Holding

A claim for arbitration is not barred merely because a full and final discharge voucher has been executed; if the voucher’s validity is disputed on grounds of fraud, coercion or undue influence, the dispute remains arbitrable and must be referred to arbitration.

Summary

The Supreme Court examined whether an insurance dispute could be referred to arbitration after the insured had executed an undated full‑and‑final discharge voucher. The insured claimed the voucher was signed under coercion and that the insurer had conditioned payment on its execution. The Court held that the existence of a discharge voucher does not automatically bar arbitration; if the voucher’s validity is contested on grounds of fraud, duress or undue influence, the dispute remains arbitrable. It outlined the categories of preliminary issues a Chief Justice must decide under Section 11 of the Arbitration and Conciliation Act, 1996, and clarified that an arbitration clause survives unless the contract is genuinely discharged by performance or accord and satisfaction. Applying these principles, the Court found no accord and satisfaction in the present case and ordered that the matter be referred to arbitration. The appeal was dismissed.

Issues considered

Whether a dispute raised after execution of a full‑and‑final discharge voucher can be referred to arbitration under Section 11 of the Arbitration and Conciliation Act, 1996.
Whether a discharge voucher obtained by fraud, coercion or undue influence renders the contract not discharged and the dispute arbitrable.
Which preliminary questions the Chief Justice or his designate must decide when exercising power under Section 11.
Whether an arbitration clause perishes when the contract is discharged by performance, accord and satisfaction, or mutual agreement.
Whether the practice of obtaining undated discharge vouchers as a condition precedent to payment is lawful.

Legislation cited

Arbitration and Conciliation Act, 1996s. 11, s. 16
Consumer Protection Act, 1986

Subjects

ArbitrationSection 11Discharge voucherAccord and satisfactionInsurance contractCoercionUndue influenceFull and final settlementArbitration clauseCompetence-competence

Judgment

[2008] 13 S.C.R. 638

A NATIONAL INSURANCE CO. LTO.
v
M/S. BOGHARA POLYFAB PVT. LTD.
(Civil Appeal No. 5733 of 2008)
SEPTEMBER 18, 2008
B
[R.V. RAVEENDRAN AND LOKESHWAR SINGH
PANTA, JJ.]

Contract - Insurance contract - Reference to arbitration
c - After issuance of final discharge voucher by the insured -
Propriety of - Insured alleging coersion for issuance of dis-
charge voucher - Held: A claim for arbitration cannot be re-
;ected merely/solely on the ground that final discharge voucher
had been executed by the claimant, if its validity is disputed
by the claimant - If the claimant is able to prove that the dis-
0
charge voucher was executed on account of fraud/coersion/
undue influence, such voucher would be rendered void - Dis-
charge of contract on account of performance, or accord and
satisfaction or mutual agreement which is reduced to writing
E cannot be referred to arbitration - In the instant case, prima
facie it appears that voucher was not issued on account of
accord and satisfaction - Hence reference to arbitration -
General practice by Government Departments and Corporate
sectors of obtaining undated receipts of final settlement vouch-
ers/No dues in advance for a sum which is smaller than the
F claim in full and final settlement of all claims, as a condition
precedent for releasing even the admitted dues, is unfair, ir-
regular and illegal and hence deprecated - Arbitration and
Conciliation Act, 1996 - s. 11.
G The question for consideration in the present appeal
was whether a dispute raised by an insured, after giving
full and final discharge voucher to the insurer, could be
referred to arbitration. Contention of the insured was that
it had given the discharge voucher under coercion and

H 638
NATIONAL INSURANCE CO. LTD. v. M/S. BOGHARA 639
POLYFAB PVT. LTD.

pressure of the insurer in as much the insurer wanted A
that unless and until the insurer would sign an undated
discharge voucher in advance, it would not release even
the admitted claim amount.
Dismissing the appeal, the Court
B
HELD: 1.1 Where the intervention of the court is
sought for appointment of an Arbitral Tribunal under sec-
tion 11 of Arbitration and Conciliation Act, 1996, the pre-
liminary issues that may arise for consideration in such
application falls into three categories, that is (i) issues c
which the Chief Justice or his Designate is bound to de-
cide; viz. (a) whether the party making the application has
approached the appropriate High Court; (b) whether there
is an arbitration agreement and whether the party who
. ~·
has applied u/s. 11 is a party to such an agreement. (ii)
D
issues which he can also decide, that is issues which he
.may choose to decide; viz. (a) whether the claim is a dead
(long barred) claim or a live claim (b) whether the parties
have concluded the contract/transaction by recording
satisfaction of their mutual rights and obligation~~or by
receiving the final payment without objection; and (iii) is- E
sues which should be left to the Arbitral Tribunal to de-
cide. viz. (a) whether a claim made fails within the arbitra-
tion clause (as for example, a matter which is reserved
. i for final decision of a departmental authority and excepted
or excluded from arbitration); (b) merits or any claim in- F
volved in the arbitration. [Para 17] [656-H; 657-A-G]
1.2 With regard to issues which the Chief Justice or
his Designate may choose to decide if raised in any ap-
plication under Section 11 of the Act, the chief Justice/his
G
designate may decide them, if necessary by taking evi-
dence or may leave those issues open with a direction to
the Arbitral Tribunal to decide the same. If the Chief Jus-
tice or his Designate chooses to examine the issue and
decide it, the Arbitral Tribunal cannot re-examine the same
H
640 SUPREME COURT REPORTS [2008] 13 S.C.R.

A issue. Where allegations of forgery/fabrication are made
in regard to the document recording discharge of con-
tract by full and final settlement, it would be appropriate if
the Chief Justice/his Designate decides the issue. [Para
17] (657-H; 658-A-C]
B 1.3. A claim for arbitration cannot be rejected merely
or solely on the ground that a settlement agreement or
discharge voucher had been executed by the claimant, if
its validity is disputed by the claimant. When it is con-
tended that the dispute is not arbitrable on account of
C discharge of the contract under a settlement agreement
or discharge voucher or no-claim certificate, and the
claimant contends that it was obtained by fraud, coercion
or under influence, the issue will have to be decided ei-
ther by the Chief Justice/his designate in the proceed-
D ings under Section 11 or by the Arbitral Tribunal as di-
rected by the order u/s. 11 of the Act. [Para 18] (658-D-E]
1.4 The arbitration agreement contained in a contract
cann.tt be invoked to seek reference of any dispute to
arbitration, in the circumstances, when the contract is
E discharged on account of performance, or accord and
satisfaction, or mutual agreement, and the same is re-
duced to writing (and signed by both parties or by the
party seeking arbitration. [Para 21] (660-E-F]
F 1.5 In such a case, a civil court would have consid-
ered the evidence as to whether there was any fraud, co-
ercion 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
G 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 plain-
tiff had made out the claim on merits and decide the mat-
ter accordingly. The position will be the same even when
H there is a provision for arbitration. The Chief Justiceihis
1 NATIONAL INSURANCE CO. LTD. v. MIS. BOGHARA 641
POLYFAB PVT. LTD.

designate exercising jurisdiction under Section 11 of the A
Act will consider whether there was really accord and sat-
isfaction or discharge of contract by performance. If the
answer is in the affirmative, he will refuse to refer the dis-
pute to arbitration. On the other hand, if the Chief Justice/
his designate comes to the conclusion that the full and B
final settlement receipt or discharge voucher was the re-
suit of any fraud/coercion/undue influence, he will have
to hold that there was no discharge of the contract and
consequently refer the dispute to arbitration. Alternatively,
where the Chief Justice/his designate is satisfied prima c
facie that the discharge voucher was not issued volun-
tarily and the claimant was under some compulsion or
coercion, and that the matter deserved detailed consid-
eration, he may instead of deciding the issue himself, re-

- ~
fer the matter to the arbitral tribunal with a specific direc-
tion that the said question should be decided in the first
D
instance. [Para 27] [672-A-F]
1.6 In the present case, on the date when the dis-
charge voucher was signed and given by the respondent,
the payment of admitted amount for the claim had not been E
made. It was made after receiving the voucher. Therefore,
at the time of signing the voucher by the respondent and
at the time of delivery of voucher by the respondent to
the appellant, the contents of the voucher that the said
~ i amount had been received, that such amount had been F
received in full and final settlement of all claims, and that
in consideration of such payment, the company was ab-
solved from any further liability, are all false and not sup-
ported by consideration. [Para 30] [675-C-E]
1.7 On the facts and circumstances and the settled G
position of law, the court is prima facie of the view that
·- ~ there is no accord and satisfaction in this case, and hence,
the dispute is arbitrable. But it is still open to the appel-
lant to lead evidence before the arbitrator, to establish that
H
642 SUPREME COURT REPORTS [2008] 13 S.C.R.

A there is a valid and binding discharge of the contract by
way of accord and satisfaction. It is clarified that nothing
stated by the High Court or this Court should be construed
as expression of any final opinion on the issue whether
there was accord and satisfaction nor as expression of
8 any views on merits of any claim or contentions of the
parties. [Paras 31 and 32] [675-F-G; 676-A-B]
SBP and Co. vs. Patel Engineering Ltd. 2005 (8) SCC
618 - held inapplicable.

c State of Maharashtra v. Nav Bharat Builders 1994 Supp
(3) SCC 83; Mis. P K. Ramaiah and Co. v. Chairman and
Managing Director, National Thermal Power Corpn. 1994
Supp (3) SCC 126; Nathani Steels Ltd. v. Associated Con-
structions 1995 Supp (3) SCC 324 - distinguished.
D Damodar Valley Corporation v. K. K.Kar 1974 (1) SCC
)'
-
141; Mis. Bharat Heavy Electricals Ltd., Ranipur v. Mis. Amar
Nath Bhan Prakash 1982 (1) SCC 625; Union of India vs. L.
K. Ahuja and Co. 1988 (3) SCC 76; Jayesh Engineering Works
v. New India Assurance Co. Ltd. 2000 (10) SCC 178; Chair-
E man and Managing Director, NTPC Ltd. v. Reshmi Construe-
tions, Builders and Contractors 2004 (2) SCC 663; Ambica
Construction v. Union of India 2006 (13) SCC 475; Union of
India v. Kishorilal Gupta and Bros. 1960 (1) SCR 493; Payana
Reena Saminathan vs. Pana Lana Palaniappa 41 IA 142;
F United India Insurance Co. Ltd. vs. Ajmer Singh Cotton and
~ -
General Mills 1999 (6) SCC 400; National Insurance Co. Ltd.
'IS. Nipha Exports (P) Ltd. 2006 (8) SCC 156; National Insur-
ance Co. Ltd., vs. Sehtia Shoes 2008 (5) sec 400; Central
Inland Water Transport Corporation Ltd. vs. Brojo Nath
Ganguly 1986 (3) SCC 156; Indian Drugs and Pharmaceuti-
G
cal.s Ltd. vs. lndo Swiss Synthetic Can Manufacturing Ltd. 1996
(1) sec 54 - referred to. ..
2. Obtaining of undated receipts-in-advance in regiud
to regular/routine payments by government departments
H and corporate sector is an accepted practice which has
NATIONAL INSURANCE 00. LTD. v. M/S. BOGHARA 643
POLYFAB PVT. LTD.

come to stay due to administrative exigencies and ac- · A
counting necessities. The routine insistence by some
Government Departments, statutory Corporations and
Government Companies for issue of undated 'no due
certificates' or a 'full and final settlements vouchers' ac-
knowledging receipt of a sum which is smaller than the 8
claim in full and final settlement of all claims, as a condi-
tion precedent for releasing even the admitted dues, is
unfair, irregular and illegal and requires to be deprecated.
[Para 26) (671 C-D; 671 F-H]
Case Law Reference c
1960 (1) SCR 493 Referred to. Para 13
1996 (1) sec 54 Referred to. Para 14
2005 (8) sec 618 Held inapplicable. Para 15
, .., D
41 IA 142 Referred to. Para 20
1994 Supp (3) sqc 83 Distinguished. Para 22
1994 Supp (3) SCC 126 Distinguished. Para 22
1995 Supp (3) SCC 324 Distinguished. Para 22
E
1974 (1) sec 141 Referred to. Para 23
19s2 (1 J sec 625 Referred to. Para 23
1988 (3) sec 76 Referred to. Para 23
?) 2000 (10) sec 178 Referred to. Para 23 F
2004 (2) sec 663 Referred to. Para 23
2006 (13) sec 475 Referred to. Para 23
1999 (6) sec 400 Referred to. Para 25
2006 (8) sec 156 Referred to. Para 25 G
2008 (5) sec 400 Referred to. Para 25
~
1986 (3) sec 156 Referred to. Para 25
CIVILAPPELLATE JURISDCTION: Civil Appeal No. 5733
of 2008 H
644 SUPREME COURT REPORn (2008] 13 S.C.R.

A From the Judgment and Order date :l 19.4.2007 of the High
Court of Judicature at Bombay in A.A.~ :>. 182/2006
Parag P. TripathiASG, Vishnu Meh a, Sakshi Mittal, Varun
Sarin and Pramod Dayal for the Appell< nt.

B T.R. Andhyarujina, Atul Chitale, SL chitra Atul Chitale and
Sunina Dutta for the Resµondent.
The Judgment of the Court was de livered by
R.V.RAVEENDRAN, J. 1. Leave granted. Heard both
c counsel. The question involved in this a 1peal is whether a dis-
pute raised by an insured, after giving a ull and final discharge
voucher to the insurer, can be referred ti: arbitration.
The brief facts :
2. The res:')ondent (Insured) obtain !d a standard Fire and ,.,.
D '
Special Perils (with a floater) Policy from I !1e appellant ('Insurer')
to cover its goods in its godowns situat1 d at Surat for the pe-
riod 4.8.2003 to 3.8.2004. The sum in rnred was Rs. Three
crores, subsequently increased to Rs. Si:: crores. On 27.5.2004
the respondent requested the insurer tc increase the sum in-
E
sured by another Rs. six crores for a per :id of two months. Ac-
cordingly, the appellant issued an addit onal endorsement in-
creasing the sum insured by another Rt pees six crores, in all
Rupees twelve crores. The respondent alleges that the addi-
tional endorsement cover issued by the appellant was for 69 .._, ~

F days, that is from 27.5.2004 to 3.8.2004. The appellant alleges
that the additional endorsement cover~ ,as for a period of 60
days from 27.5.2004 to 26.7.2004. (Nota The appellant claims
that during subsequent investigations, i came to light that its
AAO (Dilip Godbole) had delivered to th'! respondent, a com-
G puter generated Additional Endorsement i unauthorisedly altered
by hand) showing the period of addition< cover as 69 days up
to 3.8.2004. and departmental proceedin is have been initiated ~
against the said officer).
3. On 5.8.2004, the respondent re~ orted loss/damage to
H
-f NATIONAL INSURANCE CO. LTD. v MIS. BOGHARA 645
POLYFAB PVT. LTD. [R.V.RAVEENDRAN, J.]

their stocks on account of heavy rains and flooding which took A
place on 2/3.8.2004 and made a claim in that behalf. The sur-
veyor submitted a preliminary report dated 14.8.2004 followed
by a final survey report dated 6.12.2004 according to which the
.._ net assessed loss (payable to respondent) was Rs.3, 18,26,025/
-. The said sum was arrived at on the basis that the sum insured s
was Rs.12 crores, the actual value of stocks in the godowns at
risk was Rs.8,15,99,149/-, value of damaged goods was
Rs.5,22,81,001/-, and the recoverable salvage value was
Rs.1,87,79,922/-. The appellant informed the surveyor by letter
dated 1.3.2005 that there was an error in the net assessed loss c
arrived at by the surveyor as it assumed the sum insured as
Rs.12 crores up to 3.8.2004 whereas the sum insured was only
Rs.6 crores after 26.7.2004 till 3.8.2004, and therefore in-
structed the surveyor to prepare the final report regarding net
assessed loss by taking the sum insured as only Rupees six
0
crores. The surveyor therefore gave an addendum to the final
survey report on 22.3.2005 reassessing the net loss by taking
the sum insured as only Rupees six crores. The value of goods
at risk, the value of damaged goods and the value of recover-
able salvage remained unaltered. By modifying the percentage
of insurance at 75.53%, the 'Net Assessed Loss' was re-worked E
as Rs.2,34,01,740/-. The respondent protested against the loss
being assessed by taking the sum insured as only Rupees six
crores. The claim and the dispute were pending consideration
for a considerable time.
F
4. The respondent alleged that the appellant forced the
respondent to accept a lower settlement; that the appellant in-
formed the respondent that unless and until the respondent is-
sued an undated 'Discharge voucher-in-advance' (in the pre-
scribed form) acknowledging receipt of Rs.2,33,94,964/- in full G
and final settlement, no amount would be released towards the
claim; that in that behalf, the appellant sent the format of the
discharge voucher to be signed by respondent on 21.3.2006;
that on account of the non-release of the claim, it was in a dire
financial condition and it had no alternative but to yield to the H
646 SUPREME COURT REPOF TS [2008] 13 S.C.R

A coercion and pressure applied by thi · appellant; that therefore
the respondent signed and gave thE said discharge voucher,
undated, as required by the insurer du1 ng the last week of March,
2006. The payment was released b ,' the appellant only after
receiving the said discharge-vouche . It is extracted below:
B "NATIONAL INSURANC:: COMPANY LTD.
REGO. OFFICE: 3, MIDJLETON STREET,
POST BOX N0.9229, ::OLKATA 700071
FORM ACL - 10(1)
c Loss voucher Non Motor & PA
Received from National lnsuranc ':Company Limited through
its policy issuing office (herein af :r called the Company) the
sum of Rs.2,33,94,964.00 (Rupe =s two crore thirty three lakh
. D ninety four thousand nine hundn 'd sixty four only) in full and
final settlement of all my/our clair ·1s in respect of the property
lost or damaged due to others or or about 03/08/2004 under
Policy No.250501/11/03/310000( 145.
In consideration of such payme 11t I/we hereby absolve the
E Company from all liability preser 1: or future arising directly or
indirectly out of the said loss or d 1mage under the said policy.
Further I/We hereby assign to tt : company my/our rights to
the affected property stolen whi :h shall in the event of their
recovery be the property of the :ompany. I/We even agree
that the sum insured under the i aid policy stand reduced by
F the amount paid under the next ·enewal."
Sd/-
5. Simultaneously, the respo 1dent lodged a complaint
dated 24.3.2006 with the lnsuranci: Regulatory and Develop-
G mentAuthority wherein, after settin~ out the facts, it alleged:
"We lodged a claim with our insu :rs immediately and pursued
the matter with them. Even after ·:he Surveyor Mr. Mehernosh
Todiwala of M/s. Bhatawadekar I : Co. had submitted his report
on 22nct March, 2005, the insure 1·s refused to settle our claim
H on various counts. We had varic .is meetings at the Divisional,
NATIONAL INSURANCE CO. LTD. v. M/S. BOGHARA 647
-+ POLYFAB PVT. LTD. [R.V.RAVEENDRAN, J.]

Regional and even the Head Office of the insurers, but to no A
avail.
In March, 2005, the insurer company forced us to accept a
lower settlement and we were told that we would have to
agree to a lower settlement to ensure expeditious settlement
of the claim. Accordingly on and around the 15th of March, B
2005 nearly 8 months after the loss we gave our forced consent
to the lower settlement offered in the hope that the claim
amount would be received immediately.
Thereafter for the next 1 year, the insurers failed to settle our
claim and made us run from pillar to post for the settlement. c
Finally on March 21st 2006 the insurers have sent us a voucher
for the sum of Rs.2,33,94,94 which considering our dire
financial condition, and the continuous failed promises from
the insurers, we have had no choice but to accept.
D
Sir, subsequent to the loss, since we could not pay our
international suppliers on time they almost completely stopped
all our shipments. This has resulted in tremendous financial
loss to us. We have lost our long hard earned reputation in
the market by becoming defaulters. The insurers have
deliberately starved our unit of funds to ruin us financially. E

You will appreciate that we are how faced with a situation
where we have no choice but to accept the payment being
released to us unconditionally as the insurers have made it
~ ~ very clear that the payment will not be released if there is any
conditional discharge of the vouchers. In order to safeguard F
our right to claim the difference amount and any other claims
arising out of the financial losses incurred by us a direct result
of the deliberate delay in settlement of our claim by the
insurers, we make a humble request to the l.R.D.A. to take up
the matter with the insurers to ensure that justice prevails and G
we are ~id the entire compensation due to us."
• 6. The respondent also issued a !egal notice dated
27.5.2006 wherein it was alleged that the amount due by the
insurer was Rs.3, 18,26,025/-, and that under duress and im-
plicit coercion, it had accepted the payment of Rs.2,33,94.!;164/ H
648 SUPREME COURT REPORTE [2008] 13 S.C.R.

A -, by signing and handing over a 'full and f nal discharge voucher'.
By the said notice, the respondent demanded the difference
amount with interest at the rate of ·12% per annum from
6.12.2004 (date of final survey report) till the date of payment.
The respondent also informed the appellant that if payment was
B not so made within 15 days, the notic~ should be treated as
notice invoking arbitration. The appellant by its reply dated
2.8.2006, rejected the said demand. Tl1e appellant contended
that the respondent had unconditionally cccepted the claim settle-
mentamount fully and finally; that respo 1dent had not registered
c any protest while accepting the claim cheque; that the amount
payable was arrived at amicably after cliscussing all aspects of
the claim with the insured and at no juncture any protest was
expressed; and that therefore the que~.tion of invoking the pro-
vision for arbitration did not arise.
D 7. In view of appellant's refusal to agree for arbitr:ation, the ..,.
respondent filed an application under :;ection 11 of the Arbitra-
tion & Conciliation Act, 1996 ('Act' for s 1ort) in the Bombay High
Court. The said petition was resisted ty the appellant by reiter-
ating that the respondent had accepted the payment of
E Rs.233,94,964/- in full and final settlement and therefore, the
respondent could not invoke the arbitration clause.
8. The learned Chief Justice of the Bombay High Court
exercising power under section 11 of the Act, allowed the peti-
tion by order dated 19.4.2007. Afte; 1:onsidering the fa:::ts, he
F was of the view that there was a serious dispute between the >- '
parties as to whether 'discharge voucher' was given voluntarily
or under pressure or coercion, and tllat required to be settled
by the Arbitral Tribunal. He therefo;e appointed Sri Justice
S.N.Variava as the sole arbitrator. The learned Chief Justice
G left open the question whether there was any coercion/undue
influence in regard to issue of full and final settlement discharge
voucher by the respondent, and permitted the parties to lead
evidence before the arbitrator on that question. The said order '
is challenged by the insurer in this appeal by special leave.
H
-t NAllONAL INSURANCE CO. LTD. v. M/S. BOGHARA 649
POLYFAB PVT. LTD. [R.V.RAVEENDRAN, J.]

The rival contentions : A
9. Learned counsel for the appellant contended that once
the insurance claim was settled and the insured received pay-
ment and issued a full and final discharge voucher, there was
discharge of the contract by accord and satisfaction. As a re-
sult, neither the contract nor any claim survived. It is submitted B
that when a discharge voucher was issued by the respondent,
acknowledging receipt of the amount paid by the appellant, in
full and final settlement and confirming that there are no pend-
ing claims against the appellant, such discharge voucher should
be accepted on its face value as a discharge of contract by full C
and final settlement. Consequently, it should entail ipso jure,
rejection in limine of any subsequent claim or any request for
reference of any dispute regarding any claim to arbitration. It
was also contended that having received the payment under
the said discharge voucher, the respondent cannot, while re- D
taining and enjoying the benefit of the full and final payment,
challenge the validity or correctness of the discharge voucher.
The appellant contends that the subsequent claim of the respon-
dent ought not to have been referred to arbitration. In support of
its contentions, reliance was placed on three decisions of this E
Court in State of Maharashtra v. Nav Bharat Builders [1994
Supp (3) SCC 83], M/s. P K. Ramaiah & Co. v. Chairman &
Managing Director, National Thermal Power Corpn. [1994
Supp (3) SCC 126] and Nathani Steels Ltd. v. Associated Con-
structions [1995 Supp (3) SCC 324]. F
10. On the other hand the respondent contended that the
scope of proceeding under section 11 of the Act was limited. It
is submitted that once the petitioner establishes that the con-
tract between the parties contains an arbitration agreement, and ·
that the dispute raised is in respect of a claim arising out of G
such contract, the dispute has to be referred to arbitration; that
any contention by the appellant that there is discharge of the
contract by issue of full and final discharge voucher is a matter
for the arbitral tribunal to examine and decide, and cannot be
held out as a threshold bar to arbitration; and that the question H
650 SUPREME COURT REPORTS [2008] 13 S.C.R.

A whether there was accord and satis ..action, or whether there
was discharge of a contract by perforrnance, is itself a question
that is clearly arbitrable. It is alternatively submitted that when
the Chief Justice or his designate is required to consider whether
the claimant has issued a full and fi ial discharge voucher in
B settlement of all claims, any objection to the validity of such dis-
charge voucher should also be consic ered. It is pointed out that
where the discharge voucher is given under threat or coercion,
resulting in economic duress and compulsion, such discharge
voucher is not valid nor binding on the claimant, and the dispute
C relating to the claim survives for consideration and is arbitrable.
According to respondent, where the person on whom the claim
is made, withholds the admitted amount to coerce and compel
the claimant to accept a smaller payment in full and final settle-
ment and give a discharge voucher, t1ere is no accord and sat-
isfaction in the eye of law; and the c ischarge voucher will not
D come in the way of a genuine and bona fide dispute being raised
regarding the balance of the claim and seeking reference of
such claim to arbitration. In support of the said contentions, re-
liance was placed on the decisions of this Court in Damodar
Valley Corporation v. K. K.Kar [1974 (1) SCC 141], M/s. Bharat
E Heavy Electricfils Ltd., Ranipur ~·. Mis. Amar Nath Bhan
Prakash [1982 (1) SCC 625], Union oflndia vs. L. K. Ahuja &
Co. [1988 (3) SCC 76], Jayesh Eng'neering Works v. New In-
dia Assurance Co. Ltd. [2000 (10) SCC 178], Chairman & Man-
aging Director, NTPC Ltd. v. Reshr1i Constructions, Builders
F & Contractors [2004 (2) SCC 663], and Ambica Construction ~ •
v. Union of India [2006 (13) SCC 4~'5].
11. In reply, the learned counsel for the appellant submit-
ted that the decisions relied on by the respondent were all ren-
dered by two-Judge Benches of thii; Court, whereas the deci-
G sion in Nathani Steels relied on by the appellant, was rendered
'uy a three-Judge Bench; and therefore the principle laid down
in Nathani Steels that there can be no reference to arbitration
wherever there is a full and final sett ement, resulting in the dis-
charge of the contract, holds the field and will have to be fol-
H lowed in preference to the other decisions.
NATIONAL INSURANCE CO. LTD. v. M/S. BOGHARA 651
POLYFAB PVT. LTD. [R.V.RAVEENDRAN, J.]

The questions for consideration : A
12. In this case existence of an arbitration clause in the
contract of insurance is not in dispute. It provides that "if any
..
~
dispute or difference shall arise as to the quantum to be paid
• under this. policy (liability being otherwise admitted) such differ-
ence shall, independently to all other questions be referred to B
the decision of a sole Arbitrator." The rival contentions give rise
to the following question for our consideration :
In what circumstances, a court will refuse to refer a dispute
relating to quantum to arbitration, when the contract c
specifically provides for reference of disputes and
differences relating to the quantum to arbitration? In
particular, what is the position when a respondent in an
application under section 11 of the Act, resists reference
to arbitration on the ground that petitioner has issued a full
¥ D
and final settlement discharge voucher and the petitioner
contends that he was constrained to issue it due to
coercion, undue influence and economic compulsion?
13. In Union of India v. Kishorilal Gupta & Bros. [1960 (1)
SCR 493), this Court considered the question whether the arbi- E
tration clause in the contract will cease to have effect, when the
contract stood discharged as a result of settlement. While an-
swering the question in the affirmative, a three Judge Bench of
this Court culled out the following general principles as to when
- -c
' arbitration agreements operate and when they do not operate: F
(i) An arbitration clause is a collateral term of a contract
distinguished from its substantive terms; but none
the less it is an integral part of it.
(ii) Howsoever comprehensive the terms of an arbitration
G
clause may be, the existence of the contract is a
necessary condition for its operation; and the
... arbitration clause perishes with the contract.
(iii) A contract may be non est in the sense that it never
came legally into existence or it was void ab initio. H
652 SUPREME COURT REPORTS [2008] 13 S.C.R.

A In that event, as the original contract has no legal
existence, the arbitration clause also cannot operate,
for along with the original contract, it is also void.
(iv) Though the contract was validly executed, the parties •·
B
may put an end to it as if it had never existed and
substitute a new contract for it, solely governing their
•
rights and liabilities. In such an event, as the original
contract is extinguished by the substituted one, the
arbitration clause of the original contract perishes
with it.
c (v) Between the two extremes referred to in paras (c)
and (d), are the cases where the contract may come
to an end, on account of repudiation, frustration,
breach etc. In these cases, it is the performance of
the contract that has come to an end, but the contract
D v
is still in existence for certain limited purposes, in
respect of disputes arising under it or in connection
with it. When the contracts subsist for certain
purposes, the arbitration clauses in those contracts
operate in respect of those purposes.
E
The principle stated in para (i) is now given statutory rec-
ognition in section 16(1 )(a) of the Act. The principle in para (iii)
has to be now read subject to section 16( 1)(b) of the Act. The
principles in paras (iv) and (v) are clear and continue to be ap-
F plicable. The principle stated in para (ii) requires further eluci- )>- ~

dation with reference to contracts discharged by performance
or accord and satisfaction.
14. The decision in Kishori/al Gupta was followed and re-
iterated in several decisions including Naithani Jute Mills Ltd.
G vs. Khya/iram Jagannath (AIR 1968 SC 522), Oamodar Val-
fey Corporation vs. K. K. Kar [1974 (1) SCC 141] and Indian
Drugs & Pharmaceuticals Ltd. vs. Inda Swiss Synthetic Gem r
Manufacturing Co. Ltd. (1996 (1) SCC 54). In Oamodar Valley
Co1poration, this Court observed :
H
NATIONAL INSURANCE CO. LTD. v. IVl/S. BOGHARA 653
-1 POLYFAB PVT. LTD. [R.V.RAVEENDRAN, J.]

"A contract is the creature of an agreement between the parties A
and where the parties under the terms of the contract agree
to incorporate an arbitration clause, that clause stands apart
from the rights and obligations under that contract, as it has
been incorporated with the object of providing a machinery for
)- the settlement of disputes arising in relation to or in connection
B
with that contract. The questions of unilateral repudiation of
the rights and obligations under the contract or of a full and
final settlement of the contract relate to the performance or
discharge of the contract. Far from putting an end to the
arbitration clause, they fall within the purview of it. A repudiation
by one party alone does not terminate the contract. It takes .C
two to end it, and hence it follows that as the contract subsists
for the determination of the rights and obligations of the parties,
the arbitration clause also survives. This is not a case where
the plea is that the contract is void, illegal or fraudulent etc.,
in which case, the entire contract along with the arbitration
"!' D
clause is non est, or voidable. As the contract is an outcome
of the agreement between the parties it is equally open to the
parties thereto to agree to bring it to an end or to treat it us if
it never existed. It may also be open to the parties to terminate
the previous contract and substitute in its place a new contract
or alter the original contract in such a way that it cannot E
subsist. In all these cases, since the entire contract is put an
end to the arbitration clause, which is a part of it, also perishes
along with it."

15. Section 16 of the Act bestows upon the arbitral tribu-
,# ...

nal, the competence to rule on its own jurisdiction. Sub-section F
(1) of the section reads thus :
4
. "16. Competence of arbitral tribunal to rule on its
jurisdiction. - (1) The arbitral tribunal may rule on its own
jurisdiction, including ruling on any objections with respect
G
to the existence or validity of the arbitration agreement,
and for that purpose, -
' ...
(a) an arbitration clause which forms part of a contract
shall be treated as an agreement independent of the
other terms of the contract; and H
654 SUPREME COURT REPORTS [2008] 13 S.C.R

A (b) a decision by the arbitral tribunal that the contract is
null and void shall not entail ipso Jure the invalidity of
the arbitration clause.

In SBP & Co. vs. Patel Engineering Ltd. - 2005 (8) SCC
618, a seven Judge Bench of this Court considered the scope
B of section 11 of the Act and held that the scheme of section 11
of the Act required the Chief Justice or his designate to decide
whether there is an arbitration agreement in terms of Section 7
of the Act before exercising his power under Section 11 (6) of
the Act and its implications. It was of the view that sub-sections
C (4), (5) and (6) of section 11 of the new Act, combined the power
vested in the court under sections 8 and 20 of the old Act (Arbi-
tration Act, 1940). This Court held :

"It is necessary to define what exactly the Chief Justice,
approached with an application under Section 11 of the Act,
D is to decide at that stage. Obviously, he has to decide his own
jurisdiction in the sense, whether the party making the motion
has approached the right High Court. He has to decide whether
there is an arbitration agreement, as defined in the Act and
whether the person who has made the request before him, is
E a party to such an agreement. It is necessary to indicate that
he can also decide the question whether the claim was a dead
one; or a long barred claim that was sought to be resurrected
and whether the parties have concluded the transaction by
recording satisfaction of their mutual rights and obligations or
by receiving the final payment without objection. It may not be
F possible at that stage, to decide whether a live claim made,
is one which comes within the purview of the arbitration clause.
It will be appropriate to leave that question to be decided by
the arbitral tribunal on taking evidence, along with the merits
of the claims involved in the arbitration. The Chief Justice has
G to decide whether the applicant has satisfied the conditions
for appointing an arbitrator under Section 11 (6) of the Act. For
the purpose of taking a decision on these aspects, the Chief
Justice can either proceed on the basis of affidavits and the
cfocuments produced or take such evidence or get such
evidence recorded, as may be necessary. We think that
H
NATIONAL INSURANCE CO. LTD. v. M/S. BOGHARA .655
~ POLYFAB PVT LTD. [RVRAVEENDRAN, J]

adoption of this procedure in the context of the Act would best A
serve the purpose sought to be achieved by the Act of
expediting the process of arbitration, without too many
approaches to the court at various stages of the proceedings
before the Arbitral tribunal."
"47.(iv) The Chief Justice or the designated judge will have B
the right to decide the preliminary aspects as indicated in the
earlier part of this judgment. These will be, his own jurisdiction,
to entertain the request, the existence of a valid arbitration
agreement, the existence or otherwise of a live ciaim, .the
existence of the condition for the exercise of his power and
on the qualifications of the arbitrator or arbitrators."
c
: Ii
{emphasis supplied)
This Court also examined the 'competence' of the arbitral
tribunal to rule upon its own jurisdiction and about the existence
D
of the arbitration clause, when the Chief Justice or his desig-
"' nate had appointed the Arbitral Tribunal under section 11 of the
Act, after deciding upon such jurisdictional issue. This Court
held:

"We are inclined to the view that the decision of the Chief E
Justice on the issue of jurisdiction and the existence of a .vaiid
arbitration agreement would be binding on the parties when
the matter goes to the arbitral tribunal".
"Section 16 is said to be the recognition of the principle of
, -1 Kompetenz - Kompetenz. The fact that the arbitral tribunal F
has the competence to rule on its own jurisdiction and to
define the contours of its jurisdiction, only means that when
such issues arise before it, the Tribunal can and possibly,
ought to decide them. This can happen when the parties have
gone to the arbitral tribunal without recourse to Section 8 or
11 of the Act. But where the jurisdictional issues are decided G
under these Sections, before a reference is made, Section
16 cannot be held to empower the arbitral tribunal to ignore
the decision given by the judicial authority or the Chief Justice
before the reference to it was made. The competence to
decide does not enable the arbitral tribunal to get over the H
•

656 SUPREME COURT REPORTS [2008) 13 S.C.R.

A finality conferred on an order passed prior to its entering upon
the reference by the very statute that creates it. That is the
position arising out of Section 11 (7) of the Act read with Section
16 thereof. The finality given to the order of the Chief Justice
on the matters within his competence under Section 11 of the
Act, are incapable of being reopened before the arbitral
B tribunal."

16. It is thus clear that when a contract contains an arbitra-
tion clause and any dispute in respect of the said contract is
referred to arbitration without the intervention of the court, the
c Arbitral Tribunal can decide the following questions affecting its
jurisdiction: (a) whether there is an arbitration agreement; (b)
whether the arbitration agreement is valid; (c) whether the con-
tract in which the arbitration clause is found is null and void and
if so whether the invalidity extends to the Arbitration clause also.
0 It follows therefore that if the respondent before the Arbitral Tri-
bunal contends that the contract has been discharged by rea-
son of the claimant accepting payment made by the respon-
dent in full and final settlement, and if the claimant counters it by
contending that the discharge voucher was extracted from him
E by practicing fraud, undue influence, or coercion, the arbitral
tribunal will have to decide whether the discharge of contract
was vitiated by any circumstance which rendered the discharge ·
voidable at the instance of the claimant. If the arbitral tribunal
comes to the conclusion that there was a valid discharge by
voluntary execution of a discharge voucher, it will refuse to ex-
F amine the claim on merits, and reject the claim as not maintain-
able. On the other hand, ifthe arbitral tribunal comes to the con-
clusion that such discharge of contract was vitiated by any cir-
cumstance which rendered it void, it will ignore th.e same and
proceed to decide the claim on merits.
G
17. Where the intervention of the court is sought for ap-
pointment of an Arbitral Tribunal under section 11, the duty of
the Chief Justice or his designate is defined in SBP & Co. This
Court identified and segregated the preliminary issues that may
H arise for consideration in an application under section 11 of the
NATIONAL INSURANCE CO. LTD. v. MIS. BOGHARA 657
POLYFAB PVT. LTD. [R.V.RAVEENDRAN, J.]

Act into three categories, that is (i) issues which the Chief Jus- A
tice or his Designate is bound to decide; (ii) issues which he
can also decide, that is issues which he may choose to decide;
and (iii) issues which should be left to the Arbitral Tribunal to
decide.
17 .1) The issues (first category) which Chief Justice/his 8
designate will have to decide are:
(a) Whether the party making the application has
approached the appropriate High Court.
(b) Whether there is an arbitration agreement and C
whether the party who has applied under section 11
of the Act, is a party to such an agreement.
17.2) The issues (second category) which the Chief
Justice/his designate may choose to decide (or leave
0
them to the decision of the arbitral tribunal) are:
(a) Whether the claim is a dead (long barred} claim or
a live claim.
(b) Wheth_er the parties have concluded the contract/
transaction by recording satisfaction of their mutual E
rights and obligation or by receiving the final payment
without objection.
17.3) The issues (third category) which the Chief Justice/
his designate should leave exclusively to the arbitral tribunal F
are:
(i} Whether a claim made falls within the arbitration
clause (as for example, a matter which is reserved
· for final decision of a departmental authority and·
excepted or excluded from arbitration). G
(ii) Merits or any claim involved in the arbitration.
It is clear from the scheme of the Act as explained by this
Court in SBP & Co., that in regard to issues falling under the
second category, if raised in any application under section 11 H
658 SUPREME COURT REPORTS [2008] 13 S.C.R.

A of the Act, the Chief Justice/his designate may decide them, if
necessary by taking evidence. Alternatively, he may leave those
issues open with a direction to the Arbitral Tribunal to decide
the same. If the Chief Justice or his Designate chooses to ex-
amine the issue and decides it, the Arbitral Tribunal cannot re-
8 examine the same issue. The Chief Justice/his designate will,
in choosing whether he will decide such issue or leave it to the
Arbitral Tribunal, be guided by the object of the Act (that is ex-
pediting the arbitration process with minimum judicial interven-
tion). Where allegations of forgery/fabrication are made in re-
c gard to the document recording discharge of contract by full
and final settlement, it would be appropriate if the Chief Jus-
tice/his designate decides the issue.

18. What is however clear is when a respondent contends
that the dispute is not arbitrable on account of discharge of the
D contract under a settlement agreement or discharge voucher or
no-claim certificate, and the claimant contends that it was ob-
tained by fraud, coercion or under influence, the issue will have
to be decided either by the Chief Justice/his designate in the
proceedings under section 11 of the Act or by the arbitral Tribu-
E nal as directed by the order under section 11 of the Act. A claim
for arbitration cannot be rejected merely or solely on the ground
that a settlement agreement or discharge voucher had been
executed by the claimant, if its validity is disputed by the claim-
ant.
F 19. We may next examine some related and incidental
issues. Firstly, we may refer to the consequences of discharge
of a contract. When a contract has been fully performed, there
is a discharge of the contract by performance, and the contract
comes to an end. In regard to such a discharged contract, noth-
G ing remains - neither any right to seek performance nor any
obligation to perform. In short, tllere cannot be any dispute.
Consequently, there cannot obviously be reference to arbitra-
tion of any dispute arising from a discharged contract Whet~:er
the contract has been discharged by performance or not is a
H mixed question of fact and law, and if there is a dispute in re-
NATIONAL INSURANCE CO. LTD. v. MIS. BOGHARA 659
POLYFAB PVT. LTD. [R.V.RAVEENDRAN, J.]

gard to that question, that is arbitrable. But there is an excep- A
tion. Where both parties to a contract confirm in writing that the
contract has been fully and finally discharged by performance
of all obligations and there are no outstanding claims or dis-
putes, courts will not refer any subsequent claim or dispute to
arbitration. Similarly, where one of the parties to the contract B
issues a full and final discharge voucher (or no due certificate
as the case may be) confirming that he has received the pay-
ment in full and final satisfaction of all claims, and he has no
outstanding claim, that amounts to discharge of the contract by
acceptance of performance and the party issuing the discharge c
voucher/certificate cannot thereafter make any fresh claim or
revive any settled claim. Nor can he seek reference to arbitra-
tion in respect of any claim. When we refer to a discharge of
contract by an agreement signed by both parties or by execu-
tion of a full and final discharge voucher/receipt by one of the
0
parties, we refer to an agreement or discharge voucher which
is validly and voluntarily executed. If the party who has executed
the discharge agreement or discharge voucher, alleges that the
execution of such discharge agreement or voucher was on ac-
count of fraud/coercion/undue influence practiced by the other
party and is able to establish the same, then obviously the dis- E
charge of the contract by such agreement/voucher is rendered
void and cannot be acted upon. Consequently, any dispute raised
by such party would be arbitrable.
20. While discharge of contract by performance refers to F
fulfillment of the contract by performance of all the obligations in
terms of the original contract, discharge by 'accord and satis-
faction' refers to the contract being discharged by reason of
performance of certain substituted obligations. The agreement
by which the original obligation is discharged is the accord, and G
the discharge of the substituted obligation is the satisfaction. A
contract can be discharged by the same process which cre-
ated it, that is by mutual agreement. A contract may be dis-
charged by the parties to the original contract either by entering
into a new contract in substitution of the original contract; or by H
660 SUPREME COURT REPORTS [20C8j 13 S.C.R.

A acceptance of performance of modified obligations in lieu of
the obligations stipulated in the contract. The classic definition
of the term 'accord and satisfaction' given by the Privy Council
in Payana Reena Saminathan vs. Pana Lana Palaniappa -
41 IA 142 (reiterated in Kishorilal Gupta) is as under:
B "The 'receipt' given by the appellants and accepted by the
respondent, and acted on by both parties proves conclusively
that all the parties agreed to a settlement of all their existing
disputes by the arrangement formulated in the 'receipt'. It is
a clear example of what used to be well known as common
c law pleading as 'accord and satisfaction by a substituted
agreement'. No matter what were the respective rights of the
parties inter se they are abandoned in consideration of the
acceptance by all of a new agreement. The consequence is
that when such an accord and satisfaction takes place the
prior rights of the parties are extinguished. They have in fact y
D been exchanged for the new rights; and the new agreement
becomes a new departure, and the rights of all the parties are
ful!y represented by it."

[Emphasis supplied]

E 21. It is thus clear that the arbitration agreement contained
in a contract cannot be invoked to seek reference of any dis-
pute to arbitration, in the following circumstances, when the con-
tract is discharged on account of performance, or accord and
satisfaction, or mutual agreement. and the same is reduced to
F writing (and signed by both parties or by the party seeking arbi-
tration) :
(a) Where the obligations under a contract are fully
performed and discharge of the contract by
performance is acknowledged by a full and final
G discharge voucher/receipt. Nothing survives in regard
to such discharged contract.
(b) VVhere the parties to the contract, by mutual
agreement, accept performance of altered, modified
and substituted obligations and confirm in writing
H
NATIONAL INSURANCE CO. LTD. v. M/S. BOGHARA 661
POLYFAB PVT. LTD. [R.V.RAVEENDRAN, J.]

the discharge of contract by performance of the A
altered, modified or substituted obligations.

(c) Where the parties to a contract, by mutual
agreement, absolve each other from performance of
their respective obligations (either on account of
frustration or otherwise) and consequently cancel the 8
agreement and confirm that there is no outstanding
claims or disputes.

22. We may next consider whether the decisions relied on
by the appellant and the decisions relied on by the respondent c
express divergent views, as contended by the learned counsel
for the appellant. We will first consider the three cases relied on
by the appellant.
22.1) In PK. Ramaiah, the appellant contractor made cer-
tain claims in regard to a construction contract. The employer D
rejected the claims, as also the request for reference to arbitra-
tion. On an application by the contractor, under the Arbitration
Act, 1940 for appointment of an Arbitrator, the Civil Court ap-
pointed an Arbitrator. The said order of appointment was chal-
lenged by the employer. The High Court found that the contrac- E
tor had unconditionally acknowledged the final measurement
and accepted the payment in full and final settlement of the con-
tract 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 con-
tractor did not take action and sought reference to arbitration F
only several years thereafter. The High Court therefore held that
there was no subsisting contract to enable reference to arbitra-
tion 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 ac- G
cepted the measurements and payment and had uncondition-
ally acknowledged full and final settlement and satisfaction by
i
issuing a receipt in writing, no arbitrable dispute arose for be-
ing referred to Arbitration. This Court further held that there was
accord and satisfaction by final settlement of the claims and the H.
662 SUPREME COURT REPORTS [2008) 13 s c R.

A subsequent allegation of coercion was an afterthought and only
a ploy to get over the settlement of the dispute.

22 2) In Nav Bharat Builders, a dispute arose in regard to
labour escalation charges. As the employer did not agree for
escalation, the contractor made an application under section
B 20 of the Arbitration Act, 1940 for filing the agreement and for
reference of the dispute to arbitration. Pending the said appli-
cation, the contractor made a representation to the employer
for settlement of the claim. The government constituted a Com-
mittee to examine the labour escalation. The said Committee
c suggested acceptance of the 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 re-
0
gard to the claim for labour escalation. He subsequently con-
tended 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 this Court following P K.
E Ramaiah held :
"............ 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 r .
F acceptance and that, therefore, it is open to the respondent to
contend before the arbitrator that in working the principle on
wh.ich 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
G 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
H
-~ NATIONAL INSURANCE CO. LTD. v. MIS. BOGHARA 663
POLYFAB PVT. LTD. [R.V.RAVEENDRAN, J.]

accepted the same and received the amount, it is no longer A
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
B
is no further arbitrable dispute in that behalf."
[emphasis supplied]
22.3) Nathani Steels 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 c
dated 20.12.1980 signed by both 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 settle-
D
ment was liable to be set 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 :
".... that once the parties have arrived at a settlement in respect
E
of any dispute or difference arising under a contract and that
dispute or the difference is amicable 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
. -1 one of the parties to the settlement to spurn it on the ground
that it was a mistake and proceed to invoke the Arbitration F
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
G
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 invoxe the Arbitration clause."
[emphasis supplied] H
664 SUPREME COURT REPORTS [2008] 13 S.C.R

A 22.4) What requires to be noticed is that in Nav Bharat
Builders and Nathani Steels, this court on examination of facts,
was satisfied that there were negotiations and voluntary settle-
ment of all pending disputes, and the contract was discharged
by accord and satisfaction. In P K. Ramaiah, the Court was
B satisfied that there was a voluntary acceptance of the measure-
ments and full and final payment of the amount found due, re-
sulting in discharge of the contract, leaving no outstanding claim
or pending dispute. In those circumstances, this Court held that
after such voluntary accord and satisfaction or discharge of the
c contract, there could be no arbitrable disputes.

23. We may next refer to the decisions relied on by the
respondent:

23.1) In Damodar Valley Corporation, the question that
arose for consideration of this Court was as follows: y
0
"where one of the parties refers a dispute or disputes to
arbitration and the other party takes a plea that there was a
final settlement of all claims, is the Court, on an application
under Sections 9(b) and 33 of the Act, entitled to enquire into
the truth and validity of the averment as to whether there was
E
or was not a final settlement on the ground that if that was
proved it would bar a reference to the arbitration inasmuch as
the arbitration clause itself would perish."

In that case the question arose with reference to a claim
F by the supplier. The purchaser required the supplier to furnish a
full and final receipt But the supplier did not give such a receipt
Even though there was no discharge voucher, the purchaser
contended that the payments made by it were in full and final
settlement of the bills. This Court rejected that contention and
G held that the question whether there has been a settlement of all
the claims arising in connection with the contract also postu-
lates the existence of the contract which would mean that the
arbitration clause operates. This Court held that the question
whether there has been a full and final settlement of a claim
H under the contract is itself a dispute arising 'upon' or 'in relation
'

NATIONAL INSURANCE CO. LTD. v. MIS. BOGHARA 665
~
POLYFAB PVT. LTD. [R.V.RAVEENDRAN, J.]

to' or 'in connection with' the contract; and where there is an A
arbitration clause in a contract, notwithstanding the plea that
there was a full and final settlement between the parties, that
dispute can be referred to arbitration. It was also observed that
mere claim of accord and satisfaction may not put an end to the
).
arbitration clause. It is significant that neither PK. Ramaiah nor B
Nathani Steels disagreed with the decision in Damodar Val-
fey Corporation but only distinguished it on the ground that there
was no full and final discharge voucher showing accord and
satisfaction in that case.
23.2) In Bharat Heavy Electricals Ltd., this Court observed c
that the question whether there was discharge of the contract
by accord and satisfaction or not, is a dispute arising out of the
contract, which requires to be referred to arbitration. It was held
that the Arbitrator shall first determine whether there was ac-
'( cord and, satisfaction between parties and/or whether the con- D
tract wa$ discharged; that if the decision was in favour of the
employer, the Arbitrator will not proceed further in the matter but
dismiss the claim of the contractor; and that if he finds that the
contract was not discharged by accord and satisfaction or oth-
erwise, he should proceed to determine the claim of the con- E
tractor on merits. In this case also, there was no acknowledg-
ment of full and final settlement not any discharge voucher.
23.3) In Union of India vs. L.K. Ahuja & Co. - 1988 (3)
SCC 76, this Court observed :
--1 F
"In order to be entitled to ask for a reference under section 20
of the 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 theJinal bill, the
right to get further payment gets weakened but the claim G
subsists and whether it does subsist, is a matter which is
i
arbitrable."
There was no full and final discharge or accord and satis-
' faction in that case. In Jayesh Engineering Works, These was
H
666 SUPREME COURT REPORTS [2008] 13 S.C.R.

A an acknowledgment by the contractor that he had received the
amount in full and final settlement and he has no further claim.
This Court following L. K. Ahuja held that whether the contract
has been fully worked out and whether the payments have been
made in full and final settlement are questions to be considered
B by the arbitrator when there is a dispute regarding the validity of
such acknowledgement and that the arbitrator will consider
whether any amount is due to be paid and how far the claim
made by the contractor is tenable. Jayesh Engineering Works
did not refer to Kishorilal Gupta, Nav Bharat Builders, PK.
c Ramaiah or Nathani Steels ..
23.4) 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 submit-
D ted 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, pay-
ment of the bill will not be released. In those circumstances,
after considering P K. Ramaiah and Nathani Steels, this Court
E 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
F "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
G 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.

27. Even when rights and obligations of the parties are worked
H
NATIONAL INSURANCE CO. LTD. v. MIS. BOGHARA 667
POLYFAB PVT. LTD. [RVRAVEENDRAN, J.]

out, the contract does not come to an end inter alia for the A
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 investments, he cannot afford not to take from the
B
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 C
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. D
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 jus- E
tification for the contention of the contractor that the 'No-demand
Certificate' was not given voluntarily butunder coercion, and on
facts, this Court felt that the question required to be examined.

23.5) In Ambica Constructions (supra) this Court consid-
ered a clause in the contract which required the contractor to F
give a no claim certificate in the form required by 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 G
that the certificate was given under coercion and duress. This
Court following Reshmi Constructions, 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. H
668 SUPREME COURT REPORTS [2008] 13 S.C.R.

A 24. We thus find that the cases referred fall under two cat-
egories. The cases relied on by the appellant are of one cat-
egorywhere the court after considering the facts, found that there
was a full and final settlement resulting in accord and satisfac-
tion, and there was no substance in the allegations of coercion/
undue influence. Consequently, this Court held that there could
8
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. PK.
C Ramaiah is a case where the contract was performed and there
was a full and final settlement and satisfaction resulting in dis-
charge of the contract. It also falls under this catego1y. The cases
relied on by the respondent fall under a different category where
the court found some substance in the contention of the claim-
0 ants that 'no due/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 fi-
nal discharge was alleged, but there were no documents con-
E firming such discharge. Consequently, this Court held that the
disputes were arbitrable. None of the three cases relied on by
the appellant lay down a proposition that mere execution of a
full and final settlement receipt or a discharge voucher is a bar
to arbitration, even when the validity thereof is challenged by
the claimant on the ground of fraud, coercion or undue influ-
F ence. Nor do they lay down a proposition that even if the dis- t ·
charge of contract is not genuine or legal, the claims cannot be
referred to arbitration. In all the three cases, the court examined
the facts and satisfied itse!f that there was accord and satisfac-
tion or ·complete discharge of the contract and that there was
G no evidence to support the allegation of coercion/undue influ-
ence. 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 t
to spurn it on the ground that it was a mistake and proceed to
invoke the arbitration clause". But that was an observation made
H
NATIONAL INSURANCE CO. LTD. v, MIS. BOGHARA 669
POLYFAB PVT. LTD. [R.V.RAVEENDRAN, J.]

with reference to a plea of 'mistake' and not with reference to A
allegation of fraud, undue influence or coercion. It is also true
that the observations in Damodar Valley Corporation and
Jayesh Engineering Works, 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 Arbitra- 8
tor 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 neces-
sary. All those decisions were rendered in the context of the
provisions of the Arbitration Act, 1940. The perspective of the c
new Act is different from the old Act. The issue is not covered by
the decision in SBP & Co.
25. In several insurance claim cases arising under Con-
-.\ sumer Protection Act, 1986, this Court has held that if a com-
D
plainant/ 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 com- ·
plaint. In United India Insurance Co. Ltd., vs. Ajmer Singh Cot-
ton & General Mills - 1999 (6) SCC 400, this Court held : E

"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 F
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 G
satisfies the authority under the Act that the discharge voucher
i 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.
H
670 SUPREME COURT REPORTS [2008] 13 S.C.R.

A 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."

B The above principle was followed and reiterated in Na-
tional Insurance Co. Ltd. vs. Nipha Exports (P) Ltd. - 2006 (8)
SCC 156 and National Insurance Co. Ltd., vs. Sehtia Shoes -
2008 (5) sec 400. It will also not be out of place to refer to what
this Court had said in Central Inland Water Transport Corpo-
C ration Ltd. vs. Brojo Nath Ganguly - 1986 (3) SCC 156 in a
different context (not intended to.apply to commercial transac-
tions):

"(This) principle is that the courts will not enforce and will,
when called upon to do so, strike down an unfair and
D 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 visualize the different
situations which can arise in the affairs of men. One can only
E 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
contractinQ 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
F 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
G 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
H
NATIONAL INSURANCE CO. LTD. v. M/S. BOGHARA 671
POLYFAB PVT. LTD. [R.V.RAVEENDRAN, J.]

and the contract is a commercial transaction. In today's A
complex world of giant corporations with their vast infra-
structural 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 B
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] c
26. Obtaining of undated receipts-in-advance in regard to·
regular/routine payments by government departments and cor-
porate sector is an accepted practice which has come to stay
due to administrative exigencies and accounting necessities.
'I The reason for insisting upon undated voucher/receipt is that D
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 there-
after, the receipt acknowledging the amount as having been E
received on a much earlier date will be absurd and meaning-
less. 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
'1 casually, that the date is not filled even when payment is made.
F
Be that as it may. But what is of sor;ne concern is the routine
insistence by some government Departments, statutory Cor-
porations and government Companies for issue of undated 'no
due certificates' or a 'full and final settlements vouchers' acknowl-
edging receipt of a sum which is smaller than the claim in full
and final settlement of all claims, as a condition precedent for G
releasing even the admitted dues. Such a procedure requiring
-1' the claimant to issue an undated receipt (acknowledging re-
ceipt of a sum smaller than his claim) in full and final settlement,
_,
~

as a condition for releasing an admitted lesser amount, is un-
fair, irregular and illegal and requires to be deprecated. H
672 SUPREME COURT REPORTS [2008] 13 S.C.R.

A 27. 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 plaintiff, and the plaintiff alleges that it was obtained
by fraud/coercion/undue influence and therefore not valid. It
B 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
C obtained by fraud/undue influence/coercion, it will ignore the
same, examine whether 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. The
Chief Justice/his designate exercising jurisdiction under sec-
D tion 11 of the Act will consider whether there was really accord
and satisfaction or discharge of contract by performance. If the
answer is in the affirmative, he will refuse to referthe dispute to
arbitration. On the other hand, ifthe Chief Justice/his designate
comes to the conclusion that the full and final settlement receipt
or discharge voucher was the result of any fraud/coercion/un-
E due influence, he will have to hold that there was no discharge
of the contract and consequently refer the dispute to arbitration.
Alternatively, where the Chief Justice/his designate is satisfied
prima facie that the discharge voucher was not issued voluntar-
ily and the claimant was under some compulsion or coercion, 'r .
F and that the matter deserved detailed consideration, he may
instead of deciding the issue himself, refer the matter to the
arbitral tribunal with a specific direction that the said question
should be decided in the first instance.
G 28. Some illustrations (not exhaustive) as to when claims
are arbitrable and when they are not, when discharge of con-
tract by accord and satisfaction are disputed, to round up the
discussion on this subject :
(i) A claim is referred to a conciliation or a pre-iitigation
H Lok Adalat. The parties negotiate and arrive at a
r

NATIONAL INSURANCE CO. LTD. v. MIS. BOGHARA 673
POLYFAB PVT. LTD. [R.V.RAVEENDRAN, J.]

settlement. The terms of settlement are drawn up, A
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 B
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 c
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. D
(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 E
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 F
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. G
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.
H
674 SUPREME COURT REPORTS [2008] 13 S.C.R 't

A (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},
8 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
c and satisfaction in such a case is not voluntary but
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.
D (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
E 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,
., .
F
the accord and satisfaction is binding and valid and
there cannot be any subsequent claim or reference
to arbitration.
29. Let us now examine the receipt that has been taken in
G this case. It is undated and is in a pro forma furnishu(: by the
appellant containing irrelevant and inappropriate statements. It
states : "/!we hereby assign to the company, my/our right to 'i·
the affected property stolen which shall, in the event of their
recovery, be the property of the company". The claim was not
H in regard to theft of any property nor was the r.Jaim being settled
-+ NATIONAL INSURANCE CO. LTD. v. M/S. BOGHARA 675
POLYFAB PVT. LTD. [R.V.RAVEENDRAN, J.]
in respect of a theft claim. We are referring to this aspect only to A
show how claimants are required to sign on the dotted line, and
how such vouchers are insisted and taken mechanically without
application of mind.
30. The discharge voucher form was handed over to the
respondent on 21.3.2006. It was signed and delivered to the B
appellant immediately thereafter acknowledging that a sum of
Rs.2,33,94,964/- had been received from the insurer (appel-
!ant) in full and final settlement, and that in consideration of such
payment, the respondent absolved the appellant from all liabili-
ties, present and future, arising directly or indirectly, out of saidc
loss or damage under the policy. Admittedly, on the date when
such discharge voucher was signed and given by the respon-
dent, the payment of Rs.233,94,964/- had not been made. It
was made after receiving the voucher. Therefore, at the time of
signing the voucher by the respondent and at the time of deliv- D
" ery of voucher by the respondent to the appellant, the contents
of the voucher that the said amount had been received, that
such amount had been received in full and final settlement of all
claims, and that in consideration of such payment, the company
was absolved from any further liability, are all false and not sup- E
ported by consideration.
31. In this case the High Court examined the issue and
found that prima facie there was no accord and satisfaction or
..., discharge of the contract. It held that the appellant is still entitled
to raise this issue before an arbitrator and the arbitrator has to F
decide it. On the facts and circumstances and the settled posi- ·
tion of law referred by us above, we are also prima facie of the
view that there is no accord and satisfaction in this case and
the dispute is arbitrable. But it is still open to the appellant to
lead evidence before the arbitrator, to establish that there is a G
valid and binding discharge of the contract by way of accord
-f and satisfaction.
32. We therefore find no reason to interfere with the order
of the High court. The appeal is accordingly dismissed. We
H
676 SUPREME COURT REPORTS [2008) 13 S.C.R.

A make it clear nothing stated by the High Court or by us shall be
construed as expression of any final opinion on the issue
whether there was accord and satisfaction nor as expression
of any views on merits of any claim or contentions of the par-
ties.
B K.K.T. Appeal dismissed.