Supreme Court Upholds No-Claim Certificate in Construction Dispute: ONGC Mangalore Petrochemicals Ltd. vs. ANS Constructions Ltd. (7 February 2018)

Introduction

Date of the Judgment: 7 February 2018

Citation: (2018) INSC 123

Judges: R.K. Agrawal, J., Amitava Roy, J.

Can a contractor who has issued a ‘No Dues Certificate’ later claim duress and seek arbitration for additional payments? The Supreme Court of India recently addressed this critical question in a dispute between ONGC Mangalore Petrochemicals Ltd. and ANS Constructions Ltd. This case explores the validity of ‘No Dues Certificates’ in construction contracts and their impact on arbitration proceedings. The judgment was delivered by a two-judge bench comprising Justice R.K. Agrawal and Justice Amitava Roy, with Justice R.K. Agrawal authoring the opinion.

Case Background

On 17 March 2008, ONGC Mangalore Petrochemicals Ltd. (the appellant), awarded a contract to ANS Constructions Ltd. (the respondent) for site grading, road construction, water drains, and a compound wall for an aromatic complex in Mangalore. The initial contract value was Rs. 163,25,68,576, which was later revised to Rs. 195,68,24,399.02 on 20 September 2010, with a completion deadline of 30 November 2010.

On 21 September 2012, ANS Constructions submitted a ‘No Dues/No Claim Certificate,’ stating that all payments had been received and all claims were settled. Subsequently, on 10 October 2012, ONGC made a final payment of Rs. 20.34 crores to ANS Constructions. However, on 24 October 2012, ANS Constructions withdrew the ‘No Dues/No Claim Certificate,’ alleging it was issued under duress and coercion, a prerequisite for the release of their long-due payments.

On 12 January 2013, ANS Constructions submitted a claim of Rs. 96,88,48,642 for losses incurred during the project. ONGC issued a Completion Certificate on 19 June 2013, stating the work was completed and a no-claim certificate was submitted. ONGC denied the claim on 25 July 2013. ANS Constructions then invoked the arbitration clause on 14 September 2013, which ONGC rejected on 18 October 2013.

Timeline:

Course of Proceedings

ANS Constructions filed a petition before the High Court of Karnataka at Bangalore, seeking the appointment of an arbitrator. The High Court allowed the petition on 12 January 2015, leading ONGC to appeal to the Supreme Court.

Legal Framework

The case primarily revolves around the interpretation of the Arbitration and Conciliation Act, 1996, specifically Section 11, which deals with the appointment of arbitrators. The court also considered the implications of a ‘No Dues Certificate’ on the right to invoke arbitration.

The court also examined Clause 6.6.0 of the General Conditions of Contract, which pertains to “Claims by the Contractor”. Specifically, Clause 6.6.1.0 requires the contractor to give notice of any claim for extra compensation within 10 days of the relevant order or instruction. Additionally, Clause 6.6.3.0 states that any claim must be included in the Final Bill, and any claim not reflected in the Final Bill is deemed waived.

Arguments

Appellant (ONGC)’s Submissions:

• The High Court erred in finding a genuine dispute.
• The ‘No Dues Certificate’ was not issued under duress or coercion.
• There was no delay in payments, and the contract did not provide for cost escalation.
• Clause 6.4.0.0 did not mandate full payment of RA Bills, only assessment by the Engineer-in-charge.
• The claims were not raised at the time of the Final Bill or ‘No Dues Certificate.’
• The contract was fully discharged, and no further claims were permissible.

Respondent (ANS Constructions)’s Submissions:

• Payments for Running Account Bills (RA Bills) were delayed.
• The final bill was released only after submitting the ‘No Dues Certificate’.
• The ‘No Dues Certificate’ was issued under duress due to financial constraints.
• There was a genuine dispute requiring arbitration.
• The withdrawal of the ‘No Dues Certificate’ was not an afterthought.
• The company faced various hindrances like pooja, shifting of idols, non-availability of free encumbrance of site, obstruction in the blasting work, stoppage of hard rock blasting, issues with respect to work to be given to local contractors, non-vacation of project displaced families, permission for forest clearance, permission for shifting of wooden logs etc.
• The losses were due to factors attributable to the appellant.

The innovativeness of the argument lies in the respondent’s contention that the ‘No Dues Certificate’ was not a voluntary act, but a result of duress caused by the appellant’s delayed payments, which is a common issue in construction contracts.

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was:

1. Whether the respondent-Contractee Company has made out a case for referring the dispute to Arbitration?

Treatment of the Issue by the Court

Authorities

The Court considered the following authorities:

Judgment

How each authority was viewed by the Court?

✓ The Supreme Court, in considering Union of India and Others vs. Master Construction Co. [(2011) 12 SCC 349]*, reiterated that a mere plea of fraud, coercion, duress, or undue influence is not sufficient to invalidate a discharge voucher, and the party making such a claim must provide prima facie evidence.

✓ The Court, referring to New India Assurance Co. Ltd. vs. Genus Power Infrastructure Ltd. [(2015) 2 SCC 424]*, emphasized that a discharge must be voluntary and free from any coercion or undue influence. A bald assertion of duress is insufficient to justify setting aside a discharge.

✓ The Supreme Court, in analyzing National Insurance Company Limited vs. Boghara Polyfab Private Limited [(2009) 1 SCC 267]*, clarified that a discharge agreement or voucher obtained by fraud, coercion, or undue influence is void and does not bar arbitration. However, such claims must be substantiated with evidence.

✓ The Court, in considering R.L. Kalathia & Co. vs. State of Gujarat [(2011) 2 SCC 400]*, noted that a ‘no-demand certificate’ can be challenged if the contractor was in a weaker position and under pressure, but this was not the case here.

What weighed in the mind of the Court?

The Supreme Court emphasized that the ‘No Dues Certificate’ was submitted by ANS Constructions on 21 September 2012, and the final payment was received on 10 October 2012. The withdrawal of the certificate occurred on 24 October 2012, and the claim for losses was made on 12 January 2013. This delay in raising the claim, after accepting the final payment, raised doubts about the genuineness of the claim of duress. The court noted that the Final Bill was mutually agreed upon, and there was no evidence of duress or coercion. The court also highlighted that the contractee had not raised any claims at the time of submitting the Final Bill.

The Court considered whether the ‘No Dues Certificate’ was issued voluntarily or under duress. It found no evidence of duress or coercion, emphasizing that the certificate was given voluntarily, the amount was accepted voluntarily, and the contract was discharged voluntarily. The court also noted that the claim of duress was an afterthought and that the losses incurred were not visualized earlier by the contractee.

The Court rejected the alternative interpretation that the ‘No Dues Certificate’ was invalid due to duress, stating that there was no prima facie evidence to support this claim. The Court emphasized that the contractee had not raised any claims at the time of submitting the Final Bill and that the claim was made only after a considerable delay.

The Court concluded that the ‘No Dues Certificate’ was valid, and therefore, there was no arbitrable dispute. The Court set aside the High Court’s judgment and allowed the appeal.

The Court stated, “From the materials on record, we find that the contractee-Company had issued the “No Dues/No Claim Certificate” on 21.09.2012, it had received the full amount of the final bill being Rs. 20.34 crores on 10.10.2012 and after 12 days thereafter, i.e., only on 24.10.2012, the contractee-Company withdrew letter dated 21.09.2012 issuing “No Dues/No Claim Certificate.”

The Court also noted, “The story about duress was an afterthought in the background that the losses incurred during the execution of the Contract were not visualised earlier by the contractee. As to financial duress or coercion, nothing of this kind is established prima facie.”

Further, the Court observed, “The conduct of the contractee clearly shows that “no-claim certificate” was given by it voluntarily; the contractee accepted the amount voluntarily and the contract was discharged voluntarily.”

Key Takeaways

• A ‘No Dues Certificate’ is a significant document that, if valid, can bar subsequent claims.
• A mere allegation of duress or coercion is insufficient to invalidate a ‘No Dues Certificate’; it must be supported by prima facie evidence.
• Parties must raise claims promptly and not as an afterthought after accepting final payments.
• The courts will not easily interfere with contracts where parties have mutually agreed to a final settlement.
• This judgment reinforces the importance of clear and timely communication in construction contracts.

Directions

The Supreme Court set aside the judgment and order of the High Court and allowed the appeal filed by ONGC.

Development of Law

The ratio decidendi of this case is that a ‘No Dues Certificate’ issued by a contractor, if not obtained under duress or coercion and if the final bill has been mutually agreed upon, is valid and can bar subsequent claims. The court emphasized that a bald plea of duress is not sufficient to invalidate such a certificate. This decision reinforces the principle of accord and satisfaction in contract law and highlights the importance of clear and timely communication in construction contracts. There is no change in the previous positions of law, but this case clarifies the application of existing principles in the context of construction contracts.

Conclusion

The Supreme Court’s decision in ONGC Mangalore Petrochemicals Ltd. vs. ANS Constructions Ltd. reinforces the validity of ‘No Dues Certificates’ in construction contracts. The court held that a mere claim of duress or coercion is not enough to invalidate such a certificate and that there must be prima facie evidence to support such claims. This judgment emphasizes the importance of timely and clear communication between parties in construction contracts and the need to raise claims promptly.

Category:

Parent Category: Arbitration Law

Child Category: Section 11, Arbitration and Conciliation Act, 1996

Child Category: No Dues Certificate

Child Category: Construction Contract Disputes

Child Category: Duress and Coercion

FAQ

Q: What is a ‘No Dues Certificate’ in a construction contract?

A: A ‘No Dues Certificate’ is a document issued by a contractor stating that all payments have been received and no further claims exist against the contract.

Q: Can a ‘No Dues Certificate’ be challenged?

A: Yes, a ‘No Dues Certificate’ can be challenged if it was obtained by fraud, coercion, or undue influence. However, the party challenging it must provide prima facie evidence.

Q: What does ‘duress’ mean in this context?

A: ‘Duress’ refers to a situation where a party is forced to sign a document against their will due to pressure or coercion from the other party.

Q: What is the significance of this Supreme Court judgment?

A: This judgment reinforces the validity of ‘No Dues Certificates’ and emphasizes that a mere claim of duress is not enough to invalidate them. It also highlights the need for timely communication and the importance of raising claims promptly.

Q: What should contractors do to avoid disputes related to ‘No Dues Certificates’?

A: Contractors should ensure that all claims are raised before issuing a ‘No Dues Certificate’ and that they are not under any form of duress when signing such documents. They should also maintain clear records of all communications and payments.