Decided on November 14,1969



- (1.) THE non-applicant-Company takes building contracts. It entered into a contract with the applicant-Hindustan Steel Limited for construction of 624 units of single-roomed quarters in the Second and Fourth Sector in bhilainagar. On 20-9-1962 the work was completed. On 10-7-1963 the measurements taken by the Hindustan Steel Limited were accepted by the representative of the non-applicant-Company and on the basis of the said measurements the bills were prepared and payments were made in final discharge of the contract. On 18-10-1963 the partner of the non-applicant-Company made the following endorsement: "certified that the final bill, measurements and recoveries thereon are accepted in full and final settlement of this contract. Further it is certified that we have no other claims whatsoever in respect of this work after payment of this Hand Receipt " The actual payment of Rs. 1,95,580 was made on 22-10-1963. These facts are not disputed. It appears that under the contract the contractor-Company was required to make miscellaneous deposits and was also required to deposit certain amount towards royalty for the material removed from Government quarries. These deposits were returned to the contractor on 11-12-1964 and 12-5-1965. On 28-3-1966 the contractor-Company, however, served a notice on the Hindustan Steel Limited calling upon it to appoint an Arbitrator as the company had decided to refer the matter to arbitration under clause 61 of the contract, as certain dues amounting to over Rs. 65,000 with interest thereon remained to be recovered from the Hindustan Steel Limited. In reply to that notice, the Hindustan Steel Limited informed that they were nominating an arbitrator on their side, but at the same time protested that inasmuch as the contract was finally settled, no reference to arbitration could be made under clause 61 of the contract. On 10-5-1966 the non-applicant-Company filed a claim before the Arbitrators. Before the Arbitrators also the Hindustan steel Limited protested that they had no jurisdiction to proceed with the arbitration ; but as their contention was overruled by the Arbitrators, the Hindustan Steel Limited filed an application under section 33 of the Arbitration Act claiming therein that inasmuch as there had been full and final settlement of the contract on 22-10-1963, the contract stood fully settled and discharged and the arbitration agreement contained in clause 61 of the General Conditions of the Contract was extinguished and that the Arbitrators had no jurisdiction to adjudicate upon the claim preferred by the non-applicant Company. Learned district Judge, Durg, however, rejected the application on the ground that the so-called endorsement by the partner of the Company witnessing full and final satisfaction of the contract was merely formal and was given under duress and that the agreement still survived. The Hindustan Steel Limited has, therefore, preferred this revision challenging the order of the learned District Judge.
(2.) THE learned District Judge held that from the endorsements of the parties it did appear that apparently the intention of the parties was to dissolve the contract and extinguish it. but the District Judge posed a further question : whether the intention was real? The learned District Judge observed that though on the face of it a document may appear to be clear. there may be ambiguities or equivocations and extrinsic evidence was admissible in such cases. The allegation of the contractors that they made the endorsement pertaining to the discharge of the contract under duress, pressure and out of fear that they would be harassed with regard to other contracts and that they would be otherwise refused payments was held to be plausible because even after the final payment on 22-10-1963, on two occasions, that is, on 11-12-1964 and 12-5-1965 certain payments were made to the contractors. These circumstances clearly indicated that the endorsements by the parties on the document in question were merely formal in nature and the parties in fact had not intended to extinguish the contract, and that the parties by their conduct kept the contract alive. In this view of the matter, it was held that since the contract was subsisting, the arbitration clause also continued and the dispute raised by the contractors could be referred to the Arbitrators. Now, the words in the endorsement, referred to above, are quite clear. There is neither any ambiguity, latent or patent, in the endorsement. No extrinsic evidence was, therefore, admissible to show any such ambiguity. Apart from this, the two subsequent payments, referred to by the District Judge, are not with respect to the work done by the contractors for which they were to be made payment under the contract in question. The payments only represented the return of the deposits which they had made with the Hindustan steel Limited from time to time. That cannot furnish any evidence to show that the endorsement was merely formal. Now, whether the extinction of the contract was brought about by the fraud of a party cannot be a matter which can be decided by the Arbitrators because their jurisdiction depends on the existence of the contract. Whether the contract existed or not can only be decided by the civil Court. The proper remedy in such cases is to move the civil Court for a declaration that the extinction of the contract was brought about by fraud by a party. The allegation that it was brought about by fraud cannot confer any, jurisdiction on the Arbitrators.
(3.) IT was also pointed out to me by Shri Khaskalam, learned counsel for, the applicant-Hindustan Steel Limited, that the allegation about subsequent payments having been made was made by the non-applicant Company, for the first time, in an affidavit filed before the District Judge after the case was closed, for orders and that was done behind the back of the Hindustan Steel Limited. and that the Hindustan Steel Limited had n6 opportunity to explain as to under what circumstances such payments were made.;

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