even subject to the rights and contentions of the
claimant with respect to the claimant subsequently raising the
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dispute about the inadequacy of the claim amount, the same not
being based on the loss suffered by the claimant.
As has been mentioned hereinabove, the claimant signed two
discharge vouchers. The 1st voucher was signed by the claimant
alone but the 2nd voucher was signed by the claimant as well as the
claimant’s banker. The need of the claimant banker to sign the 2nd
voucher arose because the claimant’s banker had intimated to the
respondent that as and when the claim is sanctioned and the claim
amount was to be dispersed, the same should be remitted to the
account of the bank and that it should not be paid to the claimant. It
is in this background that the claimant’s banker signed the 2nd
voucher.
This is a peculiar case where an insured on the verge of receiving
the claim had to sign two discharge vouchers. (In ordinary course,
only one discharge voucher is required to be signed). And there
was a gap of more than 3 months between the date of the signing of
the 1st voucher and the signing of the 2nd voucher. If indeed the
claimant had any reservations about it receiving unduly lower
amount of claim contrary to its expectations, even after signing the
1st voucher it had those 3 months in which it could rethink about
the matter if indeed the respondent was creating a situation where
it was compelling the claimant to accept the lower amount under
economic or financial duress or hardship. The fact is that even
after a gap of 3 months the claimant readily signed the 2nd
discharge voucher and not only claimant signed it, the claimant’s
banker also signed the same and after signing the discharge
voucher, the claimant received the amount. Even at this stage of
receiving the amount the claimant could have placed on record its
objection or its reservation about having to receive the amount
either in protest or without prejudice to the rights of the claimant
to be agitated in an action to be brought by the claimant in due
course subsequently.
Whether the claimant was suffering financial hardship owing to the
fire incident in its plant and based on such financial hardship
whether the claimant was indeed under financial and economic
duress either owing to the actions of its banker or its creditors or
other persons, the fact remains that none of it was caused or
occasioned by any action of the respondent. Yes, one can say that
perhaps respondent delayed in the processing and approval of the
claim but this today also cannot squarely be put upon the
respondent because the surveyor consumed longer time than was
permissible in processing the claim and the surveyor also has
justified longer time being taken by it on the ground that on a
number of occasions the claimant had to furnish additional
information and additional documents to the surveyor to complete
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the survey and assessment. Taking a little longer time than usually
prescribed in approving and sanctioning the claim or in actually
dispersing the claim amount cannot be equated with the respondent
being responsible for causing economic or financial duress to the
claimant. This is not a case of two contracting parties in a normal,
bilateral contract where because of the actions of one contracting
party, such as a construction contract or a contract for supply of
goods or a contract for rendering services or a consultancy
contract, the other contracting party is going through economic or
financial distress because of the acts of omission or commission of
the other contracting party, usually in a dominating position. In
such situations the dominant contracting party, by its acts of
omission or commission can be accused of creating a situation
where the other contracting party comes to grief and suffers
economic or financial duress and because of such duress, it, not
being in any position of independence succumbs to the pressures of
the dominating party and accepts a lower amount of compensation.
Compared to all this, in a contract of insurance where the insurer
has to indemnify the insured for the loss suffered by the insured,
the insurer cannot be at all accused of creating a situation of the
insured suffering financial or economic duress at the hands of the
insurer unless there is evidence to the contrary. In such a situation
the insurer merely asking for the execution of a discharge voucher
for the sake of its record, for audit purposes and in compliance with
statutory regulations cannot be held guilty of causing financial
distress to the insured or by its mere asking for the signing of the
discharge voucher, it cannot be said to have constrained or
compelled the insured in accepting the lower amount of
compensation under duress. If the claimant considered that it was
being compelled and constrained to execute the discharge voucher
against its will and in a situation of involuntary nature, it was open
to the claimant to refuse to do so and instead represent against the
insistence of the respondent for the same before an appropriate
forum and there were plenty of fora available to the claimant for
ventilating its grievances in that regard.”
(Emphasis supplied)
12. The learned Arbitrator, thereafter referred to the decision of the
Supreme Court in National Insurance Co. Ltd. v Boghara Polyfab
Pvt. Ltd.3 as well as two decisions of this Court and proceeded to
conclude thus:
“In conclusion, I have no hesitation in holding that because of the
signing of the discharge vouchers by the Claimant under the3 (2009) 1 SCC 267
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circumstances mentioned herein above and the claimant having
received the payment, also under the said circumstances, without
any objection as well as without any prejudice to its rights or
contentions, the claims preferred by the Claimant in the present
arbitration are not maintainable and accordingly the disputes raised
herein are also not arbitrable. Issue no 1 accordingly is decided in
favour of the Respondent, leading to the passing of nil award by
this Tribunal in this case, leaving the parties to bear their own
costs. This award is passed at New Delhi on this the 28th day of
December, 2019.”
C. The Impugned Judgment
13. Aggrieved by the aforesaid award, the appellant approached this
Court by way of OMP (Comm) 356/2021.
14. By judgment dated 7 December 2021, a learned Single Judge of
this Court has dismissed the OMP.
15. The findings of the learned Single Judge, to the extent, they are
relevant for our purpose may be reproduced thus:
“19. A plain reading of the impugned award indicates that the
Arbitral Tribunal had found that the Surveyor’s assessment of loss
was acceptable to the petitioner. The Tribunal noted that on
05.03.2014, the petitioner had sent a letter to the Surveyors
confirming that the compensation of ₹10,05,68,214/- on account of
loss of stocks was acceptable to it.
20. The Arbitral Tribunal found that the Final Survey Report
had been furnished to the petitioner and it had, at no point of time,
raised any objection with regard to the assessment of loss. The
Tribunal noted that the petitioner had furnished two Discharge
Vouchers. The first was issued on 30.03.2014 whereby it conveyed
its acceptance to a sum of 12,19,56,766/- as full and final
settlement of its claim. The petitioner had also executed another
Discharge Voucher dated 02.07.2014, which had been counter
signed by its Banker accepting the payment of ₹12,18,21,908/- as
full and final settlement of its claims.
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21. The said amount was disbursed to the petitioner. The same
was in conformity with the loss assessed by the Surveyor.
Considering that the petitioner had not contested the assessment
and had further, signed the discharge voucher; the Arbitral
Tribunal did not accept that the Discharge Voucher had been
signed under coercion or economic duress. The conclusion of the
Arbitral Tribunal is supported by the reasons as articulated in the
impugned award. The question whether the petitioner had
furnished the Discharge Vouchers under duress or coercion is a
question of fact and the decision of the Arbitral Tribunal in this
respect would not warrant any interference in these proceedings,
unless the Court finds that the finding is wholly perverse and
vitiates the award.
22. The Arbitral Tribunal’s view in this case is a plausible view.
It is certainly, a possible view. The same would warrant no
interference in these proceedings. The decision in the case of M/s
Shreedhar Milk Food Ltd. v. M/s United India Insurance Co.
Ltd.4 and United India Insurance Co. Ltd. v. M/s Shreedhar
Malik Foods Ltd5 are of little assistance to the petitioner. In that
case, the Court found that the arbitral tribunal had not returned any
finding that the discharge voucher was executed by the petitioner
on its free will. The arbitral tribunal had also not returned any
finding as to its effect on the claim of the petitioner.
23. In the present case, the Arbitral Tribunal has returned a
definite finding that the petitioner had accepted the payments
without any reservation. The Arbitral Tribunal has rejected the
contention that the respondent had done anything to coerce the
petitioner to execute the Discharge Vouchers.
*****
25. As stated above, in the present case, the view expressed by
the Arbitral Tribunal is a plausible view and this Court is unable to
accept that the impugned award warrants any interference in these
proceedings.”
16. The appellant is in appeal before us.
D. Rival Submissions
4 2018 SCC OnLine Del 8714
5 2019 SCC OnLine Del 10516
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17. We have heard Mr. Sudhir Nandrajog, learned Senior Counsel
for the appellant and Mr. Saurav Agrawal, learned counsel for the
respondents, at some length.
I. Submissions of Mr. Sudhir Nandrajog
18. Mr. Nandrajog submits that the learned Arbitrator proceeded on
the basis of a fundamentally wrong test, which vitiates the award in its
entirety. He submits that the very fact of the appellant being in
financial distress at the time of executing the discharge vouchers
would vitiate the vouchers in their entirety, and that the aspect of
whether the distress was attributable to the respondent, or otherwise, is
extraneous to the issue. The learned Arbitrator, according to Mr.
Nandrajog, has seriously erred in proceeding on the premise that, if
the financial distress faced by the appellant was not attributable to the
respondent, the discharge vouchers would be binding on the appellant.
Economic distress would, by itself, render the execution of the
discharge vouchers involuntary, thereby rendering them inadmissible
as the basis for rejecting the appellant’s claim. In such a case, it could
not be said that the appellant’s claim stood discharged by accord and
satisfaction. Mr. Nandrajog relies, in this context on paras 27 and 28
of the judgment of the Supreme Court in Chairman and MD, NTPC
Limited v. Reshmi Constructions, Builders and Contractors6 and
para 89 of the decision in Central Inland Water Transport
Corporation Ltd v. Brojo Nath Ganguly7, both of which were
approvingly cited and relied upon, by the Supreme Court, in Boghara
6 (2004) 2 SCC 663
7 (1986) 3 SCC 156
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Polyfab. We reproduce the said paragraphs for ready reference thus:
Paras 27 and 28 from Reshmi Constructions
“27. Even when rights and obligations of the parties are worked
out, the contract does not come to an end inter alia for the purpose
of determination of the disputes arising thereunder, and, thus, the
arbitration agreement can be invoked. Although it may not be
strictly in place but we cannot shut our eyes to the ground reality
that in a case where a contractor has made huge investment, he
cannot afford not to take from the employer the amount under the
bills, for various reasons which may include discharge of his
liability towards the banks, financial institutions and other persons.
In such a situation, the public sector undertakings would have an
upper hand. They would not ordinarily release the money unless a
“No-Demand Certificate” is signed. Each case, therefore, is
required to be considered on its own facts.
28. Further, necessitas non habet legem is an age-old maxim
which means necessity knows no law. A person may sometimes
have to succumb to the pressure of the other party to the bargain
who is in a stronger position.”
Para 89 of Central Inland Water Transport Corporation
“89. Should then our courts not advance with the times? Should
they still continue to cling to outmoded concepts and outworn
ideologies? Should we not adjust our thinking caps to match the
fashion of the day? Should all jurisprudential development pass us
by, leaving us floundering in the sloughs of 19th century theories?
Should the strong be permitted to push the weak to the wall?
Should they be allowed to ride roughshod over the weak? Should
the courts sit back and watch supinely while the strong trample
underfoot the rights of the weak? We have a Constitution for our
country. Our judges are bound by their oath to “uphold the
Constitution and the laws”. The Constitution was enacted to secure
to all the citizens of this country social and economic justice.
Article 14 of the Constitution guarantees to all persons equality
before the law and the equal protection of the laws. The principle
deducible from the above discussions on this part of the case is in
consonance with right and reason, intended to secure social and
economic justice and conforms to the mandate of the great equality
clause in Article 14. This principle is that the courts will not
enforce and will, when called upon to do so, strike down an unfair
and unreasonable contract, or an unfair and unreasonable clause in
a contract, entered into between parties who are not equal in
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bargaining power. It is difficult to give an exhaustive list of all
bargains of this type. No court can visualize the different situations
which can arise in the affairs of men. One can only attempt to give
some illustrations. For instance, the above principle will apply
where the inequality of bargaining power is the result of the great
disparity in the economic strength of the contracting parties. It will
apply where the inequality is the result of circumstances, whether
of the creation of the parties or not. It will apply to situations in
which the weaker party is in a position in which he can obtain
goods or services or means of livelihood only upon the terms
imposed by the stronger party or go without them. It will also apply
where a man has no choice, or rather no meaningful choice, but to
give his assent to a contract or to sign on the dotted line in a
prescribed or standard form or to accept a set of rules as part of the
contract, however unfair, unreasonable and unconscionable a
clause in that contract or form or rules may be. This principle,
however, will not apply where the bargaining power of the
contracting parties is equal or almost equal. This principle may not
apply where both parties are businessmen and the contract is a
commercial transaction. In today’s complex world of giant
corporations with their vast infrastructural organizations and with
the State through its instrumentalities and agencies entering into
almost every branch of industry and commerce, there can be
myriad situations which result in unfair and unreasonable bargains
between parties possessing wholly disproportionate and unequal
bargaining power. These cases can neither be enumerated nor fully
illustrated. The court must judge each case on its own facts and
circumstances.”
19. Mr. Nandrajog submits that there was ample material on record
to indicate that the appellant was in extreme financial distress at the
time when it executed the discharge vouchers. He submits that the
appellant was in considerable debt to the Bank, regarding which the
Bank had also issued a letter dated 10 October 2013, from which Mr.
Nandrajog drew our attention to the following paragraphs:
“The review with restructuring of credit facilities as above has
been considered on the following terms and conditions,(1) WCTL (Limit Rs.13.66 crore) is repayable in one
bullet installment with initial moratorium period till
realization of insurance claim or 11 months ie up to
31.08.2014, whichever is earlier. Any payment received
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from insurance company/Agency (ECGC & New India
Insurance Company) against insurance claim should be
adjusted towards WCTL after adjustment of FITL.
(2) FITL (Limit Rs.2.35 crore) is repayable in one
bullet installment with initial moratorium period till
realization of insurance claim or 11 months ie up to
31.08.2014, whichever is earlier. Any payment received
from insurance company/Agency (ECGC & New India
Insurance Company) against insurance claim shall first be
adjusted towards FITL(3) 100% interchangeability from FBP/FBD to CC cum
PC and vice versa is allowed only up to liquidation of
WCTL/FITL.. No interchangeability will be allowed after
repayment of WCTL/FI/TL.
(4) The old limits of CC, PC limits and other limits and
Sub limits (excluding Term Loan which is since liquidated)
will be restored to the instinct extent after full repayment of
FITL and WCTL. However prior permission from our
Higher Authorities shall be required to be obtained for
restoration of old limits after full and final payment of FITL
and WCTLOther Terms and conditions including securities charged/to be
charged are detailed in Annexure-D with pages 36 to 46 enclosed
herewith.
Please give your acceptance to the terms and conditions of the
sanction by putting signatures on the second copy of this letter and
arrange to execute the documents as required by the Bank.”
(Emphasis supplied)
Mr. Nandrajog submits that; therefore, the appellant was under
compulsion to repay the loan advanced by the Bank within a
maximum period of 11 months. The appellant was, therefore, in no
position to bargain, and had willy nilly to take whatever recompense
the respondent was providing. An outstanding loan amount of
approximately ₹ 21 crores to the bank was due from the appellant.
20. Mr. Nandrajog submits that the learned Arbitrator did not
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consider any of these aspects, as he was proceeding on the mistaken
premise that the appellant’s claim stood discharged by accord and
satisfaction, unless the financial distress of the appellant was
attributable to the respondent. To emphasize this point, Mr. Nandrajog
has drawn our attention to the following paragraphs from the award:
“Whether the claimant was suffering financial hardship owing to
the fire incident in its plant and based on such financial hardship
whether the claimant was indeed under financial and economic
duress either owing to the actions of its banker or its creditors or
other persons, the fact remains that none of it was caused or
occasioned by any action of the respondent. Yes, one can say that
perhaps respondent delayed in the processing and approval of the
claim but this today also cannot squarely be put upon the
respondent because the surveyor consumed longer time than was
permissible in processing the claim and the surveyor also has
justified longer time being taken by it on the ground that on a
number of occasions the claimant had to furnish additional
information and additional documents to the surveyor to complete
the survey and assessment. Taking a little longer time than usually
prescribed in approving and sanctioning the claim or in actually
dispersing the claim amount cannot be equated with the respondent
being responsible for causing economic or financial duress to the
claimant. This is not a case of two contracting parties in a normal,
bilateral contract where because of the actions of one contracting
party, such as a construction contract or a contract for supply of
goods or a contract for rendering services or a consultancy
contract, the other contracting party is going through economic or
financial distress because of the acts of omission or commission of
the other contracting party, usually in a dominating position. In
such situations the dominant contracting party, by its acts of
omission or commission can be accused of creating a situation
where the other contracting party comes to grief and suffers
economic or financial duress and because of such duress, it, not
being in any position of independence succumbs to the pressures of
the dominating party and accepts a lower amount of compensation.
Compared to all this, in a contract of insurance where the insurer
has to indemnify the insured for the loss suffered by the insured,
the insurer cannot be at all accused of creating a situation of the
insured suffering financial or economic duress at the hands of the
insurer unless there is evidence to the contrary. In such a situation
the insurer merely asking for the execution of a discharge voucher
for the sake of its record, for audit purposes and in compliance with
statutory regulations cannot be held guilty of causing financial
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distress to the insured or by its mere asking for the signing of the
discharge voucher, it cannot be said to have constrained or
compelled the insured in accepting the lower amount of
compensation under duress. If the claimant considered that it was
being compelled and constrained to execute the discharge voucher
against its will and in a situation of involuntary nature, it was open
to the claimant to refuse to do so and instead represent against the
insistence of the respondent for the same before an appropriate
forum and there were plenty of fora available to the claimant for
ventilating its grievances in that regard.”
21. Mr. Nandrajog has also referred to the following internal e-
mail, addressed by the respondent, a copy of which was marked to the
appellant:
“From: HARIOM KUMAR GAMBHIR
Sent: 01 July 2014 17:24:16
To: CS DIMRI; JASWANT SAHNI (Deputy Manager)
Subject: UNCONDITIONAL DISCHARGE REGARDING FIRE
CLAIM OF M/S SUPERMINT EXPORTS P LTD., RAMPURDear Sir,
We have finally got prepared the wording of full and final the
unconditional discharge for getting the signatures of insured as
well as their banker on it.
Kindly peruse it and advise us to proceed further in the captioned
claim.
With regards,
H.K. Gambhir
Divisional Manager
Moradabad DO-2 (340500)
09415443259″
Mr. Nandrajog submits that it is apparent from the above e-mail that
the respondent was aware of the fact that the Bank was breathing
down the appellant’s neck and that it had, therefore, no bargaining
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power.
22. None of these aspects, submits Mr. Nandrajog, has been
discussed either by the learned Arbitrator or by the learned Single
Judge. He submits that the arbitral award, as well as the impugned
judgement of the learned Single Judge, stand vitiated thereby, and
deserve to be set aside.
II. Submissions of Mr. Agrawal
23. Responding to the submissions of Mr. Nandrajog, Mr. Agrawal,
appearing for the respondents, submits that the approach of the learned
Arbitrator does not conflict in any way with the law enunciated in
Boghara Polyfab. He has drawn our attention to paras 50 and 52 of
Boghara Polyfab in that regard, which read as under:
“50. Let us consider what a civil court would have done in a
case where the defendant puts forth the defence of accord and
satisfaction on the basis of a full and final discharge voucher issued
by the plaintiff, and the plaintiff alleges that it was obtained by
fraud/coercion/undue influence and therefore not valid. It would
consider the evidence as to whether there was any fraud, coercion
or undue influence. If it found that there was none, it will accept
the voucher as being in discharge of the contract and reject the
claim without examining the claim on merits. On the other hand, if
it found that the discharge voucher had been obtained by
fraud/undue influence/coercion, it will ignore the same, examine
whether the plaintiff had made out the claim on merits and decide
the matter accordingly. The position will be the same even when
there is a provision for arbitration.
*****
52. Some illustrations (not exhaustive) as to when claims are
arbitrable and when they are not, when discharge of contract by
accord and satisfaction are disputed, to round up the discussion on
this subject are:
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(i) A claim is referred to a conciliation or a pre-
litigation Lok Adalat. The parties negotiate and arrive at a
settlement. The terms of settlement are drawn up and
signed by both the parties and attested by the conciliator or
the members of the Lok Adalat. After settlement by way of
accord and satisfaction, there can be no reference to
arbitration.
(ii) A claimant makes several claims. The admitted or
undisputed claims are paid. Thereafter negotiations are held
for settlement of the disputed claims resulting in an
agreement in writing settling all the pending claims and
disputes. On such settlement, the amount agreed is paid and
the contractor also issues a discharge voucher/no-claim
certificate/full and final receipt. After the contract is
discharged by such accord and satisfaction, neither the
contract nor any dispute survives for consideration. There
cannot be any reference of any dispute to arbitration
thereafter.
(iii) A contractor executes the work and claims payment
of say rupees ten lakhs as due in terms of the contract. The
employer admits the claim only for rupees six lakhs and
informs the contractor either in writing or orally that unless
the contractor gives a discharge voucher in the prescribed
format acknowledging receipt of rupees six lakhs in full
and final satisfaction of the contract, payment of the
admitted amount will not be released. The contractor who
is hard-pressed for funds and keen to get the admitted
amount released, signs on the dotted line either in a printed
form or otherwise, stating that the amount is received in
full and final settlement. In such a case, the discharge is
under economic duress on account of coercion employed
by the employer. Obviously, the discharge voucher cannot
be considered to be voluntary or as having resulted in
discharge of the contract by accord and satisfaction. It will
not be a bar to arbitration.
(iv) An insured makes a claim for loss suffered. The claim
is neither admitted nor rejected. But the insured is informed
during discussions that unless the claimant gives a full and
final voucher for a specified amount (far lesser than the
amount claimed by the insured), the entire claim will be
rejected. Being in financial difficulties, the claimant agrees
to the demand and issues an undated discharge voucher in
full and final settlement. Only a few days thereafter, the
admitted amount mentioned in the voucher is paid. The
accord and satisfaction in such a case is not voluntary but
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under duress, compulsion and coercion. The coercion is
subtle, but very much real. The “accord” is not by free
consent. The arbitration agreement can thus be invoked to
refer the disputes to arbitration.
(v) A claimant makes a claim for a huge sum, by way
of damages. The respondent disputes the claim. The
claimant who is keen to have a settlement and avoid
litigation, voluntarily reduces the claim and requests for
settlement. The respondent agrees and settles the claim and
obtains a full and final discharge voucher. Here even if the
claimant might have agreed for settlement due to financial
compulsions and commercial pressure or economic duress,
the decision was his free choice. There was no threat,
coercion or compulsion by the respondent. Therefore, the
accord and satisfaction is binding and valid and there
cannot be any subsequent claim or reference to arbitration.”
24. The reliance, by Mr. Nandrajog, on the extracts from Reshmi
Constructions and Central Inland Water Transport Corporation are,
according to Mr. Agrawal, misguided and, in fact, the extract from
Central Inland Water Transport Corporation militates against Mr.
Nandrajog’s submissions.
25. Reshmi Constructions, submits Mr. Agrawal, was a case of a
commercial contract where the Supreme Court observed that if huge
investments were made by the contractor, he could not afford not to
take the amount under the bills from the employer. The circumstances
in which Reshmi Constructions was rendered, he submits, are
completely opposed to those applying in the present case and,
therefore, the decision in Reshmi Constructions can be of no
assistance in the present matter.
26. Insofar as the passage from Central Inland Water Transport
Corporation, on which Mr. Nandrajog relies, is concerned, Mr.
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Agrawal submits that the Supreme Court stated that the bargain
between the parties could be treated as unfair and unreasonable only
where a man has no choice or meaningful choice, but to give his
assent to a contract or sign on a doted line. In the present case, Mr.
Agrawal points out that the FSR was issued on 10 February 2014, the
first Discharge Voucher was dated 30 March 2014 and the second
Discharge Vouched was dated 2 July 2014, and the appellant did not,
at any stage, dispute the correctness of the assessment of the
appellant’s loss by the surveyor. Moreover, he submits that Central
Inland Water Transport Corporation clearly holds that the aforesaid
exception from the principle of accord and satisfaction “may not apply
where both parties are businessmen and the contract is a commercial
transaction”.
27. Rather, relying on para 50 of Boghara Polyfab, Mr. Agrawal
submits that the Supreme Court drew an exception to the principle of
discharge of accord and satisfaction only where there was
“fraud/coercion/undue influence”. He has referred us, in this context,
to the definitions of “fraud”, “undue influence” and “coercion” as
contained Sections 178, 169 and 1510 of the Indian Contract Act, 1872,
8
17. “Fraud” defined. – “Fraud” means and includes any of the following acts committed by a party to
a contract, or with his connivance, or by his agent, with intent to deceive another party thereto or his agent, or
to induce him to enter into the contract–
(1) the suggestion, as a fact, of that which is not true, by one who does not believe it to be
true;
(2) the active concealment of a fact by one having knowledge or belief of the fact;
(3) a promise made without any intention of performing it;
(4) any other act fitted to deceive;
(5) any such act or omission as the law specially declares to be fraudulent.
Explanation. – Mere silence as to facts likely to affect the willingness of a person to enter into a contract is
not fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of the
person keeping silence to speak, or unless his silence is, in itself, equivalent to speech.
9
16. “Undue influence” defined. –
(1) A contract is said to be induced by “undue influence” where the relations subsisting
between the parties are such that one of the parties is in a position to dominate the will of the other
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and submits that the present case does not fall within any of these
categories. Mr. Agrawal has also placed reliance on Illustrations (iii),
(iv) and (v) provided by the Supreme Court itself in para 52 of
Boghara Polyfab and submits that these illustrations clearly belie the
case that Mr. Nandrajog seeks to set up.
28. According to Mr. Agrawal, some degree of misuse by the
respondent is necessary before the appellant can escape the effect of
discharge of his claim by accord and satisfaction. Else, submits Mr.
Agrawal, parties would be able to voluntarily execute documents of
discharge of their claims, and, thereafter, seek to resile from them and
raise humongous claims far in excess of the amounts admitted. In the
present case, he points out, the amount covered by the discharge
voucher was the amount assessed as payable to the appellant by the
surveyor. Mr. Agrawal submits that the integrity of the surveyor’s
report is not subject matter of challenge.
29. In these circumstances, Mr. Agrawal submits that the approach
of the learned Arbitrator is entirely in accordance with law and,
(2) In particular and without prejudice to the generality of the foregoing principle, a person is
deemed to be in a position to dominate the will of another–
(a) where he holds a real or apparent authority over the other, or where he stands in
a fiduciary relation to the other; or
(b) where he makes a contract with a person whose mental capacity is temporarily
or permanently affected by reason of age, illness, or mental or bodily distress.
(3) Where a person who is in a position to dominate the will of another, enters into a contract
with him, and the transaction appears, on the face of it or on the evidence adduced, to be
unconscionable, the burden of proving that such contract was not induced by undue influence shall
lie upon the person in a position to dominate the will of the other.
Nothing in this sub-section shall affect the provisions of Section 111 of the Indian Evidence Act, 1872 (I of
1872)
10 15. “Coercion” defined. – “Coercion” is the committing, or threatening to commit, any act forbidden
by the Indian Penal Code (XLV of 1860), or the unlawful detaining, or threatening to detain, any property, to
the prejudice of any person whatever, with the intention of causing any person to enter into an agreement.
Explanation. – It is immaterial whether the Indian Penal Code (XLV of 1860), is or is not in force
in the place where the coercion is employed.
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therefore, no case for interference with the award is made out.
III. Submission of Mr. Nandrajog in rejoinder
30. Arguing in rejoinder, Mr. Nandrajog seeks to submit, based on
an endorsement made by the appellant on a letter dated 14 March
2014 from the appellant to the respondent, that no copy of the FSR
had been provided to the appellant. Mr. Agrawal per contra points
out that the concluding paragraph of the said letter itself states that the
appellant had been provided a copy of the FSR.
E. Analysis
I. Scope of interference under Section 3411
11 34. Application for setting aside arbitral award. –
(1) Recourse to a Court against an arbitral award may be made only by an application for
setting aside such award in accordance with sub-section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if–
(a) the party making the application establishes on the basis of the record of the
arbitral tribunal that –
(i) a party was under some incapacity; or
(ii) the arbitration agreement is not valid under the law to which the
parties have subjected it or, failing any indication thereon, under the law for the
time being in force; or
(iii) the party making the application was not given proper notice of the
appointment of an arbitrator or of the arbitral proceedings or was otherwise
unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not
falling within the terms of the submission to arbitration, or it contains decisions
on matters beyond the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration can be
separated from those not so submitted, only that part of the arbitral award which
contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was
not in accordance with the agreement of the parties, unless such agreement was
in conflict with a provision of this Part from which the parties cannot derogate,
or, failing such agreement, was not in accordance with this Part; or
(b) the Court finds that–
(i) the subject-matter of the dispute is not capable of settlement by
arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
Explanation 1. – For the avoidance of any doubt, it is clarified that an award is in conflict with the
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31. The scope of controversy, here, is very narrow, and, to
adjudicate thereon, it is not necessary to enter, in detail, into the scope
and ambit of Section 34 of the Act, the boundaries of which are by
now well-recognized. The only issue in controversy is whether the
appellant’s claim stood discharged by accord and satisfaction, in view
of the discharge vouchers executed by it. The learned Arbitrator has
correctly observed that the plea of discharge of the claim by accord
and satisfaction could be defeated only if it were shown that the
appellant signed the discharge vouchers on account of fraud, coercion
or undue influence, or if the appellant were under extreme financial
distress. Mr. Nandrajog’s fundamental submission is that the learned
Arbitrator has erred, in law, in proceeding on the presumption that
financial stringency, as the factor which compelled the appellant to
sign the discharge vouchers, would be relevant only if the stringency
was attributable to some act of the respondent, though he has also
advanced a faint submission that the respondent was in fact coercing
the appellant to sign the discharge vouchers.
32. Ordinarily, the arbitrator is the final arbiter of facts and law.
Contentious legal issues should not form the basis for interference
under Section 34, and the Court must defer to the arbitrator’s
(i) the making of the award was induced or affected by fraud or corruption or was
in violation of Section 75 or Section 81; or
(ii) it is in contravention with the fundamental policy of Indian law; or
(iii) it is in conflict with the most basic notions of morality or justice.
Explanation 2. – For the avoidance of doubt, the test as to whether there is a contravention with the
fundamental policy of Indian law shall not entail a review on the merits of the dispute.
(2-A) An arbitral award arising out of arbitrations other than international commercial
arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by
patent illegality appearing on the face of the award:
Provided that an award shall not be set aside merely on the ground of an erroneous
application of the law or by reappreciation of evidence.
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understanding of the law, even if understands it otherwise. The only
relevant provision, in this regard, is Section 34(2-A), which, in
essence, is invoked by Mr. Nandrajog. However, that provision, even
while permitting interference with an arbitral award which is vitiated
by “patent illegality”, curtails the sweep of the dispensation by the
proviso, which clarifies that an “erroneous application of the law”
would not constitute “patent illegality”. One may, therefore,
understand Section 34(2-A) as permitting interference with an arbitral
award only if
(i) there is illegality in the award,
(ii) the illegality is not merely an “erroneous application of
the law” and
(iii) the illegality is patent.
33. Courts apply the law. The law is, therefore, distinct from its
application. If, therefore, the arbitrator has understood the law
correctly, but errs in applying it to the facts before him, that would not
constitute a ground of challenge. However, if the arbitrator has
misunderstood the law, in that he proceeds on a fundamentally
incorrect legal principle, the award would be rendered vulnerable to
interference.
34. OPG Power Generation (P) Ltd v. Enexio Power Cooling
Solutions India Pvt Ltd12 considers practically the entire history of the
law applicable to Section 34. A separate section of the judgment is
devoted to the aspect of “patent illegality”, as a factor which imperils
an arbitral award, and we deem it appropriate to reproduce the section
12 (2025) 2 SCC 417
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in its entirety, thus:
“Patent illegality
65. Sub-section (2-A) of Section 34 of the 1996 Act, which
was inserted by the 2015 Amendment, provides that an arbitral
award not arising out of international commercial arbitrations, may
also be set aside by the Court, if the Court finds that the award is
visited by patent illegality appearing on the face of the award. The
proviso to sub-section (2-A) states that an award shall not be set
aside merely on the ground of an erroneous application of the law
or by reappreciation of evidence.
66. In ONGC Ltd. v. Saw Pipes Ltd.13, while dealing with the
phrase “public policy of India” as used in Section 34, this Court
took the view that the concept of public policy connotes some
matter which concerns public good and public interest. If the
award, on the face of it, patently violates statutory provisions, it
cannot be said to be in public interest. Thus, an award could also
be set aside if it is patently illegal. It was, however, clarified that
illegality must go to the root of the matter and if the illegality is of
trivial nature, it cannot be held that award is against public policy.
67. In Associate Builders v. DDA14, this Court held that an
award would be patently illegal, if it is contrary to:
(a) substantive provisions of law of India;
(b) provisions of the 1996 Act; and
(c) terms of the contract [See also three-Judge Bench
decision of this Court in State of Chhattisgarh v. SAL
Udyog (P) Ltd15.
The Court clarified that if an award is contrary to the substantive
provisions of law of India, in effect, it is in contravention of
Section 28(1)(a) of the 1996 Act. Similarly, violating terms of the
contract, in effect, is in contravention of Section 28(3) of the 1996
Act.
68. In Ssangyong Engg. & Construction Co. Ltd. v. NHAI16,
this Court specifically dealt with the 2015 Amendment which
inserted sub-section (2-A) in Section 34 of the 1996 Act. It was
held that “patent illegality appearing on the face of the award”
refers to such illegality as goes to the root of matter, but which
does not amount to mere erroneous application of law. It was also
13 (2003) 5 SCC 705
14 (2015) 3 SCC 49
15 (2022) 2 SCC 275
16 (2019) 15 SCC 131
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clarified that what is not subsumed within “the fundamental policy
of Indian law”, namely, the contravention of a statute not linked to
“public policy” or “public interest”, cannot be brought in by the
backdoor when it comes to setting aside an award on the ground of
patent illegality. Further, it was observed, reappreciation of
evidence is not permissible under this category of challenge to an
arbitral award.
Perversity as a ground of challenge
69. Perversity as a ground for setting aside an arbitral award
was recognised in ONGC Ltd. v. Western Geco International
Ltd17. Therein it was observed that an arbitral decision must not be
perverse or so irrational that no reasonable person would have
arrived at the same. It was observed that if an award is perverse, it
would be against the public policy of India.
70. In Associate Builders certain tests were laid down to
determine whether a decision of an Arbitral Tribunal could be
considered perverse. In this context, it was observed that where:
(i) a finding is based on no evidence; or
(ii) an Arbitral Tribunal takes into account something
irrelevant to the decision which it arrives at; or
(iii) ignores vital evidence in arriving at its decision,
such decision would necessarily be perverse.
However, by way of a note of caution, it was observed that when a
court applies these tests it does not act as a court of appeal and,
consequently, errors of fact cannot be corrected. Though, a
possible view by the arbitrator on facts has necessarily to pass
muster as the arbitrator is the ultimate master of the quantity and
quality of evidence to be relied upon. It was also observed that an
award based on little evidence or on evidence which does not
measure up in quality to a trained legal mind would not be held to
be invalid on that score.
71. In Ssangyong, which dealt with the legal position post the
2015 Amendment in Section 34 of the 1996 Act, it was observed
that a decision which is perverse, while no longer being a ground
for challenge under “public policy of India”, would certainly
amount to a patent illegality appearing on the face of the award. It
was pointed out that an award based on no evidence, or which
ignores vital evidence, would be perverse and thus patently illegal.
It was also observed that a finding based on documents taken
behind the back of the parties by the arbitrator would also qualify
as a decision based on no evidence inasmuch as such decision is
17 (2014) 9 SCC 263
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not based on evidence led by the parties, and therefore, would also
have to be characterised as perverse.
72. The tests laid down in Associate Builders to determine
perversity were followed in Ssangyong and later approved by a
three-Judge Bench of this Court in Patel Engg. Ltd. v. North
Eastern Electric Power Corpn. Ltd18.
73. In a recent three-Judge Bench decision of this Court
in DMRC Ltd. v. Delhi Airport Metro Express (P) Ltd.19, the
ground of patent illegality/perversity was delineated in the
following terms :
“39. In essence, the ground of patent illegality is
available for setting aside a domestic award, if the decision
of the arbitrator is found to be perverse, or so irrational that
no reasonable person would have arrived at it; or the
construction of the contract is such that no fair or
reasonable person would take; or, that the view of the
arbitrator is not even a possible view. A finding based on
no evidence at all or an award which ignores vital evidence
in arriving at its decision would be perverse and liable to be
set aside under the head of “patent illegality”. An award
without reasons would suffer from patent illegality. The
arbitrator commits a patent illegality by deciding a matter
not within its jurisdiction or violating a fundamental
principle of natural justice.”
Scope of interference with an arbitral award
74. The aforesaid judicial precedents make it clear that while
exercising power under Section 34 of the 1996 Act the Court does
not sit in appeal over the arbitral award. Interference with an
arbitral award is only on limited grounds as set out in Section 34 of
the 1996 Act. A possible view by the arbitrator on facts is to be
respected as the arbitrator is the ultimate master of the quantity and
quality of evidence to be relied upon. It is only when an arbitral
award could be categorised as perverse, that on an error of fact an
arbitral award may be set aside. Further, a mere erroneous
application of the law or wrong appreciation of evidence by itself
is not a ground to set aside an award as is clear from the provisions
of sub-section (2-A) of Section 34 of the 1996 Act.
75. In Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd20,
a three-Judge Bench of this Court held that courts need to be
18 (2020) 7 SCC 167
19 (2024) 6 SCC 357
20 (2019) 20 SCC 1
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cognizant of the fact that arbitral awards are not to be interfered
with in a casual and cavalier manner, unless the court concludes
that the perversity of the award goes to the root of the matter and
there is no possibility of an alternative interpretation that may
sustain the arbitral award. It was observed that jurisdiction under
Section 34 cannot be equated with the normal appellate
jurisdiction. Rather, the approach ought to be to respect the finality
of the arbitral award as well as party’s autonomy to get their
dispute adjudicated by an alternative forum as provided under the
law.”
35. However, if the arbitrator has fundamentally erred in applying
the law, as would amount to “patent illegality”, the Court must step in.
The line is thin, but Courts are expected to possess the intellectual
wherewithal to discern it, and walk the right side.
II. Scope of interference under Section 3721
36. We, however, are not exercising Section 34 jurisdiction. A
learned Single Judge has already travelled that path, and the appellant
is in appeal against his decision.
37. Section 37 does not provide a second bite at the Section 34
cherry. In that sense, it cannot be analogized to an appeal under
Section 96(1)22 of the Code of Civil Procedure, 1908.
38. The scope of judicial review, under Section 37, is even more
21 37. Appealable orders. –
(1) Notwithstanding anything contained in any other law for the time being in force, an
appeal] shall lie from the following orders (and from no others) to the Court authorised by law to
hear appeals from original decrees of the Court passing the order, namely:–
(a) refusing to refer the parties to arbitration under Section 8;
(b) granting or refusing to grant any measure under Section 9;
(c) setting aside or refusing to set aside an arbitral award under Section 34.
22 96. Appeal from original decree. –
(1) Save where otherwise expressly provided in the body of this Code or by any other law for
the time being in force, an appeal shall lie from every decree passed by any Court exercising
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circumscribed than Section 34. The Supreme Court has, in Somdatt
Builders-NCC-NEC (JV) v. NHAI23, stated the law, apropos Section
37 and its scope, thus:
“48. In Reliance Infrastructure Ltd. v. State of Goa24, this
Court referring to one of its earlier decisions in UHL Power Co.
Ltd. v. State of H.P.25, held that scope of interference under
Section 37 is all the more circumscribed keeping in view the
limited scope of interference with an arbitral award under Section
34 of the 1996 Act. As it is, the jurisdiction conferred on courts
under Section 34 of the 1996 Act is fairly narrow. Therefore, when
it comes to scope of an appeal under Section 37 of the 1996 Act,
jurisdiction of the appellate court in examining an order passed
under Section 34, either setting aside or refusing to set aside an
arbitral award, is all the more circumscribed.
49. Again in Larsen Air Conditioning & Refrigeration
Co. v. Union of India26, this Court reiterated the position that
Section 37 of the 1996 Act grants narrower scope to the appellate
court to review the findings in an arbitral award if it has been
upheld or substantially upheld under Section 34.
*****
51. As already discussed above, the Arbitral Tribunal had
interpreted Clause 51 in a reasonable manner based on the
evidence on record. This interpretation was affirmed by the learned
Single Judge exercising jurisdiction under Section 34 of the 1996
Act. Therefore, the Division Bench of the High Court was not at all
justified in setting aside the arbitral award exercising extremely
limited jurisdiction under Section 37 of the 1996 Act by merely
using expressions like “opposed to the public policy of India”,
“patent illegality” and “shocking the conscience of the court”.”
III. Accord and satisfaction in the case of discharge voucher
39. Boghara Polyfab, which was cited by both sides, is regarded as
an authority on the principle of discharge of a claim by accord and
23 (2025) 6 SCC 757
24 (2024) 1 SCC 479
25 (2022) 4 SCC 116
26 (2023) 15 SCC 472
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satisfaction especially in the case of discharge vouchers executed in
the case of insurance contracts. The decision was rendered in the
context of the power of the Chief Justice to appoint an arbitrator under
Section 11 of the 1996 Act, in the light of the law as it then stood.
The Supreme Court observed, in para 25 of the report, that, if the
contract was fully performed, there was discharge of the contract by
performance, and no dispute remained which could be referred to
arbitration. The judgment proceeds, thereafter, to exposit the law in
thorough detail, leaving no room for equivocation whatsoever.
Without reproducing, in extenso, the relevant paragraphs from the
report, we may cull out the principles that apply thus:
(i) A contract is discharged by accord and satisfaction on
performance of obligations which substitute the obligations
originally envisaged under the contract. The substituted
obligation is the “accord”, and the performance of the
obligation constitutes “satisfaction” thereof.27
(ii) A discharge voucher executed by the claimant,
acknowledging performance of the contract by performance of
the reduced obligation would ordinarily constitute discharge of
the contract by accord and satisfaction.
(iii) However, if the discharge voucher is executed by
practicing fraud or coercion or exerting undue influence on the
claimant, no such discharge would result.28 The Arbitral
27 Refer para 28 of the report
28 Refer paras 21, 24, 25, 26 of the report
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Tribunal would, in such a case, proceed with the matter,
ignoring the execution of the discharge voucher.29
40. The Supreme Court referred to a number of earlier decisions, to
bring the point across. It is instructive, in the context of the dispute
before us, to study the paragraphs from Boghara Polyfab which cite
earlier authorities:
“31. In P.K. Ramaiah30 the appellant contractor made certain
claims in regard to a construction contract. The employer rejected
the claims, as also the request for reference to arbitration. On an
application by the contractor, under the Arbitration Act, 1940 for
appointment of an arbitrator, the civil court appointed an arbitrator.
The said order of appointment was challenged by the employer.
The High Court found that the contractor had unconditionally
acknowledged the final measurement and accepted the payment in
full and final settlement of the contract on 19-5-1981; that
thereafter he had made a fresh claim on 1-6-1981 which was
rejected on 12-8-1981; and that the contractor did not take action
and sought reference to arbitration only several years thereafter.
The High Court therefore held that there was no subsisting contract
to enable reference to arbitration and consequently, set aside the
reference to arbitration. On appeal by the contractor, this Court
held that in view of the finding recorded by the High Court that the
contractor had accepted the measurements and payment and had
unconditionally acknowledged full and final settlement and
satisfaction by issuing a receipt in writing, no arbitrable dispute
arose for being referred to arbitration. This Court further held that
there was accord and satisfaction by final settlement of the claims
and the subsequent allegation of coercion was an afterthought and
only a ploy to get over the settlement of the dispute.
32. In Nav Bharat Builders31 a dispute arose in regard to
labour escalation charges. As the employer did not agree for
escalation, the contractor made an application under Section 20 of
the Arbitration Act, 1940 for filing the agreement and for reference
of the dispute to arbitration. Pending the said application, the
contractor made a representation to the employer for settlement of
the claim. The Government constituted a committee to examine the
labour escalation. The said committee suggested acceptance of the29 Refer para 21 of the report
30 P.K. Ramaiah & Co. v. NTPC, 1994 Supp (3) SCC 126
31 State of Maharashtra v. Nav Bharat Builders, 1994 Supp (3) SCC 83
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claim subject to certain terms. The contractor by his letter dated 3-
3-1989 agreed to receive the price escalation on account of the
labour component, as worked out by the committee. Thereafter, the
recommended amount was paid to the contractor, who accepted the
payment and agreed to withdraw the application under Section 20
in regard to the claim for labour escalation. He subsequently
contended that the said letter was obtained by coercion and he was
not bound by it. The trial court and the High Court held that there
was an arbitrable dispute which was challenged before this Court.
It is in this background that this Court following P.K.
Ramaiah held:
“5. … the respondent contended that the appellant had
accepted the principle on which the escalation charges are
to be paid but in its working the amount was not calculated
correctly and he expressly referred the same in his letter of
acceptance and that, therefore, it is open to the respondent
to contend before the arbitrator that in working the
principle on which the amount offered by the Government
the arbitrator has to decide as to what amount had been
arrived at and if the working in principle is not acceptable
any alternative principle would be applicable. If the
arbitrator finds that the respondent is entitled to any claim,
it is still an arbitrable dispute. We find no substance in the
contention. Whatever be the principle or method or manner
of working it out, a particular figure was arrived at by the
Government. The respondent was then asked to consider its
willingness to accept the offer and having accepted the
same and received the amount, it is no longer open to the
respondent to dispute the claim on any count or ground.
The dispute was concluded and the respondent fully and
finally accepted the [settlement of the] claim and thereafter
received the amount. Thus there is accord and satisfaction
of the claim relating to labour escalation charges. Thereby
there is no further arbitrable dispute in that behalf.”
(emphasis supplied)
33. Nathani Steels32 related to a dispute on account of non-
completion of the contract. The Court found that the said dispute
was settled by and between the parties as per deed dated 20-12-
1980 signed by both the parties. The deed referred to the prior
discussions between the parties and recorded the amicable
settlement of the disputes and differences between the parties in
the presence of the architect on the terms and conditions set out in
Clauses 1 to 8 thereof. In view of it, the Court rejected the
contention of the contractor that the settlement was liable to be set
32 Nathani Steels Ltd v. Associated Constructions, 1995 Supp (3) SCC 324
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aside on the ground of mistake. A three-Judge Bench of this Court,
after referring to the decisions in P.K. Ramaiah and Nav Bharat
Builders, held thus:
“3. … that once the parties have arrived at a settlement in
respect of any dispute or difference arising under a contract
and that dispute or the difference is amicably settled by
way of a final settlement by and between the parties, unless
that settlement is set aside in proper proceedings, it cannot
lie in the mouth of one of the parties to the settlement to
spurn it on the ground that it was a mistake and proceed to
invoke the arbitration clause. If this is permitted the sanctity
of contract, the settlement also being a contract, would be
wholly lost and it would be open to one party to take the
benefit under the settlement and then to question the same
on the ground of mistake without having the settlement set
aside. In the circumstances, we think that in the instant case
since the dispute or difference was finally settled and
payments were made as per the settlement, it was not open
to the respondent unilaterally to treat the settlement as non
est and proceed to invoke the arbitration clause.”
(emphasis supplied)
*****
40. In Reshmi Constructions the employer prepared a final bill
and forwarded the same along with a “no-demand certificate” in
printed format confirming that it had no claims. The contractor
signed the no-demand certificate and submitted it. But on the same
day, the contractor also wrote a letter to the employer stating that it
had issued the said certificate in view of a threat that until the said
document was executed, payment of the bill will not be released.
In those circumstances, after considering P.K.
Ramaiah and Nathani Steels, this Court held:
“26. … The conduct of the parties as evidenced in their
letters, as noticed hereinbefore, clearly goes to show that
not only the final bill submitted by the respondent was
rejected but another final bill was prepared with a printed
format that a ‘No-Demand Certificate’ has been executed
as otherwise the final bill would not be paid. The
respondent herein, as noticed hereinbefore, categorically
stated in its letter dated 20-12-1990 as to under what
circumstances they were compelled to sign the said printed
letter. It appears from the appendix appended to the
judgment of the learned trial Judge that the said letter was
filed even before the trial court. It is, therefore, not a case
whether the respondent’s assertion of ‘under influence or
coercion’ can be said to have been taken by way of an
afterthought.
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27. Even when rights and obligations of the parties are
worked out, the contract does not come to an end inter alia
for the purpose of determination of the disputes arising
thereunder, and, thus, the arbitration agreement can be
invoked. Although it may not be strictly in place but we
cannot shut our eyes to the ground reality that in a case
where a contractor has made huge investment, he cannot
afford not to take from the employer the amount under the
bills, for various reasons which may include discharge of
his liability towards the banks, financial institutions and
other persons. In such a situation, the public sector
undertakings would have an upper hand. They would not
ordinarily release the money unless a ‘No-Demand
Certificate’ is signed. Each case, therefore, is required to be
considered on its own facts.
28. Further, necessitas non habet legem is an age-old
maxim which means necessity knows no law. A person
may sometimes have to succumb to the pressure of the
other party to the bargain who is in a stronger position.
29. We may, however, hasten to add that such a case
has to be made out and proved before the arbitrator for
obtaining an award.”
This decision dealt with a case where there was some justification
for the contention of the contractor that the “no-demand
certificate” was not given voluntarily but under coercion, and on
facts, this Court felt that the question was required to be examined.
41. In Ambica Construction33 [(2006) 13 SCC 475] this Court
considered a clause in the contract which required the contractor to
give a no-claim certificate in the form required by the Railways
after the final measurement is taken and provided that the
contractor shall be debarred from disputing the correctness of the
items covered by “no-claim certificate” or demanding a reference
to arbitration in respect thereof. There was some material to show
that the certificate was given under coercion and duress. This
Court following Reshmi Constructions [(2004) 2 SCC 663]
observed that such a clause in contract would not be an absolute
bar to a contractor raising claims which were genuine, even after
submission of a no-claim certificate.”
*****
33 Ambica Construction v. Union of India, (2006) 13 SCC 475
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47. In United India Insurance v. Ajmer Singh Cotton &
General Mills34 this Court held:
“4. … The mere execution of the discharge voucher would
not always deprive the consumer from preferring claim
with respect to the deficiency in service or consequential
benefits arising out of the amount paid in default of the
service rendered. Despite execution of the discharge
voucher, the consumer may be in a position to satisfy the
tribunal or the Commission under the Act that such
discharge voucher or receipt had been obtained from him
under the circumstances which can be termed as fraudulent
or exercise of undue influence or by misrepresentation or
the like. If in a given case the consumer satisfies the
authority under the Act that the discharge voucher was
obtained by fraud, misrepresentation, undue influence or
the like, coercive bargaining compelled by circumstances,
the authority before whom the complaint is made would be
justified in granting appropriate relief. …
5. In the instant cases the discharge vouchers were
admittedly executed voluntarily and the complainants had
not alleged their execution under fraud, undue influence,
misrepresentation or the like. In the absence of pleadings
and evidence the State Commission was justified in
dismissing their complaints.”
The above principle was followed and reiterated in National
Insurance Co. Ltd. v. Nipha Exports (P) Ltd.35 and National
Insurance Co. Ltd. v. Sehtia Shoes36.
48. It will also not be out of place to refer to what this Court
had said in Central Inland Water Transport Corpn. Ltd. v. Brojo
Nath Ganguly in a different context (not intended to apply to
commercial transactions):
“89. … This principle is that the courts will not enforce and
will, when called upon to do so, strike down an unfair and
unreasonable contract, or an unfair and unreasonable clause
in a contract, entered into between parties who are not
equal in bargaining power. It is difficult to give an
exhaustive list of all bargains of this type. No court can
visualise the different situations which can arise in the
affairs of men. One can only attempt to give some
illustrations. For instance, the above principle will apply34 (1999) 6 SCC 400
35 (2006) 8 SCC 156
36 (2008) 5 SCC 400
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where the inequality of bargaining power is the result of the
great disparity in the economic strength of the contracting
parties. It will apply where the inequality is the result of
circumstances, whether of the creation of the parties or not.
It will apply to situations in which the weaker party is in a
position in which it can obtain goods or services or means
of livelihood only upon the terms imposed by the stronger
party or go without them. It will also apply where a man
has no choice, or rather no meaningful choice, but to give
his assent to a contract or to sign on the dotted line in a
prescribed or standard form or to accept a set of rules as
part of the contract, however unfair, unreasonable and
unconscionable a clause in that contract or form or rules
may be. This principle, however, will not apply where the
bargaining power of the contracting parties is equal or
almost equal. This principle may not apply where both
parties are businessmen and the contract is a commercial
transaction. In today’s complex world of giant corporations
with their vast infrastructural organisations and with the
State through its instrumentalities and agencies entering
into almost every branch of industry and commerce, there
can be myriad situations which result in unfair and
unreasonable bargains between parties possessing wholly
disproportionate and unequal bargaining power. These
cases can neither be enumerated nor fully illustrated. The
court must judge each case on its own facts and
circumstances.”
(emphasis supplied)
41. Apropos the judgements to which it had earlier referred, the
Supreme Court observed thus:
“42. We thus find that the cases referred to fall under two
categories. The cases relied on by the appellant are of one category
where the Court after considering the facts, found that there was a
full and final settlement resulting in accord and satisfaction, and
there was no substance in the allegations of coercion/undue
influence. Consequently, this Court held that there could be no
reference of any dispute to arbitration. The decisions in Nav
Bharat and Nathani Steels are cases falling under this category
where there were bilateral negotiated settlements of pending
disputes, such settlements having been reduced to writing either in
the presence of witnesses or otherwise. P.K. Ramaiah is a case
where the contract was performed and there was a full and final
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settlement and satisfaction resulting in discharge of the contract. It
also falls under this category.
43. The cases relied on by the respondent fall under a different
category where the Court found some substance in the contention
of the claimants that “no-dues/claim certificates”, or “full and final
settlement discharge vouchers” were insisted and taken (either in a
printed format or otherwise) as a condition precedent for release of
the admitted dues. Alternatively, they were cases where full and
final discharge was alleged, but there were no documents
confirming such discharge. Consequently, this Court held that the
disputes were arbitrable.
*****
45. It is true that in Nathani Steels there is an observation that
“unless that settlement is set aside in proper proceedings, it cannot
lie in the mouth of one of the parties to the settlement to spurn it on
the ground that it was a mistake and proceed to invoke the
arbitration clause”. But that was an observation made with
reference to a plea of “mistake” and not with reference to
allegation of fraud, undue influence or coercion. It is also true that
the observations in Damodar Valley Corpn.37 and Jayesh Engg.
Works38 that whether contract has been fully worked out and
whether payment has been made in full and final settlement are
questions to be considered by the arbitrator when there is a dispute
regarding the same, even if there is a full and final settlement
discharge voucher, seem to reflect a view at the other end of the
spectrum. Though it is possible to read them harmoniously, such
an exercise may not be necessary. All those decisions were
rendered in the context of the provisions of the Arbitration Act,
1940. The perspective of the new Act is different from the old Act.
The issue is not covered by the decision in SBP & Co.
46. In several insurance claim cases arising under the
Consumer Protection Act, 1986, this Court has held that if a
complainant claimant satisfies the consumer forum that discharge
vouchers were obtained by fraud, coercion, undue influence, etc.,
they should be ignored, but if they were found to be voluntary, the
claimant will be bound by it resulting in rejection of complaint.
42. Apropos the practice of obtaining undated receipts in advance
of payments, or discharge vouchers, the Supreme Court also entered
37 Damodar Valley Corpn v. K.K. Kar, (1974) 1 SCC 141
38 Jayesn Engg Works v. New India Assurance Co Ltd, (2000) 10 SCC 178
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certain general observations in Boghara Polyfab, which are
significant in the context of the present dispute:
“49. Obtaining of undated receipts-in-advance in regard to
regular/routine payments by government departments and
corporate sector is an accepted practice which has come to stay due
to administrative exigencies and accounting necessities. The reason
for insisting upon undated voucher/receipt is that as on the date of
execution of such voucher/receipt, payment is not made. The
payment is made only on a future date long after obtaining the
receipt. If the date of execution of the receipt is mentioned in the
receipt and the payment is released long thereafter, the receipt
acknowledging the amount as having been received on a much
earlier date will be absurd and meaningless. Therefore, undated
receipts are taken so that it can be used in respect of subsequent
payments by incorporating the appropriate date. But many a time,
matters are dealt with so casually that the date is not filled even
when payment is made. Be that as it may. But what is of some
concern is the routine insistence by some government departments,
statutory corporations and government companies for issue of
undated “no-dues certificates” or “full and final settlements
vouchers” acknowledging receipt of a sum which is smaller than
the claim in full and final settlement of all claims, as a condition
precedent for releasing even the admitted dues. Such a procedure
requiring the claimant to issue an undated receipt (acknowledging
receipt of a sum smaller than his claim) in full and final settlement,
as a condition for releasing an admitted lesser amount, is unfair,
irregular and illegal and requires to be deprecated.”
(Emphasis supplied)
43. It is clear, therefore, that the Supreme Court, in no uncertain
terms, deprecated, in Boghara Polyfab, the practice of insisting on
receipts in advance, or discharge vouchers, even before releasing the
admitted dues.
44. The boundaries of Section 11(6), vis-Ã -vis Section 11(6A), of
the 1996 Act were radically redrawn by the decision in SBI General
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Insurance Co. Ltd v. Krish Spinning39, which also notices Boghara
Polyfab, albeit in the context of the extent to which the dispute would
be arbitrable if the underlying contract stood discharged by accord and
satisfaction. Nonetheless, in para 95.3 of the report, the Supreme
Court observes that “the party seeking arbitration would have to prima
facie establish that there was fraud or coercion involved in the signing
of the discharge certificate”. The emphasis is, therefore, again on
“fraud” and “coercion”.
45. Between Boghara Polyfab and SBI General Insurance,
however, came the decision in Union of India v. Master Construction
Co.40, New India Assurance Co. Ltd v. Genus Power Infrastructure
Ltd41 and Oriental Insurance Co. Ltd v. Dicitex Furnishing Ltd42.
46. Master Construction Co. did not deal with an insurance claim,
or a discharge voucher. Master Construction Co.43 was awarded a
Government contract, for erection of buildings. The work was
completed, and completion certificate was issued. MCC furnished no
claim certificates and signed the final bill. The final bill was paid.
Thereafter, MCC withdrew its no claim certificates and lodged claims
with the Government. On the ground that no claim certificates had
been issued by it, MCC’s claims were declined by the Chief Engineer.
MCC sought reference of the dispute to arbitration. As the Chief
Engineer did not appoint any arbitrator, MCC approached the learned
Civil Judge under Section 11 of the 1996 Act. The Civil Judge
39 (2024) 12 SCC 1
40 (2011) 12 SCC 349
41 (2015) 2 SCC 424
42 (2020) 4 SCC 621
43 “MCC” hereinafter
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dismissed the application. MCC approached the High Court by way
of a writ petition. The High Court dismissed the writ petition. MCC
appealed to the Supreme Court. The Supreme Court disposed of the
Special Leave Petition of MCC by directing that the Section 11
application of MCC be placed before the Chief Justice of the High
Court for appropriate orders. The Chief Justice referred all disputes
between the parties to arbitration, and appointed an arbitrator to
arbitrate thereon. The Union of India44 appealed to the Supreme
Court.
47. Before the Supreme Court, the UOI contended that, as the
claims of MCC stood discharged by accord and satisfaction, nothing
survived for adjudication in arbitral proceedings. MCC contended,
per contra, that it had always been its case that the no claim
certificates were given under financial duress and coercion as the
Government had arbitrarily withheld payment. This issue, contended
MCC, had necessarily to be resolved in arbitration.
48. The Supreme Court identified the issue arising for construction,
in para 10 of the report, as “whether after furnishing of ‘no claim
certificates’ and the receipt of payment of final bill, as submitted by
the contractor, any arbitrable dispute between the parties survived or
the contract stood discharged”. After referring to Boghara Polyfab,
the Supreme Court held thus:
“18. In our opinion, there is no rule of the absolute kind. In a
case where the claimant contends that a discharge voucher or no-
claim certificate has been obtained by fraud, coercion, duress or44 “UOI” hereinafter
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undue influence and the other side contests the correctness thereof,
the Chief Justice/his designate must look into this aspect to find
out at least, prima facie, whether or not the dispute is bona fide and
genuine. Where the dispute raised by the claimant with regard to
validity of the discharge voucher or no-claim certificate or
settlement agreement, prima facie, appears to be lacking in
credibility, there may not be a necessity to refer the dispute for
arbitration at all.
19. It cannot be overlooked that the cost of arbitration is quite
huge – most of the time, it runs into six and seven figures. It may
not be proper to burden a party, who contends that the dispute is
not arbitrable on account of discharge of contract, with huge cost
of arbitration merely because plea of fraud, coercion, duress or
undue influence has been taken by the claimant. A bald plea of
fraud, coercion, duress or undue influence is not enough and the
party who sets up such a plea must prima facie establish the same
by placing material before the Chief Justice/his designate. If the
Chief Justice/his designate finds some merit in the allegation of
fraud, coercion, duress or undue influence, he may decide the
same or leave it to be decided by the Arbitral Tribunal. On the
other hand, if such plea is found to be an afterthought, make-
believe or lacking in credibility, the matter must be set at rest then
and there.”
(Emphasis supplied)
49. Thereafter, the Supreme Court proceeded to apply the principles
enunciated by it to the facts, thus:
“20. In light of the above legal position, we now turn to the facts
of the present case. At the time of receiving payment on account of
the final bill, the contractor executed the certificate in the
following terms:
“(a) I/we hereby certify that I/we have performed the
work under the condition of Contract Agreement No.
CEBTZ-14/95-96, for which payment is claimed and
that I/we have no further claims under CA No. CEBTZ-
14/95-96.
(b) Received rupees two lakh fifteen thousand one
hundred seventy-eight only. This payment is in full and
final settlement of all money dues under CA No. CEBTZ-
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14/95-96 and I have no further claims in respect of CA No.
CEBTZ-14/95-96.”
(emphasis supplied by us)
21. The contractor also appended the following certificate:
“It is certified that I have prepared this final bill for claiming entire
payment due to me from this contract agreement. The final bill
includes all claims raised by me from time to time irrespective of
the fact whether they are admitted/accepted by the Department or
not. I now categorically certify that I have no more claim in respect
of this contract beyond those already included in this final bill by
me and the amount so claimed by me shall be in full and final
satisfaction of all my claims under this contract agreement. I shall
however, receive my right to raise claim to the extent disallowed to
me from this final bill.”
22. The above certificates leave no manner of doubt that upon
receipt of the payment, there has been full and final settlement of
the contractor’s claim under the contract. That the payment of
final bill was made to the contractor on 19-6-2000 is not in dispute.
After receipt of the payment on 19-6-2000, no grievance was
raised or lodged by the contractor immediately. The authority
concerned, thereafter, released the bank guarantee in the sum of Rs
21,00,000 on 12-7-2000. It was then that on that day itself, the
contractor lodged further claims.
23. The present, in our opinion, appears to be a case falling in
the category of exception noted in Boghara Polyfab (P) Ltd. As to
financial duress or coercion, nothing of this kind is established
prima facie. Mere allegation that no-claim certificates have been
obtained under financial duress and coercion, without there being
anything more to suggest that, does not lead to an arbitrable
dispute. The conduct of the contractor clearly shows that “no-
claim certificates” were given by it voluntarily; the contractor
accepted the amount voluntarily and the contract was discharged
voluntarily.
24. We are, thus, unable to sustain the order of the Chief
Justice in the proceedings under Section 11(6) of the 1996 Act. In
view of our finding above, it is not necessary to consider the
alternative submission made by the Senior Counsel for the
appellants that the Chief Justice in exercise of his power under
Section 11(6) ought to have appointed the arbitrator in terms of the
arbitration clause and the appointment of Mr M.S. Liberahan,
retired Chief Justice of the Andhra Pradesh High Court, was not in
accord with the arbitration agreement.”
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50. Master Construction, therefore, was a case in which the
Supreme Court held the contract in fact to have been discharged by
accord and satisfaction, as there was, even prima facie, no evidence of
any fraud or coercion. The emphasis, here, is again on “fraud,
coercion and undue influence”, additionally holding that the onus to
establish the existence of these elements is on the claimant who so
asserts, after having issued a no claim certificate.
51. Genus Power Infrastructure is a case directly dealing with an
insurance policy. Genus Power Infrastructure45 purchased an
insurance policy from New India Assurance Co. Ltd. A fire explosion
took place at the premises next to GPI’s, resulting in extensive
damage to GPI’s goods. GPI sought to avail the policy. A surveyor,
appointed by the Insurance Company, assessed the loss at ₹
60977406/-. The FSR was communicated to GPI on 1 November
2010. GPI signed and subscribed to a discharge voucher dated 11
March 2011, agreeing to the aforesaid amount of ₹ 60977406/- as full
and final settlement of its claim.
52. Three weeks thereafter, GPI sought to repudiate the discharge
voucher by way of a notice to the Insurance Company, in which it was
alleged that the discharge voucher was signed under duress, coercion
and undue influence exercised by the Insurance Company, who took
advantage of the extreme financial distress of GPI. The notice also
sought to appoint an arbitrator in order to arbitrate on the issue. The
Insurance Company responded that there was no arbitrable dispute, in
view of the discharge voucher executed by the respondent.
45 “GPI” hereinafter
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53. GPI moved the High Court under Section 11, seeking
appointment of an arbitrator. The High Court proceeded to appoint an
arbitrator, with liberty to the parties to raise the issue of arbitrability of
the dispute before the arbitrator. The Insurance Company appealed to
the Supreme Court.
54. The Supreme Court recorded the rival submissions of learned
Senior Counsel appearing for the parties thus:
“6. Appearing for the appellant Mr Gourab Banerji, learned
Senior Advocate submitted that the letter of subrogation was a
detailed agreement which was finalised and signed after
negotiations between the parties and in the presence of two
witnesses. The amount agreed to was the amount recommended by
the surveyor, reduced by the mandatory reinstatement premium
payable under Clause 15 of the Policy and as such the settlement
took place at the amount recommended by the surveyor. Placing
reliance on the financial status of the respondent, it was submitted
that its annual turnover is more than ₹ 500 crores for last few years
and it was quite improbable that such a company would feel
financially constrained and stand coerced as alleged, in giving
discharge on receipt of ₹ 5.98 crores. Mr Krishnan Venugopal,
learned Senior Advocate appearing for the respondent submitted
that knowing that the respondent was under tremendous pressure
owing to the complete destruction of its manufacturing unit and not
being in a position to negotiate, the appellant by using its dominant
position had forced the respondent to sign the discharge voucher
and accept the payment as stated above. In support, reliance was
placed on the decision of this Court in National Insurance Co.
Ltd. v. Boghara Polyfab (P) Ltd. by Mr Venugopal.”
55. The Supreme Court observed that, in these circumstances, the
question that arose before it was “whether the discharge in the present
case upon acceptance of compensation and signing of subrogation
letter was not voluntary and whether the claimant was subjected to
compulsion or coercion and as such could validly invoke the
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jurisdiction under Section 11 of the Act.” Following this, the
Supreme Court, after reproducing the relevant paragraphs from
Boghara Polyfab and Master Construction, held, in para 9 of the
report, that it was “therefore clear that a bald plea of fraud, coercion,
duress or undue influence (was) not enough and the party who set up
a plea, must prima facie establish the same by placing material before
the Chief Justice/his designate.”
56. Applying the law to the facts before it, the Supreme Court held:
“9. …Viewed thus, the relevant averments in the petition filed
by the respondent need to be considered, which were to the
following effect:
“(g) That the said surveyor, in connivance with the
respondent Company, in order to make the respondent
Company escape its full liability of compensating the
petitioner of such huge loss, acted in a biased manner,
adopted coercion, undue influence and duress methods of
assessing the loss and forced the petitioner to sign certain
documents including the claim form. The respondent
Company also denied the just claim of the petitioner by
their acts of omission and commission and by exercising
coercion and undue influence and made the petitioner
Company sign certain documents, including a pre-prepared
discharge voucher for the said amount in advance, which
the petitioner Company were forced to do so in the period
of extreme financial difficulty which prevailed during the
said period. As stated aforesaid, the petitioner Company
was forced to sign several documents including a letter
accepting the loss amounting to Rs 6,09,55,406 and settle
the claim of Rs 5,96,08,179 as against the actual loss
amount of Rs 28,79,08,116 against the interest of the
petitioner Company. The said letter and the aforesaid pre-
prepared discharge voucher stated that the petitioner had
accepted the claim amount in full and final settlement and
thus, forced the petitioner Company to unilateral
acceptance of the same. The petitioner Company was
forced to sign the said document under duress and coercion
by the respondent Company. The respondent Company
further threatened the petitioner Company to accept the said
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amount in full and final or the respondent Company will
not pay any amount towards the fire policy. It was under
such compelling circumstances that the petitioner Company
was forced and under duress was made to sign the
acceptance letter.”
10. In our considered view, the plea raised by the respondent is
bereft of any details and particulars, and cannot be anything but a
bald assertion. Given the fact that there was no protest or demur
raised around the time or soon after the letter of subrogation was
signed, that the notice dated 31-3-2011 itself was nearly after three
weeks and that the financial condition of the respondent was not so
precarious that it was left with no alternative but to accept the
terms as suggested, we are of the firm view that the discharge in
the present case and signing of letter of subrogation were not
because of exercise of any undue influence. Such discharge and
signing of letter of subrogation was voluntary and free from any
coercion or undue influence. In the circumstances, we hold that
upon execution of the letter of subrogation, there was full and final
settlement of the claim. Since our answer to the question, whether
there was really accord and satisfaction, is in the affirmative, in our
view no arbitrable dispute existed so as to exercise power under
Section 11 of the Act. The High Court was not therefore justified
in exercising power under Section 11 of the Act.”
(Emphasis supplied)
57. Dicitex Furnishing, too, was concerned with a challenge to an
order passed under Section 11(6) of the 1996 Act, seeking
appointment of an arbitrator in the case of a dispute relating to fire
insurance. Dicitex obtained a Fire and Special Peril Policy from the
Oriental Insurance Co. Ltd46. A fire broke out in its building. All
Dicitex’s stocks were destroyed. Dicitex approached OICL with a
claim of ₹ 14,88,14,327/-. OICL appointed a surveyor, who assessed
the loss suffered by Dicitex at ₹ 12,28,60,369/- in its FSR. Dicitex
claimed not to have received the FSR. A resurvey of the loss suffered
by Dicitex was undertaken by OICL on Dicitex’s insistence.
46 “OICL” hereinafter
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58. OICL obtained the signature of Dicitex on a format and, in
accordance therewith, issued a cheque for ₹ 3.5 crores to Dicitex.
Dicitex accepted the amount as “on account payment” against its
claim, and signed a discharge voucher. The Bank also endorsed the
discharge voucher.
59. On 27 May 2014, OICL wrote to Dicitex, enclosing a discharge
voucher for the balance amount payable. In the said discharge
voucher, the total claim payable to Dicitex was stated to be ₹ 7.16
Crores. Dicitex responded on 28 May 2014 questioning the
correctness of the assessed claim of ₹ 7.16 Crores, pointing out that it
had initially claimed ₹ 15 Crores and that the surveyor had assessed
the claim at ₹ 12.93 Crores. OICL replied stating that as certain errors
were perceived in the FSR of the earlier surveyor, the claim of Dicitex
had been resurveyed and found to be ₹ 7,16,30,148/- which had been
granted by OICL. Dicitex was, therefore, directed to send back the
duly signed unconditional discharge voucher.
60. According to Dicitex, OICL refused to release any further
payment unless the unconditional discharge voucher was signed and
sent back by Dicitex. As it was in urgent need of funds, Dicitex
withdrew its earlier communication questioning the correctness of the
figure of ₹7,16,30,148/- and sent back the signed discharge voucher
for the said amount, stating that the payment amounted to full and
final settlement of Dicitex’s claim.
61. Thereafter, Dicitex raised a claim for the balance amount
payable to it as per its estimate. It also sought reference to the dispute
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to arbitration. OICL, in its response, stated that there was no referable
dispute as Dicitex had signed an unconditional discharge voucher
expressing satisfaction with the payment of the balance amount in
terms thereof. Dicitex, in its response, denied that the claims stood
satisfied by the discharge voucher and sought to point out that against
the assessed claim of ₹12.93 Crores by the earlier surveyor, only ₹3.5
Crores had been released by OICL, almost 10 months after the fire.
The Dicitex was, therefore, in its financially straitened circumstances,
constrained to sign on the discharge voucher.
62. As matters had reached an impasse, Dicitex approached the
High Court of Bombay under Section 11(6) of the 1996 Act, seeking
appointment of an Arbitrator.
63. By order dated 13 October 2015, a learned Single Judge of the
High Court of Bombay allowed Dicitex’s application under Section
11(6), stating that an arbitral issue had arisen for consideration, in
view of Dicitex’s contention that the discharge voucher had been
signed under financial duress and coercion.
64. OICL appealed to the Supreme Court.
65. The Supreme Court identified the issue before it as ‘whether an
arbitrable dispute had arisen between Dicitex and OICL in the
circumstances of the case. After noticing the decisions in Boghara
Polyfab, Master Construction and Genus Power Infrastructure as
well as certain other decisions which followed Boghara Polyfab, the
Supreme Court observed as under:
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“22. It is clear that in Boghara Polyfab, no rule of universal
application was indicated. No doubt, subsequent judgments which
followed it, were in the context of the facts as were presented to the
court. Proposition (iii) of the conclusions recorded in Boghara
Polyfab visualise duress or coercion on account of withholding of
payments due. The court — in more places than one, recognised
that an aggrieved party can be the victim of economic coercion
which results in its signing a document which discharges the other
party of its obligations…”
66. Applying the law to the facts before it, the Supreme Court
observed and held as under:
“23. A close look at the facts in the present case would show
that though the pleadings in the initial application under Section
11(6) are weak, nevertheless, the materials on the record, in the
form of copies of the inter se correspondence of the parties —
which span over 2 years, clearly show that Dicitex kept repeatedly
stating that it was facing financial crisis; it referred to credits
obtained for its business and the urgency to pay back the bank. It is
a matter of record that the surveyor’s report, dated 14-8-2014,
recommended payment of Rs 12,93,26,704.98 to Dicitex. Equally,
it is a matter of record that the appellant referred the matter to a
chartered accountant’s firm, to verify certain inventory and sales
figures. It went by the report of the latter, who stated that the
estimate of loss could not be more than Rs 7,16,30,148. This is
what was offered to Dicitex, by May 2014. Dicitex’s application
under Section 11(6) is replete with references to the number of
letters written to the appellant, seeking release of amounts; it also
averred to inability to pay its income tax dues, the pressure from
bankers (in support of which, copies of letters of bankers were
produced along with the application).
24. The averments by Dicitex, regarding the circumstances
which led it to execute the no-objection discharge voucher, are
reproduced below:
“31. The respondents did not pay anything to the
petitioner after the submission of its letter, dated 31-5-2014
and therefore several telephonic calls were made on behalf
of the petitioner, to the respondent’s Regional Office at
Mumbai in an effort to persuade the respondents to increase
the settlement amount so as to include the differential
amount of about Rs 7 crores. The petitioner also
specifically requested the respondents not to, in any event,
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insist on the execution of the discharge voucher strictly as
prescribed as a condition precedent for the payment of any
part of the balance amount of claim.
32. Since, on the one hand, the respondents did not
show any inclination to relent on any count and instead
continued to insist that any further payment would be made
to the petitioner if and only if the discharge voucher was
executed exactly at the time and in the form and manner as
required by the respondents as well as the letter dated 31-5-
2014 withdrawn and, on the other hand, the petitioner was
in urgent need of funds to meet its mounting liabilities the
petitioner was forced to withdraw its earlier letter dated 31-
5-2014 and coerced into executing the discharge voucher
exactly as dictated by the respondents. Accordingly, the
petitioner wrote a letter dated 6-6-2014 to Respondent 2
stating therein that it was withdrawing its letter dated 31-5-
2014 and also enclosing the duly executed discharge
Voucher. The petitioner also requested that the claim
amount be paid over to it, immediately.”
25. The averments in the application, later are that the appellant
paid the amount. Dicitex, nevertheless later, by three letters
questioned the basis of reduction of the amount of claim. It later
alleged that it wrote a letter “dated 14-7-2014 to the respondents
stating therein, inter alia, that since they were forced to accept the
offered amount and that since there was a dispute on the quantum
of claim settlement paid to the petitioner, the petitioner was
invoking arbitration proceedings under Clause 13 of the said Policy
to recover the differential amount.”
26. An overall reading of Dicitex’s application [under Section
11(6)] clearly shows that its grievance with respect to the
involuntary nature of the discharge voucher was articulated. It
cannot be disputed that several letters — spanning over two
years–stating that it was facing financial crisis on account of the
delay in settling the claim, were addressed to the appellant. This
Court is conscious of the fact that an application under Section
11(6) is in the form of a pleading which merely seeks an order of
the court, for appointment of an arbitrator. It cannot be conclusive
of the pleas or contentions that the claimant or the party concerned
can take in the arbitral proceedings. At this stage, therefore, the
court which is required to ensure that an arbitrable dispute exists,
has to be prima facie convinced about the genuineness or
credibility of the plea of coercion; it cannot be too particular about
the nature of the plea, which necessarily has to be made and
established in the substantive (read : arbitration) proceeding. If the
court were to take a contrary approach and minutely examine the
plea and judge its credibility or reasonableness, there would be a
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danger of its denying a forum to the applicant altogether, because
rejection of the application would render the finding (about the
finality of the discharge and its effect as satisfaction) final, thus,
precluding the applicant of its right event to approach a civil court.
There are decisions of this Court (Associated
Construction v. Pawanhans Helicopters Ltd.47) and Boghara
Polyfab which upheld the concept of economic duress. Having
regard to the facts and circumstances, this Court is of the opinion
that the reasoning in the impugned judgment cannot be faulted.”
67. An analysis of the afore-noted case law indicates that in almost
every case, the test that has been applied by the Supreme Court is
whether the discharge voucher was vitiated by fraud, coercion or
undue influence. Where there was no sustainable material to indicate
the existence of these elements, the Supreme Court has upheld the
decision not to refer the dispute to arbitration48. We have neither been
shown nor have we come across, any decision in which absent at least
any insistence by the insurer, an unconditional discharge voucher has
been held not to discharge the claim by accord and satisfaction merely
on the ground that the insurer was in financially distressed
circumstances.
68. We have also to bear in mind the fact that all the above
decisions have been rendered under Section 11(6) of the 1996 Act.
The ambit of a Court jurisdiction under Section 34 is much more
circumscribed and limited than the jurisdiction which it could exercise
under Section 11 (as the law stood at that time). While examining
whether an arbitrable dispute arose under Section 11(6), the Court had
47 (2008) 16 SCC 128
48 It may be noted that these decisions were rendered prior to the judgment in SBI General Insurance, which
restricted the scope of examination under Section 11(6) to the aspect of existence of an arbitration agreement
between the parties and the filing of the Section 11 application within three years of initiation of arbitration
under Section 21 of the 1996 Act. The aspect of arbitrability of the dispute is, therefore, now no man’s land
for the Section 11 Court.
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only to arrive at a prima facie conclusion that an issue worthy of
arbitration existed. Thereafter, the merits of the controversy, which
would include the merits of the plea that the claim stood discharged by
accord and satisfaction, was left for the arbitrator to decide.
69. As against that, we are concerned with a case in which the
arbitrator has already traversed that route and has arrived at a finding
on merits on the aspect of discharge of the claim by accord and
satisfaction. Moreover, that decision has also suffered scrutiny by a
learned Single Judge under Section 34 of the 1996 Act. We are
exercising Section 37 jurisdiction. The scope of our enquiry is,
therefore, far more circumscribed than was the scope of enquiry
available with the Courts in the decisions cited above under Section
11(6).
IV. Applying the law
70. Within the aforesaid parameters, we are of the opinion that no
case for interference with the arbitral award or with the impugned
judgment of the learned Single Judge can be said to exist.
71. The fact that the appellant had executed the Discharge
Vouchers dated 30 March 2014 and 2 July 2014 is not in dispute. The
fact that, as many as four months prior to the execution of the first
Discharge Voucher, the FSR already worked out the loss suffered by
the appellant at ₹ 12,11,31,758/-, is not in dispute. Mr. Nandrajog’s
contention that no copy of the FSR was provided to the appellant is
obviously not acceptable as the letter dated 27 March 2014 clearly
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states that the appellant had obtained a copy of the FSR. As such,
there is substance in the finding of the learned arbitrator that, if the
appellant had any misgivings regarding the working out of its claims
of FSR, it had more than ample time to object. We may, in this
context, reproduce the following observations of the learned
Arbitrator:
“If the claimant considered that it was being compelled and
constrained to execute the discharge voucher against its will and in
a situation of involuntary nature, it was open to the claimant to
refuse to do so and instead represent against the insistence of the
respondent for the same before an appropriate forum and there
were plenty of fora available to the claimant for ventilating its
grievances in that regard.”
72. Apropos Boghara Polyfab, we find the submissions of Mr.
Agrawal worthy of acceptance. Central Inland Water Transport
Corporation, on which Mr. Nandrajog places reliance, itself states that
the principles contained in the paragraph cited from the said decision
may not apply in the case of commercial contracts executed between
businessmen.
73. Even otherwise, a holistic reading of the decision in Boghara
Polyfab makes it clear that the Supreme Court carved out an exception
to the principle of discharge of claim by accord and satisfaction only
where there was an element of fraud/coercion/undue influence.
74. The illustrations contained in para 52 of Boghara Polyfab make
this clear. Illustrations (iii) and (iv), in which the Supreme Court has
held the principle of discharge of the claim by accord and satisfaction
not to apply are cases in which there was compulsion and duress
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exercised by the employer/insurer. In Illustration (iii), the Supreme
Court has clearly stated that the employer specifically stated that
unless the discharge voucher was executed in the terms desired by the
employer, payment of the admitted amount would not be released.
This, according to the Supreme Court, clearly exhibited coercion on
the part of the employer.
75. Similarly, Illustration (iv) refers to a case in which the claim
was neither admitted nor rejected. In the present case, there was an
admission of the claim of the appellant, but to the extent assessed by
the surveyor of ₹ 12,11,31,758/-. Moreover, Illustration (iv) also goes
on to envisage specific communication by the insurer to the claimant
that, if the claimant did not give a full and final discharge voucher, his
entire claim would be rejected. Again, it is in these circumstances that
the Supreme Court has held there was duress, compulsion and
coercion on the part of the insurer.
76. As opposed to this, in Illustration (v), the Supreme Court has
observed that, even if the claimant was under financial compulsion
and commercial pressure or economic duress, he would not be entitled
to escape the application of the principle of accord and satisfaction if
the discharge voucher was executed without any compulsion on the
part of the respondent. In such a case, the decision to issue the
discharge voucher would be treated as one exercised by the claimant
by his own free choice and absent any threat, coercion or compulsion
by the respondent. The claimant would, therefore, be bound by the
principles of accord and satisfaction.
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77. We do not find that the decisions which followed Boghara
Polyfab departed from this legal position. All decisions are ad idem on
the point that mere assertion of financial stringency cannot suffice to
escape the effect of an unconditional no claim certificate or discharge
voucher. The party seeking to do so has to establish that he had no
option but to sign on the dotted line, such a case in which the opposite
party completely refused to release any payment till he did so. The use
of the word “admitted amount” in example (iii) in para 52 of Boghara
Polyfab is obviously deliberate. It is only where the opposite party
refuses even to release the admitted amount, unless the claimant
subscribes to the unconditional discharge voucher, that financial
duress or compulsion can be pleaded.
78. In the present case, the respondent never demurred from
releasing the claim of the appellant, as assessed by the surveyor, till
the appellant signed the discharge vouchers. We find no reasonable
explanation, therefore, for the appellant having remained silent from
February 2014 to August 2014, and having signed two discharge
vouchers without so much as a whisper of protest.
79. We have already reproduced the relevant paragraphs, from the
arbitral award, in para 11 supra. The learned arbitrator has, on the
aspect of discharge of the appellant’s claim by accord and satisfaction,
observed that
(i) there was nothing to suggest that the respondent either
compelled the appellant to sign the discharge vouchers, or
created a situation in which the appellant was compelled to do
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so,
(ii) despite the FSR having been issued on 10 February 2014,
after which the appellant signed two discharge vouchers dated
30 March 2014 and 2 July 2014, not disputing, at any stage, the
computation, in the FSR, of the claim due and payable to it,
(iii) on 5 March 2014, the appellant had written to the
surveyor, accepting his assessment of the claim payable to the
appellant as ₹ 10,05,68,218,
(iv) even thereafter, on the appellant claiming an additional
amount of ₹ 13.78 lakhs, the surveyor re-assessed the payable
amount of the said claim for ₹ 8.25 lakhs,
(v) at no point of time before signing the discharge vouchers
did the appellant ever question the correctness of the FSR,
despite a copy having been provided to it,
(vi) even in its communication dated 27 May 2014, between
the signing of the first and second discharge vouchers, the
appellant did not question the computation of its claim as
contained in the FSR and the discharge voucher, and merely
sought early payment of the said amount, and
(vii) at no point of time did the appellant write to the
respondent stating that it was in dire financial distress, or that it
was accepting the amount as per the FSR under duress or
compulsion.
If, in such circumstances, the learned arbitrator found the claim of the
appellant to be unsustainable on the ground of discharge by accord
and satisfaction, we find no infirmity, therein, as would justify
interference under Section 34, much less Section 37, of the 1996 Act.
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The Court cannot, under either of the said provisions, re-examine the
material on record and determine for itself whether it would have
arrived at a conclusion different from that at which the arbitrator
arrived.
80. Besides, as Mr. Agrawal correctly points out, the Supreme
Court has, in para 89 of Central Inland Water Transport
Corporation, doubted the applicability of the principle that a party to a
contract can avoid accord and satisfaction by pleading fraud, duress or
coercion, where the contract is a commercial contract between
businessmen. That the insurance contract executed between the
appellant and the respondent qualifies this description can hardly be
doubted. Even if the use of the word “may”, by the Supreme Court,
indicates that this principle may not be watertight, it is clear that, in
commercial contracts, any attempt to escape the effect of an
unconditional no claim certificate, or discharge voucher, by the
signatory thereto, would be an arduous task.
81. We agree with Mr. Agrawal that, if a signatory to an
unconditional discharge voucher, affirming full and final settlement of
a claim, can escape the effect of the voucher by merely pleading
financial stringency, absent any material evidencing fraud, coercion,
or duress or compulsion caused by the opposite party, it would reduce
such vouchers to meaningless scraps of paper. The judgments of the
Supreme Court, cited supra, indicate that the signatory to an
unconditional discharge voucher has, in order to avoid accord and
satisfaction, to explain the circumstances which prevented him from
protesting when he had time to do so, as well as establish some degree
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of complicity, on the part of the insurer/opposite party in placing him
under compulsion to sign the voucher.
82. Clearly, no such circumstance, as could indicate, even prima
facie, that the respondent had practiced fraud, coercion or undue
influence, on the appellant, can be said to exist in the present case.
Nor has Mr. Nandrajog attempted, fairly, to pigeonhole the case of his
client into any of these categories. We are entirely in agreement with
the learned arbitrator in his findings on that score.
83. The e-mail dated 1 July 2014, on which Mr. Nandrajog relies,
and which stands extracted in para 21 supra, clearly does not even
remotely indicate the existence of any of these aspects. It merely
records the fact that the wording of the discharge voucher had been
finalized. We fail to understand what capital the appellant can seek to
draw therefrom.
84. It has to be borne in mind that the decision to sign an
unconditional no claim discharge voucher is ultimately of the
signatory. The mere fact that the signatory may feel financial pressure,
and therefore decide to sign the discharge voucher, would not ipso
facto render the voucher unenforceable on the ground of fraud,
coercion, undue influence, or even compulsion. Absent any
contribution to the financial distress, even remote, by the opposite
party, the compulsion and duress, if any, arises out of the claimant’s
own subjective decision, and the claimant cannot be permitted to take
advantage thereof, to the prejudice of the opposite party. The principle
of accord and satisfaction, which is a hallowed principle of contract
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jurisprudence, cannot be consigned to oblivion.
F. Conclusion
85. We are, therefore, of the view that no case existed for the
learned Single Judge to interfere with the arbitral award. The
impugned judgment, in refusing to do so, therefore, suffers from no
error of fact or law as would call for interference under Section 37 of
the 1996 Act.
86. The appeal is, accordingly, dismissed with no orders as to costs.
C. HARI SHANKAR, J.
OM PRAKASH SHUKLA, J.
MARCH 16, 2026
YG/AR
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