Holding

The arbitration agreement subsists and the disputes are arbitrable; the appeal is dismissed.

Summary

The dispute arose between NTPC Ltd. (appellant) and Mis. Reshmi Constructions (respondent) over the acceptance of a final bill for work completed. NTPC prepared its own final bill, obtained a No‑Demand Certificate from the contractor, and paid the amount, but the contractor protested, claiming the certificate was signed under duress and without prejudice to its claims. The contractor invoked the arbitration clause in the contract, while NTPC argued that the contract had terminated upon acceptance of the final bill and the certificate, thereby extinguishing the arbitration clause. The Supreme Court examined whether the arbitration agreement survived the alleged settlement and whether the disputes were arbitrable under Section 20 of the Arbitration Act, 1940. It held that the arbitration clause subsisted because the final‑bill dispute arose before acceptance, the contractor protested immediately after payment, and no novation of the contract occurred. Consequently, the High Court’s finding of triable issues was upheld and the appeal dismissed.

Issues considered

Whether the arbitration clause in the contract survives the execution of a No‑Demand Certificate and acceptance of the final bill, thereby permitting reference to arbitration.
Whether the disputes concerning the final bill are arbitrable under Section 20 of the Arbitration Act, 1940.
Whether the contract was terminated or substituted by a new agreement, extinguishing the arbitration agreement.

Legislation cited

Arbitration Act, 1940s. 20

Subjects

arbitrationarbitration clausefinal billno‑demand certificatecontract terminationSection 20without prejudiceaccord and satisfactiondispute resolutionIndian Arbitration Act 1940

Judgment

A CHAIRMAN AND M.D., N.T.P.C. LTD.
v.
MIS RESHMI CONSTRUCTIONS, BUILDERS & CONTRACTORS

JANUARY 5, 2004

B [V.N. KHARE, CJ. AND S.B. SINHA, J.]

Arbitration Act, 1940-Section 20-Rejection offinal bill by the company
submitted by contractor-Acceptance offinal payment by the contractor and
C giving no-dues certificate under protest and without prejudice-Contractor
invoking arbitration clause as per the contract-Company taking the plea that
on acceptance of final payment, the contract comes to an end and hence
contractor cannot invoke arbitration clause under the contract-Validity of-
Held, on facts, the arbitration clause in the contract subsists since the payment
was accepted by contractor under protest and without prejudice.
D
Respondent-contractors submitted a final bill for payment to
appellant on completion of the contract work. The appellant rejected the
1
•final bill of the respondent. The appellants themselves prepared the final
bill and obtained from the respondent a no-dues Certificate. The
respondent gave the no-dues certificate on receipt of the final payment
E from the appellant. The respondent lodged its protest with the appellant
stating that t:he no-dues certificate was executed by the respondent under
duress and coercion by the appellant for receipt of the payment of the final
bill from the appellant; that it was execnted under protest without its
prejudice to the rights and claims available under the contract; that there
F is no accord and satisfaction between the contracting parties; and that the
amount stated in the final bill furnished by the respondent be paid as per
the terms of the contract.

The respondent invoked the arbitration clause in the contract and
issued a notice to the appellant to appoint a sole arbitrator for adjudication
G of the disputes. The appellant initially accepted for the appointment of
an arbitrator. Later the appellant issued a letter to the respondent
clarifying that on acceptance of the final bill and after giving a no-dues
certificate by the respondent, the contract comes to an end and hence the
respondent cannot invoke the arbitration clause contained in the contract.

H 62
N.T.P.C. v. RESHMI CONSTRUCTIONS BUILDERS & CONTRATCTORS 63
The respondent filed an application under Section 20 of the A
Arbitration Act, 1940 before the trial court for intervention. The
application of the respondent was dismissed by the trial court. The appeal
of the respondent was allowed by High Court.

In appeal, the appellant contended that on acceptance of the final
bill and after giving a no-dues certificate by the respondent, the contract B
comes to an end and hence the respondent cannot invoke the arbitration
clause contained in the contract; and that the respondent, in the
application under Section 20 of the Arbitration Act, did not raise a plea
that they had been coerced to s~bmit the No Demand Certificate.

The respondent contended that there was no accord and satisfaction
c
of the contract agreement; that the arbitration clause survives despite
coming to an end of the contract; and that all the disputes in relation to
the execution of the contract are referable to arbitration.

Dismissing the appeal, the Court D
HELD: I. I. The arbitration agreement subsists because:

(i) the disputes as regards the final bill arose prior to the acceptance
by the respondent since the same was prepared by the respondent but was
not agreed upon by the appellant; E
(ii) the appellant has not pleaded that on submission of the final bill
by the respondent, any negotiation or settlement took place as a result
whereof the final bill, as prepared by the appellant, was accepted by the
respondent unequivocally and without any reservation therefore; p
(iii) the respondent, immediately after receiving the payment of the
final bill, lodged its proiest before the appellant and reiterated its claims.

(iv) the interpretation of the agreement would constitute a dispute
which would .fall for consideration of the arbitrator. G
(v) the effect of the correspondences between the parties would have
to be determined by the arbitrator particularly as regard the claim of the
).. respondent that the final bill was accepted by it without prejudice.

(vi) the appellant never made out a case that any novation of the H
64 SUPREME COURT REPORTS [2004) I S.C.R.

A contract agreement took place or the contract agreement was substituted
by a new agreement.

(vii) the conduct of the appellant would how that on receipt of the
notice from the respondent, the appellant did not reject but accepted the
B existance of disputes and the matter was sought to be referred to the
arbitration.

(viii) the clariticatory letter was issued subsequently by the appellant .,.,
taking the plea of settlement of final bill.

the finding of the High Court that primafacie there are triable
c issues(ix)before the Arbitrator so as to invoke the provisions of Section 20
of the Arbitration Act, 1940 cannot be said to be perverse or unreasonable
so as to warrant interference in exercise of extraordinary jurisdiction
under Article 136 of the Constitution of India.

D (x) the jurisdiction of the arbitrator under the 1940 Act although
emanates from the reference, it is trite, that in a given situation the
arbitrator can determine all questions of law and fact including the
construction of the contract agreement. (79-F; 80-FI f

Mis. P.K. Ramaiah & Company v. Chairman & Managing Director,
E National Thermal Power Corpn., (19941Supp3 SCC 126; Nathani Steels ltd.
v. Associated Constructions, (19951 Supp. 3 SCC 324; Damodar Valley v.
K.K. Kar, 11974) 1 SCC 141; Mis. Bharat Heal'y Electricals Limited v. Mis.
Amar Nath Bhan Prakash, (198211 SCC 625, Union of India and Anr. v.
Mis. l.K. Ahuja and Co., J198813 sec 76; Jayesh Engineering Works v. New
F India Assurance Co. ltd., (20001 10 SCC 178; Union of India v. Kishorilal
Gupta AIR (1959) SC 1362; Majhati Jute Mills v. Khvalirsa, AIR (1968) SC
522; Superintendent (Tech. I) Central Excise l.D.D. Jabalpur and Ors. v.
Pratap Roi, 11978) 3 sec 113 and Pure Helium India Pvt. ltd v. Oil and -1
Nawral Gas Commission, (2003) 8 Scale 553, referred to.

G Goodman v. Winchester and Alton Rly., (1984) 3 All ER 594; Cutts v.
I-lead and Anr., (1984) 2 WLR 349 and Rush & Tompkins ltd. ''· Gremer
London Council and Anr., (1988) I All ER 549, referred to.
A
Halsbury 's laws of England, 4th Edition, Vol. 16 (Reissue); American
Jurisprudence, 2nd Edition, Volume 28, 1966, referred to.
H
J'
N.T.P.C. "· RESHMI CONSTRUCTIONS, BUILDERS & CONTRACTORS [KHARE. CJ.) 65

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2754 of2002. A
From the Judgment and Order dated 23.11.2001 of the Kerala High
Court in M.F.A.298 of 1995-B.

Ramesh P. Bhatt, E.M.S. Anam and Fazlin Anam for the Appellant.
B
P. Krishnamoorthy, M.T George and Siby Sebstian for the Respondent.

The Judgment of the Cou'rt was delivered by

V.N. KHARE, CJ. This appeal which arises out of a judgment and
order dated 23-1 1-2001 passed by the High Court of Kerala at Ernakulam C
revolves round the question as to whether an arbitration clause in a contract
agreement survives despite purported satisfaction thereof.

The parties to this appeal entered into an agreement for a project at
Kayamkulam. Upon completion of the work the respondent herein submitted
final bill which was allegedly not accepted by the appellant, whereafter they D
themselves prepared the final bill and forwarded the same along with a printed
format being a "No Demand Certificate:."· The said "No Demand Certificate"
\ was signed by the respondent herein which is in the following terms:

NO DEMAND CERTIFICATE
E
Name of package Earth filling in Temporary

Township Part II
Letter of award LOA No. KYM/CS/89/022/NIT-
005/LOA-065 dated 19.3.90
F
Name of the Contractor : Reshmi Const111ction, T.C. 4/1298,
Keston Road, Kowdiar, P.O.
Trivandrum 3
I. This is to certify that we have received all payment in full and
final settlement of the supplied and services rendered and/ or all G
work performed by us in respect of the above referred LOA/
Contract and we have no other claims whatsoever final or
otherwise outstanding against NTPC. We further confirm that we
shall have no claim/ demands in future in respect of th is contract
of whatsoever nature, final or otherwise."
H
66 SUPREME COURT REPORTS [2004] I S.C.R.

A 2. We would now request you to please release our security deposit/
contract performance Guarantee."

However, on the same day a letter dated 20- I2-1990 was written by
the respondent to the appellant stating:

"We have completed the aforementioned work in the Kayamkulam
B
Super Thermal Power Project's temporary township area at
Nangiarkulangara by the end of November 1990 itself. We had
submitted a pre-final bill in November itself but the authorities denied
the bill and insisted final bill. But when the alleged final bill was
prepared the authorities insisted that a "No Demand Certificate" should
c be executed by us in favour of the Corporation. They served us with
a prin,ted specimen of the document and insisted that it should be
typed in our own letterhead and submitted to the N.T.P.C. We refused
to submit such a document.

But the authorities of N.T.P.C. threatened that unless and until we
D ex;:cute the said document in favour of the Corporation, the N.T.P.C.
would not effect payment of our bill. More than six lakhs of Rupees
is pending for payment vide the alleged final bill. We have incurred
huge losses in the execution of the work purely due to the latches and
lapses of the corporation. More over lakhs and lakhs of rupees has to
E be paid to our Bankers, creditors suppliers, workers, truck owners
etc. etc. Under such a situation we have no other way other than
budging to the coercion of the authorities of N.T.P.C. Ltd. to get
whatever they give merely for the necessity of our survival. We have
to comply with the instructions of authorities ofN.T.P.C. Ltd. out of
our helplessness in order to receive payment. Hence this letter.
F
The certificates, undertakings, etc. as aforesaid have been executed
without prejudice to our rights and claims whatsoever on account of
the alleged final bill.

The money invested in the work comprises- loans from the Federal
G Bank Ltd., private financiers, etc. as well the Firm's own funds.
Those additional sums raised by Joans have to be paid to the Bank,
financiers, etc. hence under duress, coercion and under undue influence
we are signing the bill and execute such documents as aforesaid to
receive payment. Under such coercive circumstances the alleged final
bill cannot be construed as final bill. We are signing the alleged final
H
J.

N.T.P.C. v. RESHMI CONSTRUCTIONS, BUILDERS & CONTRACTORS [KHARE, CJ.) 67

bill under coercion, under undue influence and urider protest only A
without prejudice to our rights and claims whatsoever. There is no
accord and satisfaction between the contracting parties.

You are therefore requested to kindly pass the final bill incorporating
all the measurements of the items such as sinkage, in and under water
execution of works, compensation for suspension of works, B
reimbursement of cost escalation due to price hike of petroleum
products, cost of idling, enhanced rates for quantities executed beyond
the contractual period, market rate for excess quantiti!ls, extra
additional items etc. besides the losses and damages by way of idling
of tools and plants, workmen, staff, establishment costs, capital outlay, C
interest etc. as per actuals. We hope and request that your goodself
may do the needful in the matter."
[Emphasis supplied]

The respondent thereafter invoked the arbitration clause by reason of a
letter through his advocate dated 21.12.91 wherein the claims under several D
heads as enumerated in clause (a) to (p) thereof. Therein a request was made
to refer all the disputes and differences to a sole arbitrator for adjudication
'i with a direction to make and publish the award within the statutory period.

The appellant herein thereafter discussed the matter at the company E
level and in its proceedings it was recorded:

"4.0 In case of Mis. Reshmi Constructions, Trivandrum Kerala (l(c)
above) and M/s. C.S. Prakash, (l(d) above) of Perumbavoor, Kerala,
the total payment for the works done were effected, the final bills
have been settled without protest and the no-dues certificate in the F
standard proforma have been submitted by the contractors. 5.0 To
seek legal opinion in the matter, we have approached Mr. B.S.
Krishnan, a leading advocate from Cochin. On detailed study of the
claims of the agencies and considering legal conditions, the advocate
has advised us to appoint arbitrator/s nominated by CMD of NTPC;
immediately. Accordingly our advocate has written suitable replies to G
the contractor's advocate Shri NT John, of Trivandrum, informing
them that they will hear from NTPC regarding appointment of an
arbitrator in terms of the contract conditions.
6.0 Submitted to appoint arbitrator/s for the four contract packages H
at para 1.0 above, please."
68 SUPREME COURT REPORTS f2004J I S.C.R.

A The appellant thereafter by its letter dated 13th February, 1992 replied
thereto stating:

"My client acting upon the notice, though defective, takes it that all
your claims are disputed ones and hence are to be resolved by
Arbitration. Please note that the reference to arbitration does not
B mean that there is admission that the disputes are arbitrable. Many of
the claims raised are beyond the terms of the contract and the Arbitrator
will have not jurisdiction to deal with them. This is a matter which
has to be taken up later and not at the stage of appointment of an
Arbitrator.
c As appointing authority, my client refrains from commenting 11po11
in a11y manner, on the merits or otherwise of the disputes which your
notice has set out.

It may be noticed that your client has already taken the final bill
and has issued 'no dues' certificate. This is not merely accord and
D satisfaction, but bringing the contract to an end.

Your client will hear from my client as regards the appointment
of the Arbitrator in terms of the contract conditions shortly."

[Emphasis supplied]
E
A purported correction in the said notice was issued by the advocate
of the appellant stating:

"Sub: Correction in the notice is issued by way of Reply notice is
signed on behalf of Mis. Rashmi Constructions, Trivandrum reg.
F
Ref: My Regd. Notice No. P3-GJl921582 dt. 13.2.92.

Under instructions from my clients, the Chairman & Managing
Director, National Thermal Power Corporation Ltd. NTPC Bhavan,
New Delhi I I 0 003, I issue the following notice:
G
In the reply notice issued by me under reference number cited
above, it was stated that the notice issued by you on behalf of your
clients Mis. Rashmi Constructions, Trivandrum was returned since it
was not signed by you and that the notice is sent back as the same
was signed on your behalf by your client. On scrutiny I find that the
H notice is returned by you after the same is signed by you and not by
l
N.T.P.C. .-. RESllMI CONSTRUCTIONS, BUILDERS & CONTRACTORS [KHARE, CJ.) 69

your client on your behalf. In paragraph 2 of the reply notice, I stated A
that the notice is defective. It was so stated because of the mistaken
impression that the notice is signed by your client and not by you. I
stated that the mistake is in advert at and the same is regretted. I
would like to bring to your notice one more fact which was omitted
to be stated in the reply notice sent earlier. I have already stated that
your client has issued 'no dues' certificate. The final bill is accepted B
by your client without any protest. This is further followed up by
your client receiving the security deposit released on 21.1.92; that is
after the expiry of the stipulated period reckoned from the date when
the contract came to an end.

In all other respects the reply notice earlier sent stands."
c
The respondent herein filed an application under Section 20 of the
Arbitration Act, 1940 before the Hon'ble Subordinate Judge's Court
Mavelikkara and in terms of a judgment and order dated 30.6.1994 the said
application was dismissed. Aggrieved, the respondent herein preferred an D
appeal before the High Court of Kerala which was allowed by reason of the
impugned order.

Mr. Bhatt, the learned counsel appearing on behalf of the appellant
urged that as the contract itself came to an end upon execution of the "No
Demand Certificate" and together with the same the arbitration clause also E
perished. In support of the said contention, reliance has been placed on
Mis. P.K. Ramaiah and Company v. Chairman & Managing Director, National
Thermal Power Corpn., [1994) Supp. 3 SCC 126 and Nathani Steels ltd v.
Associated Constructions, [ 1995) Supp. 3 SCC 324.

Mr. Bhatt further urged that as in its application under Section 20 of F
the Arbitration Act, the respondent did not raise a plea that they had been
coerced to submit the "No Demand Certificate", the High Court committed
a manifest error in passing the impugned judgment.

The learned counsel appearing on behalf of the respondent, on the
other hand, submitted that in the facts and circumstances of the case neither G
any new contract has come into being nor there was any accord and satisfaction
of the contract agreement.

The learned counsel appearing on behalf of the respondent also
contended that despite coming to an end of the contract, the arbitration clause H
70 SUPREME COURT REPORTS [2004] I S.C.R.

A su'rvives and all questions arising out of or in relation to the execution of the
contract are referable to arbitration. Reliance in this connection has been
placed on Damodar Valley v. K.K. Kar, [1974] I SCC 141, Mis. Bharat
Heavy Electricals Limited v. Mis. Amar Nath Bhan Prakash, [1982] I SCC
625, Union of India and Anr. v. Mis. l.K. Ahuja and Co., [1988] 3 SCC 76
and Jayesh Engineering Works v. New India Assurance Co. Ltd, [2000] 10
B sec 178. ';
On the arguments of learned counsel for the parties, the questions that
arise for our consideration are:

(i) Whether after the contract comes to an end by completion of the
c contract work and acceptance of the final bill in full and final
satisfaction and after issuing a No Demand Certificate by the
contractor, can any party to the contract raise any dispute for
reference to arbitration?
(ii) Whether in view of letter dated 20.12.1990 sent by the respondent
D contractor the arbitration clause contained in the agreement can
be invoked?
(iii) Whether the arbitration clause in the agreement has perished
with the contract?

E In this context it is relevant to refer the arbitration clause contained in
the agreement which runs as under:

"56. Except where otherwise provided for in the contract all questions
and disputes relating to the meaning of the specifications, designs,
drawing and instructions herein before mentioned and as to the quality
F of workmanship or materials used on the work or as to any other
question, claim, right, matter or thing whatsoever in any way arising
out of or relating to the contract, designs drawing, specifications,
estimates, instructions, orders or these conditions or otherwise
concerning the works; or the execution or failure to execute the same
whether arising during the progress of the work or after the completion
G or abandonment thereof shall be referred to the sole arbitration of the
General Manager of National Thermal Power Corporation Ltd.; and
if the General Manager is unable or unwilling to act: to the sole
arbitration of some other person appointed by the Chairman and
Managing Director; National Thermal Power Corporation Ltd. willing
H to act as such arbitrator. There will be no objection if the arbitrator
_.i

N.T.P.C. r. RESH Ml CONSTRUCTIONS, BUILDERS & CONTRACTORS [KHARE, CJ.] 71

so appointed is an employee of National Thermal Power Corporation A
Ltd. and that he had to deal with the matters to which the contract
relates and that in the course his duties as such he had expressed
views on all or any of the matters in dispute or difference. The
arbitrator to whom the matter is originally referred being transferred
or vacating his office or being unable to act for any reason as aforesaid
should act as arbitrator and if for any reason, that is not possible; the
B
matter is not to be referred to arbitration at all.

Subject as aforesaid the provision of the Arbitration Act, 1940 or any
statutory modification or re-enactment thereof and the rules made
thereunder and for the time being in force shall apply to the arbitration
proceeding under this clause.
c
It is a term of the contract that the party invoking arbitration shall
specify the disputes or disputes to be referred to arbitration under this
clause together with the amount or amounts claimed in respect of
each such dispute. D
The arbitrator(s) may from time to time with consent of the parties
enlarge the time, for making and publishing the award.
r

t " The work under the Contract shall, if reasonable possible, continue
during the arbitration proceedings and no payment due or payable to
the Contractor shall be withheld on account of such proceedings.
E

' The Arbitrator shall be deemed to have entered on the reference on
the date he issues notice to both the parties fixing the date of the first
hearing.
The Arbitrator shall give a separate award in respect of each dispute F
or difference referred to him .
•
).
The venue of arbitration shall be such place as may be fixed by the
Arbitrator in his sole discretion.

The award of the arbitrator shall be final, conclusive and binding on G
the all parties to th is contract.

The cost of arbitration shall be borne by the parties to the dispute, as
may be decided by the arbitrator (s).
),
In the event of disputes or differences arising between one public H
l_
72 SUPREME COURT REPORTS [2004) I S.C.R.

A sector enterprise and a Govt. Department or between two public· sector
'1"
enterprises the above stipulations shall not apply, the provisions of
B.P.E. Office Memorandum No. BPE/GL-001176/MAN/2 (I I0-75-
BPE(GM-1) dated 1st January 1976 or its amendments for arbitration
shall be applicable."

B Clause 52 of the agreement reads as follows:

"52. The final bill shall be submitted by the contractor within three
months of physical completion of the works. No further claims shall
be made by the contractor after submission of the final bill and these
shall bt: deemed to have been waived and extinguished. Payment of
c those items of the bill in respect of which there is no dispute and of
items in dispute, for quantities and at rates as approved by Engineer-
in-Charge, shall be made within the period specified hereunder, the
period being reckoned from the date of receipt of the bill by the
Engineer-in-Charge:
D (a) Contract amount not exceeding Rs. 5 lakhs-Four months.
(b) Contract Amount exceeding Rs. 5 lakhs-Six months.
After payment of the amount of the final bills payable as aforesaid
has been made, the Contractor may if he so desires, reconsider his
E position in respect of the disputed portion of the final bill and if he
fails to do so within 90 days, his disputed claim shall be dealt with
as provided in contract. "
[Emphasis supplied]

The issues are required to be determined having regard to the facts as
F
which arise for consideration whether by reason of the act of the parties the
old contract was substituted by a new contract. Only in the event a new
contract came into being, the arbitration agreement cannot be invoked.

In Damodar Valley Corporation v. K.K. Kar, (1974] I SCC 141, this
G Court held:
"It appears to us that the question wlTether there has been a full and
final settlement of a claim under the contract is itself a dispute arising
'upon' or 'in relation to' or 'in connection with' the contract. These
words are wide enough to cover the dispute sought to be referred."
H
N.T.P.C. r. RESH Ml CONSTRUCTIONS. BUILDERS & CONTRACTORS [KHARE, CJ] 73
Normally, an accord and satisfaction by itself would not affect the A
arbitration clause but if the dispute is that the contract itself does not subsist,
the question of invoking the arbitration clause may not arise. But in the event
it be held that the contract survives, recourse to the arbitration clause may be
taken. [See Union of India v. Kishorilal Gupta, AIR (1959) SC 1362 and
Majhati Jute Mills v. Khvalirsa, AIR (1968) SC 522.
B
In Bharat Heavy Electricals Limited (supra) this Court observed that
whether there was discharge of the contract by accord and satisfaction or not
is a dispute arising out of a contract and is liable to be referred to arbitration.

Yet again in l.K. Ahuja (supra) Sabyasachi Mukharji, J., as the learned C
Chief Justice then was, laid down the ingredients of Section 20 of the
Arbitration Act stating:

6. It appears that these questions were discussed in the decision of the
Calcutta High Court in Jiwnani Engineering Works Pvt. Ltd. v. Union
of India, AIR (1978) Cal 228 where one of us (Sabyasachi Mukharji, D
J.) was a party and which held after discussing all these authorities
that the question whether the claim sought to be raised was barred by
limitation or not, was not relevant for an order under Section 20 of
the Act. Therefore, there are two aspects. One is whether the claim
made in the arbitration is barred by Iimitation under the relevant
provisions of the Limitation Act and secondly, whether the claim E
made for application under Section 20 is barred. In order to be a valid
claim for reference under Section 20 of the Arbitration Act, 1940, it
is necessary that there should be an arbitration agreement and secondly
differences must arise to which the agreement in question applied
and, thirdly, that must be within time as stipulated in Section 20 of F
the Act.

;... It was held that having regard to the fact that the existence of an
arbitration agreement was not denied. and there had been an assertion of
claim and denial thereof, t)le matter would be arbitrable. It was observed:

In order to be entitled to ask for a reference under Section 20 of the G
Act, there must be an entitlement to money and a difference or dispute
in respect of the same. It is true that on completion of the work, right
to get payment would normally arise and it is also true that on
settlement of the final bill, the right to get furthe.r payment get
weakened but the claim subsists and whether it does subsist, is a H
74 SUPREME COURT REPORTS [20041 I S.C.R.
A mat/er which is arbitrable.
[Emphasis supplied]

This aspect of the matter has also been considered in Jayesh Engineering
Works, (supra) wherein following L.K. Ahuja, (supra) it was held:
B "Whether any amount is due to be paid and how far the claim made
by the appellant is tenable are matters to be considered by the arbitrator.
In fact, whether the contract has been fully worked out and whether y
the payment~ have been made in full and final settlement are questions
to be considered by the arbitrator when there is a dispute regarding
c the same."

In Mis. P.K. Ramaiah and Company (supra) the amount was received
unconditionally. The full and final satisfaction was acknowledged by a separate
receipt in writing. In that situation the following finding was recorded :

"Thus there is accord and satisfaction by final settlement of the claims.
D The subsequent allegation of coercion is an afterthought and a devise
to get over the settlement of the dispute, acceptance of the payment
and receipt voluntarily given."

We, however, may observe that the quotation from Russell on
E Arbitration may not be apt inasmuch as at the stage of reference what wou Id
be a good defence is not a matter to be taken into consideration.

Yet again in Nathani Steels ltd., (supra) the disputes and differences
were amicably settled by and between the parties and in that view of the
matter it was held that unless and until the statement is set aside, the arbitration
F clause cannot be invoked. Such is not the position here.

The appellant herein did not raise a question that there has been a
novation of contract. The conduct of the parties as evidenced in their letters,
as noticed hereinbefore, clearly go to show that not only the final bill submitted
by the respondent was rejected but another final bill was prepared with a
G printed format lhat a "No Demand Certificate" has been executed as other
final bill would not be paid. The respondent herein, as noticed hereinbefore,
categorically stated in its letter dated 20.12.1990 that 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
H the said le'tter was filed even before the trial court. It is, therefore, not a case
N.T.P.C 1-. RESllMI CONSTRUCTIONS BUILDERS & CONTRATCTORS [KHARE, CJ.] 75

whether the respondent's assertion of "under influence or coercion" can be A
said to have been taken by way of an afterthought.

Even when rights and obligations of the parties are worked out the
contract does not come to an end in/er 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 B
to the ground reality that in the cases 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 C
ordinarily release the money unless a 'No Demand Certificate' is signed.
Each case, therefore, is required to be considered on its own facts.

Further, necessitas 11011 habet legem is an old age maxim which means
necessity knows no law. A person may ·sometimes have to succumb to the
pressure of other party to the bargain who is on a stronger position. D
We may, however, hasten to add that such a case has to be made out
and proved before the Arbitrator for obtaining an award.

At this stage, the Court, however, will only be concerned with the
question whether triable issues have been raised which are required to be E
determined by the Arbitrators.

Circumstances leading to passing an order by the courts of law directing
the parties to get their disputes determined by domestic tribunal selected by
them having regard to the correspondences exchanged between the solicitors
came up for consideration in Goodman v. Winchester and Alton Rly, (1984] F
3 All ER 594 wherein it was held:

"As I have already recounted, the plaintiffs solicitor may have had
in mind that if there were an arbitration clause various matters could
be sorted out cheaply and quickly under it. There ·is no evidence, in
my jud.gment, that when he drafted the terms of the arbitration clause G
he had in mind that it would not apply to a repudiation of the contract
by the defendants. He is a solicitor; he is clearly an experienced
solicitor; and he should have appreciated (and I feel certain he did)
that the arbitration clause which he drafted, and which was accepted
by the defendants, would cover every aspect of the contract, including H ,.
76 SUPREME COURT REPORTS [2004J I S.C.R.
A repudiation. But, apart altogether from what the plaintiffs solicitor
had in mind, there is no evidence at all as to what the defendant
company had in mind when it agreed to accept the arbitration clause,
and it was w,rong, in my judgment, for the Judge to say that neither
party had in mind that it would apply to the summary dismissal of the
plaintiff. It follows, therefore, that at the very beginning of his
B judgment the judge misdirected himself as to the construction of the
arbitration clause and what it was mended to deal with."
y
Even correspondences marked as without prejudice may have to be
interpreted differently in different situations.
c What would be the effect of without prejudice offer has been considered
in Cutts v. Head and Anr., [1984] 2 WLR 349 wherein Oliver L.J. speaking
for the Court of Appeals held:

"In the end, I think that the question of what meaning is given to the
words "without prejudice" is a matter of interpretation which is capable
D of variation according to usage in the profession. It seems to be that,
no issue of public policy being involved, it would be wrong to say
that the words were given a meaning in 1889 which is immutable
ever after, bearing in mind that the precise question with which we
are concerned in this case did not arise in Walker v. Wilsher, 23
E Q.B.D. 335, and the court did not deal with it. I think that the wide
body of practice which undoubtedly exists must be treated as indicating
that the meaning to be given to the words is altered if the offer
contains the reservation relating to the use of the offer in relation to
costs."

F Yet again in Rush & Tompkins Ltd. v. Greater London Council and
Anr., [ 1988] I All ER 549:

"The rule which gives the protection of privilege to 'without prejudice'
correspondence 'depends partly on public policy, namely the need to
facilitate ·compromise, and partly on 'implied agreement' as Parker
G LJ stated in South Shropshire DC v Amos, [1987] I All ER 340 at
343, [1986] I WLR 1271at1277. The nature of the implied agreement
must depend on the meaning which is conventionally attached to the
phrase 'without prejudice'. The classic definition of the phrase is
contained in the judgment of Lindley LJ in Walker v. Wilsher, [1889]
23 QBD 335 at 337:
H
N.T.P.C. 1·. RESH Ml CONSTRUCTIONS BUILDERS & CONTRATCTORS [KHARE, Cl] 77

'What is the meaning of the words "without prejudice"? I think they A
mean without prejudice to the position of the writer of the letter if the
terms he proposes are not accepted. If the terms proposed in the letter
are accepted a complete contract is established, and the letter, although
written without prejudice, operates to alter the old state of things and
to establish a new one.'
B
Although this definition was not necessary for the facts of that
particular case and was therefore strictly obiter, it was expressly
approved by this court in Tomlin v. Standard Telephones and Cables
Ltd., [1969) 3 All ER 201at204, 205, [1969) I WLR 1378 at 1383,
1385 per Danckwerts LJ and Ormrod J. (Although he dissented in the C
result, on this point Onnrod J agreed with the majority.) The definition
was further cited with approval by both Oliver and Fox LJJ in this
court in Culls v. Head, [1984) I All ER 597 at 603, 610, [1984) Ch.
290 at 303, 313. In our judgment, it may be taken as an accurate
statement of the meaning of 'without prejudice', if that phrase be
used without more. It is open to the parties to the correspondence to D
give the phrase a somewhat different meaning, e.g. where they reserve
the right to bring an offer made 'without prejudice' to the attention
of the court on the question of costs if the offer be not accepted (See
Cutts v. Head) but subject to any such modification as may be agreed
between the parties, that is the meaning of the phrase. In particular, E
subject to any such modification, the parties must be taken to have
intended and agreed that the privilege will cease if and when the
negotiations 'without prejudice' come to fruition in a concluded
agreement."

Meaning the words ·'without prejudice" come up for consideration F
before this Court in Superintendent (Tech. I) Central Excise, l.D.D. Jabalpur
and Ors. v. Pratap Rai, [ 1978] 3 SCC 113 wherein it has been held:

"The Appellate Collector has clearly used the words "without
prejudice" which also indicate that the order of the Collector was not
final and irrevocable. The term "without prejudice" has been defined G
in Black's Law Dictionary as follows:

Where an offer or admission is made 'without prejudice', or a motion
is defined or a bill in equity dismissed 'without prejudice', it is meant
as a declaration that no rights or privileges of the party concerned are
to be considered as thereby waived or lost, except in so far as may H
78 SUPREME COURT REPORTS [2004] I S.C.R.

A be expressly conceded or decided. See, also Dismissal Without
Prej ud ici!. '·
Similarly, in Wharton's Law Lexicon the author while interpreting
the term 'without prejudice' observed as follows:

B The words import an understanding that if the negotiation fails, nothing
that has passed shall be taken advantage of thereafter; so, if a defendant
offers, 'without prejudice', to pay half the claim, the plaintiff must
not only rely on the offer as an admission of his having a right to y
some payment.

c The rule is that nothing written or said 'without prejudice' can be
considered at the trial without the consent of both parties not even by
a Judge in detennining whether or not there is good cause for depriving
a successful litigant of costs ..... The word is also frequently used l
without the foregoing implications in statutes and inter-parties to
exclude or save transactions, acts and rights from the consequences
D of a stated proposition and so as to mean 'not affecting', 'saving' or
'excepting'.

In short, therefore, the implication of the term 'without prejudice' I
means ( 1) that the cause or the matter has not been decided on merits,
(2) that fresh proceedings according to law were not barred."
E
The appellant has in its letter dated 20th December, 1990 has used the
term 'without prejudice'. It has explained the situation under which the amount •
under the 'No Demand Certificate' had to be signed. The question may have
to be considered from that angle. Furthermore, the question as to whether the
F respondent has waived its contractual right to receive the amount or is
otherwise estoppel from pleading otherwise will itself be a fact which has to
be determined by the arbitral tribunal.

In Halsbury's laws of England, 4th Edition, Vol.16 (Reissue) pa1,11957
at page 844 it is stated:
G
"On the principle that a person may not approbate and reprobate a
special species of estoppel has arisen. The principle that a person
may not approbate and reprobate express two propositions:

(I) That the person in question, having a choice between two courses •·
H of conduct is to be treated as having made an election from
N.TP.C. ,._RESH Ml CONSTRUCTIONS, BUILDERS & CONTRACTORS [KHARE, CJ.] 79

which he cannot resile. A
(2) That he will be regarded, in general at any rate, as having so
elected unless he has taken a benefit under or arising out of the
course of conduct, which he has first pursued and with which his
subsequent conduct is inconsistent."

In American Jurisprudence, 2nd Edition, Volume 28, 1966, Page 677-
B
680 it is stated:

"Estoppel by the acceptance of benefits:

Estoppel is frequently based upon the acceptance and retention, by C
one having knowledge or notice of the facts, of benefits from a
transaction, contract, instrument, regulation which he might have
rejected or contested. This doctrine is obviously a branch of the rule
against assuming inconsistent positions.

As a general principle, one who knowingly accepts the benefits of a . D
contract or conveyance is estopped to deny the validity or binding
effect on him of such contract or conveyance.

This rule has 10 be applied to do equity and must not be applied in
such a manner as to violate the principles of right and good
conscience. " E
The fact situation in the present case, would lead to the conclusion that
the arbitration agreement subsists because:

(i) Disputes as regard final bill arose prior to its acceptance thereof
in view the fact that the same was prepared by the respondent F
but was not agreed upon in its entirety by the appellant herein;
).
(ii) The appellant has not pleaded that upon submission of the final
bill by the respondent herein any negotiation or settlement took
place as a result whereof the final bill, as prepared by the
appellant, was accepted by the respondent unequivocally and G
without any reserv>1tion therefor;

(iii) The respondent herein immediately after receiving the payment
of the final bill, lodged its protest and reiterated its claims.
(iv) Interpretation and/or application of clause 52 of the agreement
H
,l_

80 SUPREME COURT REPORTS (2004) I S.C.R.

A would constitute a dispute which would fall for consideration of
the arbitrator.
(v) The effect of the correspondences between the parties would
have to be determined by the arbitrator, particularly as regard the
claim of the respondent that the final bill was accepted by it
B without prejudice.
(vi) The appellant never made out a case that any novation of the
contract agreement took place or the contract agreement was Y
substituted by a new agreement. Only in the event, a case of
creation of new agreement is made out the question of challenging
C the same by the respondent would have arisen.
(vii) The conduct of the appellant would show that on receipt of the
notice of the r~spondent through its advocate dated 21.12.1991
the same was not rejected outright but existence of disputes was
accepted and the matter was sought to be referred to the
D arbitration.
(viii)Only when the clarificatory letter was issued the plea of settlement
of final bill was raised. I

(ix) The finding of the High Court that aprimafacie in the sense that
there are triable issues before the Arbitrator so as to invoke the
E provisions of Section 20 of the Arbitration Act, 1940 cannot be
said to be perverse or unreasonable so as to warrant interference
in exercise of extraordinary jurisdiction under Article 136 of the
Constitution of India.
(x) The jurisdiction of the arbitrator under the 1940 Act although
F emanates from the reference, it is trite, that in a given situation
the arbitrator can determine all questions of law and fact including
the construction of the contract agreement. (See Pure Helium
India Pvt. Ltd v. Oil and Natural Gas Commission reported in
(2003) 8 SCALE 553).

G (xi) The cases cited by the learned counsel for the appellant [P.K.
Ramaiah and Company (supra)] and Nathani Steels (supra) would
show that the decisions therein were rendered having regard to
the finding of fact that the contract agreement containing the
arbitrator clause was substituted by another agreement. Such a
question has to be considered and determined in each individual
H
N.T.1'.C. 1·. RESHMI CONSTRUCTIONS, BUILDERS & CONT!{ACTORS [KHARE, CJ.] 8J

case having regard to the fact situation obtaining therein. A
For the reasons aforementioned, we are of the opinion that there is no
infirmity in the impugned judgment. This appeal is, therefore, dismissed. No
Costs.

B.S. Appeal dismissed. B

·~