Award Liable To Be Set Aside When Arbitrator Fails To Consider Whether No Dues Certificate Was Voluntary Or Not: Delhi High Court

Facts

The Petitioner i.e. Bharat Heavy Electronics Limited (“BHEL”) filed the present petition under Section 34, ACA to challenge the award dated 21.01.2014 (“Award”) in favour of the Respondent i.e. M/s Koneru Constructions (“Koneru”) to the extent that Koneru was held entitled to escalation damages amounting to Rs. 72,90,719 along with interest @ 18% p.a.

The dispute related to a tender issued by BHEL for execution of civil works for Power Grid Corporation of India Ltd. Koneru was the successful bidder was awarded the work vide work order dated 21.12.2006. In terms of the work order the work was scheduled to be completed by 16.12.2007. However, the work was eventually completed by Koneru on 30.06.2010 after a delay of more than 30 months from the scheduled date of completion.

Upon the completion of the work, Koneru prepared and raised the final bill on 30.06.2010 for a sum of Rs. 58,93,917 payable by BHEL. BHEL, vide its letter dated 19.09.2011 informed Koneru that the net amount payable under the contract came to Rs. 53,76,147/-. Koneru was further requested to submit a no dues certificate, in full and final settlement of the work order mentioning the net amount payable. Accordingly, on 21.09.2011, a no dues certificate was prepared by Koneru and on 29.09.2011, the amount of Rs. 53,76,147/- was released to Koneru. However, immediately Koneru vide its letter dated 30.09.2011 raised an objection that the no dues certificate submitted was not voluntary and submitted due to financial hardship and economic duress.

On 27.12.2012, Koneru sent a notice for invocation of arbitration to BHEL purporting to raise certain claims. After the proceedings concluded, the Arbitrator proceeded to reject all the claims raised by Koneru except the claim relating to loss in escalation of rates due to abnormal prolongation of contract @ 10 % of the executed value. Feeling aggrieved, BHEL filed the instant petition.

Contentions

The Counsel for BHEL submitted that the Award is contrary to the basic notions of justice and morality. The “No Dues Certificate” had been voluntarily issued by Koneru as is established by the various correspondences between the parties. It was further argued that the final bill was prepared after due deliberations between the parties and only thereafter the “No Dues Certificate” had been issued by Koneru and the amount was released by BHEL.

The Counsel for BHEL contended that Koneru was unable to establish that the said “No Dues Certificate” had been obtained under duress, coercion or undue influence or financial stress. Accordingly, the contract between the parties stood discharged and no arbitrable dispute subsisted between the parties. Having given a “No Dues Certificate” voluntarily, Koneru is not entitled to raise even a genuine claim thereafter.

The Counsel for Koneru submitted that the “No Dues Certificate” which was issued under duress and coercion by withholding payment of the final bill could not be construed as resulting in “accord and satisfaction” of the contract between the parties. In such a situation, there was no bar or extinguishment of arbitrable claims.

Additionally, it was argued that there was no negotiated or voluntary agreement entered into between the parties and the “No Dues Certifcate” was issued at the instance of and as per the format of BHEL. Thus, Koneru's plea of economic duress, coercion and undue influence was correct and not an “afterthought”.

Observations

The Court observed that the central issue for Court's consideration was whether the furnishing of a “No Dues Certificate” precluded Koneru from raising a claim in arbitration. According to the Court, this was a mixed question of law and fact which required the Arbitrator not only analyse the legal position but also to consider the relevant factual aspects. The Arbitrator was expected to consider the divergent stands taken by the parties in their respective pleadings on this issue.

The Court observed that if the No Dues Certificate was given by Koneru of its own free will and violation, then this fact would certainly have bearing on whether Koneru was entitled to raise claims in derogation of the same. The Court discussed various precedents on this point including Chairman and MD, NTPC v Reshmi Constructions Builders (2004) 2 SCC 663.

Analysing the position of law laid down in the precedents, the Court observed that the Sole Arbitrator was required to give a finding on the issue as to whether the No Dues Certificate was given voluntarily or whether it was a product of duress/coercion. The Court perused the Award and observed that the Award did contain observations which impliedly negated the contention of Koneru. The Arbitrator had observed that “the final bill dated 19.09.2011 had been signed by the Claimant without even a whiff of protest”. However, despite making this observation, the Award does not provide any other details on this aspect of the matter.

The Court further observed that apart from citing precedents, no specific factual finding was recorded taking into account the divergent position taken by the parties in their pleadings. Thus, the Court concluded that to this extent that the Award was clearly unreasoned. In view of the above, the Court set aside the Award to the extent it awarded Koneru 10% of the value executed. Accordingly, the present petition was allowed.

Case Title – BHEL v Koneru

Case No. – O.M.P (COMM) 255/2020

Appearance-

For Petitioner –

Mr. Sanjeev Anand, Sr. Advocate along with Mr. Pallav Kumar, Mr. Dibya Nishant, Ms. Khushbu Dwivedi and Ms. Farheen Pensale, Advocates

For Respondent – Ms. Monika Arora (CGSC) along with Mr. Subrodeep Saha and Ms. Radhika Kurduka, Advocates. Mr. Dharmesh Misra, Sr. Advocate along with Mr. Raghav Tiwari and Mr. Prateek Gupta, Advocates.

Date – 26.11.2025

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