Concept of economic duress- when the discharge/final and full settlement letter was excuted involutarly – he is entitled for appointment of arbitrator under sec.11[6] for ascertaing his claim The Oriental Insurance Co. Ltd (hereafter “the insurer” or “the appellant”) appeals the decision of a single judge of the Bombay High Court, who allowed the respondent’s application under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereafter “the Act”) and appointed an arbitrator. – The insurer’s objection about maintainability of the application on the ground that the respondent (hereafter “Dicitex”) had signed the discharge voucher and accepted the amount offered, thus, signifying accord and satisfaction, which in turn meant that there was no arbitrable dispute, was rejected. Apex court held that An overall reading of Dicitex’s application (under Section 11(6)) clearly shows that its grievance with respect to the involuntary nature of the discharge voucher was articulated. It cannot be disputed, that several letters – spanning over two years­ stating that it was facing financial crisis on account of the delay in settling the claim, were addressed to the appellant. This court is conscious of the fact that an application under Section 11(6) is in the form of a pleading which merely seeks an order of the court, for appointment of an arbitrator. It cannot be conclusive of the pleas or contentions that the claimant or the concerned party can take, in the arbitral proceedings. At this stage, therefore, the court­ which is required to ensure that an arbitrable dispute exists, has to be prima facie convinced about the genuineness or credibility of the plea of coercion; it cannot be too particular about the nature of the plea, which necessarily has to be made and established in the substantive (read: arbitration) proceeding. If the court were to take a contrary approach and minutely examine the plea and judge its credibility or reasonableness, there would be a danger of its denying a forum to the applicant altogether, because rejection of the application would render the finding (about the finality of the discharge and its effect as satisfaction) final, thus, precluding the applicant of its right event to approach a civil court. There are decisions of this court (Associated Construction v Pawanhans Helicopters Ltd. (2008) 16 SCC 128 and Boghara Polyfab (supra) upheld the concept of economic duress. Having regard to the facts and circumstances, this court is of the opinion that the reasoning in the impugned judgment cannot be faulted.

1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL No. 8550 OF 2019
(ARISING OUT OF SLP (C) NO. 34186 OF 2015)
THE ORIENTAL INSURANCE CO. LTD.
& ANR. …APPELLANTS
VERSUS
DICITEX FURNISHING LTD. …RESPONDENT

J U D G M E N T
S. RAVINDRA BHAT, J.

  1. Leave granted. With the consent of counsel, the appeal was
    heard finally. The Oriental Insurance Co. Ltd (hereafter “the
    insurer” or “the appellant”) appeals the decision of a single judge
    of the Bombay High Court, who allowed the respondent’s
    application under Section 11(6) of the Arbitration and
    Conciliation Act, 1996 (hereafter “the Act”) and appointed an
    2
    arbitrator. The insurer’s objection about maintainability of the
    application on the ground that the respondent (hereafter
    “Dicitex”) had signed the discharge voucher and accepted the
    amount offered, thus, signifying accord and satisfaction, which in
    turn meant that there was no arbitrable dispute, was rejected.
  2. The relevant facts in this appeal are that on 17.09.2011,
    Dicitex obtained a Standard Fire and Special Peril Policy; it was
    issued by the appellant to cover the stocks of goods lying in its
    three separate godowns located at Thane, Maharashtra, by three
    separate endorsements. The total sum insured was @ 13 crores. ₹
    Clause 13 of the terms and conditions of the said policy
    contained an arbitration clause. On 25.05.2012, a fire broke out
    at night on the ground floor of the building occupied by RFCL,
    which fire spread to the first floor of the building and completely
    engulfed all of the appellant’s three godowns which had stored its
    goods. All the stocks in all the three godowns were completely
    destroyed. Dicitex informed the appellant on 26.05.2012, about
    the fire and the consequential loss. The appellant appointed M/s.
    C.P. Mehta & Co. as Surveyors and Assessors to survey the loss
    suffered by Dicitex and to report on the claim to be lodged upon
    3
    the insurer­appellant, by the said company. Dicitex lodged a total
    and final claim upon the appellant for a sum of 14,88,14,327/­ ₹
    comprising 13,52,85,752/­ towards cost of the materials ₹
    destroyed and 1,35,28,575/­ as overheads. Dicitex claims also ₹
    to have submitted comprehensive documentary evidence and
    detailed work sheets in support of the claim made to the insurer.
    On 14.08.2012, after visiting Dicitex’s factory and the godowns,
    and after scrutinizing the materials submitted by it in support of
    its claim, the Surveyor appointed by the insurer filed a Final
    Survey Report recommending that the claim be settled for an
    amount of 12,93,26,704.98/­ and that after deducting an ₹
    amount of 5% towards compulsory deduction for excess, a net
    amount of 12,28,60,369/­ be paid over to Dicitex. The latter ₹
    alleged that a copy of this survey report was not supplied to it, by
    the insurer, or the surveyor.
  3. On 20.09.2012, Dicitex addressed a letter to the appellant’s
    chairman, informing him of the financial distress that it was
    facing, requesting for settlement of the claim on priority basis.
    Dicitex also informed him about a temporary loan obtained ­to
    the tune of 10 crores­ from Union Bank of India for 3 months at ₹
    4
    a high rate of interest which was due for repayment in September
    2012 and requested him that it would be a great financial help if
    its claim could be settled on priority basis which would mitigate
    their hardship. Again, on 25.10.2012, Dicitex informed the
    insurer that the sale value of the goods destroyed was above 19 ₹
    crores and that it had not only lost its goods but also its profits.
    Dicitex informed that it had already submitted all the
    documentary evidence supporting the claim to the Surveyor,
    M/s. C.P. Mehta & Co., yet another letter was addressed to the
    appellant’s chairman on 31.10.2012 placing on record that it had
    understood from the surveyor M/s. C.P. Mehta & Co. that the
    Head Office of the appellant asked for some more information in
    connection with the claim. Dicitex stated that compiling,
    organizing and sending various documents totalling around
    35,000 in number, entailed voluminous work. It was stated that
    the surveyor had already gone through those documents and had
    picked up at random, sample of various concerned records.
    Dicitex stated that it was arranging to compile the documents
    and agreed to send them to the surveyor as soon as possible. In
    other letters (dated 10.01.2012, 28.01.2013), again requests were
    5
    made to the insurer to release the amounts. Apparently, the
    appellant appointed a Chartered Accountant (M/s Naveen Jhand
    & Associates) to carry out a resurvey of the claim made by it
    (Dicitex). The latter had already furnished 37,700 documents
    physically, which showed the exact quantity of furnishing fabrics
    in meters. Dicitex brought to the notice of the Chairman­cumManaging Director that the new surveyors had asked for large
    number of documents again and such documents could not be
    supplied. On 09.02.2013, addressing the new surveyor M/s
    Naveen Jhand, Dicitex submitted 37,700 documents and
    submitted further documents to the said new surveyor. It
    submitted that since the previous 9 months, it had been
    providing different documents/information to different people
    and submitted whatever was requested by the new surveyor in
    broader form and requested them to submit their report at the
    earliest.
  4. In accordance with the format sent by the insurer and after
    obtaining Dicitex’s signature, a cheque for 3.5 crores was ₹
    handed over to it. Dicitex signed the discharge voucher on
    04.03.2013, when the insurer paid the said sum of 3.5 crores to ₹
    6
    Dicitex as ‘on account payment’ in the matter of its claim. Union
    Bank of India endorsed the said discharge voucher. According to
    Dicitex, all data that was requisitioned by the new surveyor, was
    provided by it. Several meetings took place between the
    representatives of the new surveyor, the appellant and Dicitex.
    Dicitex, mentioned several letters to the appellant, and the
    surveyor, in 2013 regarding the release of the amounts. Dicitex
    had also stated that it felt strongly that the new surveyor was
    just not satisfied with whatever was provided by it though all the
    data it submitted had proved its genuine claim and the intention
    of the new surveyor was to somehow reduce the claim. In other
    letters (such as the one dated 21.02.2014), Dicitex informed the
    appellant that the surveyor was refusing to commit to any fixed
    date within which they would be submitting their report and also
    the appellant’s officials had no answers to its questions with
    regard to when its claim would be settled. Dicitex requested the
    General Manager to set a deadline to settle their claim at the
    earliest. It wrote several letters to the appellant’s officers about
    the huge financial losses suffered by it due to delay in settlement
    7
    of the claim. Dicitex informed the General Manager to settle the
    claim within 15 days.
  5. On 27th May, 2014, Dicitex received an email from the
    appellant stating that a discharge voucher for the balance
    amount of the claim payable as described was being enclosed. It
    was requested to execute the voucher along with the bank’s
    discharge on the space earmarked on the left side and send the
    scanned copy back. By the email dated 28.05.2014, Dicitex
    replied to the email of 27.05.2014 and referred to the discharge
    voucher sent by the appellant to it for signature. Dicitex placed
    on record that its total claim was approximately 15 crores and ₹
    the surveyor had assessed the same at approximately 12.93 ₹
    crores. Dicitex stated that the basis for arriving at the figure of
    ₹7.16 crores was not explained (by the appellant). It requested
    the Regional Manager of the appellant to provide the claim
    assessment working for their understanding to enable Dicitex to
    take up the matter with their Board of Directors for
    consideration. The appellant, by email dated 29.05.2014, alleged
    that M/s. C. P. Mehta & Co. had initially assessed the loss at
    ₹12,28,60,369/­. However, it had certain issues on the costing;
    8
    it, therefore, appointed M/s. Naveen Jhand and Associates to
    have another look at the costing aspect and reconfirm/verify the
    costing for loss assessment purpose. According to the said report
    submitted by M/s. Naveen Jhand and Associates, the assessment
    worked to 7,16,30,148/­ and accordingly, the competent ₹
    authority had granted the claim. The appellant enclosed the
    working of the claim and requested Dicitex to go through it and
    send an unconditional discharge voucher duly signed by it and
    the bankers. Dicitex, the insured did not do so and informed the
    appellant that it had noticed that what was given was just a
    statement of calculation, without explanation/basis, that
    adjustments had resultant deductions in Dicitex’s claim by more
    than 50% as assessed by the surveyor appointed by the
    appellant. Dicitex stated that since the appellant had taken 2
    years to offer the final settlement of the claim, it (Dicitex) was
    suffering from a huge financial constraint and had to pay bank
    interest and installments, salaries and wages, hence, it was left
    with no alternative but to accept the offer of the appellant
    reluctantly and was accordingly sending the voucher duly
    discharged by Dicitex and their bankers for doing the needful.
    9
    Dicitex alleged that since the appellant did not relent, and
    insisted that any further payment would be made only if the
    discharge voucher was executed exactly at the time and in the
    form and manner as required by it as well as the letter dated
    31.05.2014 was withdrawn. Dicitex stated that as it was in
    urgent need of funds to meet its mounting liabilities, it was
    coerced into withdrawing its earlier letter of 31.05.2014 and in
    executing the discharge voucher exactly as dictated by the
    respondents. By the letter dated 06.06.2014, addressed to the
    Regional Manager, Dicitex withdrew the letter dated 31.05.2014
    submitted along with the discharge voucher for a full and final
    settlement of their claim. It requested the appellant to remit the
    claim amount immediately. The discharge voucher was on the
    letter head of the appellant, duly endorsed by Dicitex’s bankers.
    In the discharge voucher, it was recorded that it accepted a sum
    of 3,66,30,148/­ in full and final settlement of its claim. It was ₹
    also recorded that Dicitex voluntarily gave discharge receipt in
    full and final settlement of their claim, present or future, arising
    directly/indirectly in respect of the said loss/accident and
    subrogated all their rights and remedies to appellant in respect of
    10
    the loss/damages. Further correspondence ensued whereby
    Dicitex informed the appellant that since there was a huge
    difference between the total amount claimed by it, and the final
    claim settlement amount by the appellant, the same was required
    to be discussed and resolved, failing which Dicitex would be
    required to invoke the arbitration, as per clause 13 of the terms
    and conditions attached to the policy. The appellant, by the letter
    dated 17.07.2014 addressed to Dicitex, informed that it was
    surprised by the proposal to invoke arbitration after the clean
    discharge voucher was signed for the sum of 7,16,30,148/­ in ₹
    full and final settlement of the said loss. The respondents denied
    that there existed any dispute of quantum in respect of the said
    claim and contended that the amount due to Dicitex arising out
    of indemnity, arising from the policy was duly verified and
    assessed based on the documents submitted by Dicitex. The
    appellant did not agree to Dicitex’s request for any differential
    amount or request for proceeding for arbitration under the policy.
    On 24.07.2014, by a letter addressed to the appellant, Dicitex
    denied that the amount received by it was a clean discharge
    voucher in full and final settlement of their claim and reiterated
    11
    that it suffered a major loss of 14,16,94,329/­. The surveyor, ₹
    M/s. C.P. Mehta & Co. had submitted their report assessing the
    loss at 12.93 crores. Dicitex also placed on record that as ₹
    against approximately the claim of 14.70 crores, the appellant ₹
    released only 3.50 crores on 04.03.2013 i.e. almost 10 months ₹
    after the loss had occurred, and after a lapse of 27 months, the
    appellant made “a take it or leave it” offer of 7.16 crores towards ₹
    full and final settlement of their claim, the discharge was
    accepted reluctantly by it. Dicitex alleged that upon meeting the
    appellant’s officers, it was instructed to withdraw the letter of
    protest and accept the claim settlement unconditionally which
    was a proof of coercion.
  6. The position taken by the appellant was that Dicitex was
    paid 7,16,30,148/­ in a clean discharge and full and final ₹
    settlement of their claim and there existed no dispute with regard
    to the quantum of claim and refused to appoint any arbitrator. In
    these circumstances, Dicitex approached the Bombay High Court
    under Section 11(6) of the Act, for appointment of an arbitrator.
    Dicitex relied on the assessment of M/s C.P. Mehta & Co., which
    had assessed the loss at 12.93 crores. It contended that the ₹
    12
    appellant released only 3.50 crores on 4.03.2013 i.e. almost 10 ₹
    months after the loss suffered by Dicitex due to fire, and only
    after a lapse of 27 months made “a take it or leave it” offer of
    ₹7.16 crores towards full and final settlement of their claim.
    Dicitex stated that it had taken a loan of a substantial amount
    and had to bear the extra burden of high interest and found itself
    defaulting on timely loan repayments. It was further submitted
    that Dicitex was unable to pay income tax on time, as a result of
    which, it had to pay a sum of 23.90 lacs in the year 2012­2013 ₹
    and a sum of 11.10 lakhs in the year 2013­2014 towards ₹
    interest for the delayed payments of income tax. It was also
    argued, on behalf of Dicitex, that it was subjected to economic
    duress and coercion which resulted in the signing of the
    discharge voucher, which could not preclude its invocation of the
    arbitration agreement.
  7. The appellant resisted the application, contending that
    Dicitex had not demonstrated whether the second discharge
    voucher signed by it was under economical or financial duress
    under the arbitration agreement. It was urged that since Dicitex
    had signed the discharge voucher and accepted the payment
    13
    made by the respondents unconditionally and confirmed that the
    said payment was received in full and final settlement of their
    claim, present or future, arising directly/indirectly in respect of
    the said loss/accident and subrogated all their rights and
    remedies to the appellant in respect of the loss/damages, there
    exists no dispute between the parties which can be referred to
    arbitration. It was argued that Dicitex having signed the
    discharge voucher for 7,16,30,148/­ in full and final settlement ₹
    due to alleged loss suffered by Dicitex, the arbitration application
    was not maintainable. It was submitted that the appellant had
    replied to the letter dated 21.06.2014 stating that Dicitex had
    withdrawn only discharge voucher dated 31.05.2014. The
    appellant also stated that in the arbitration agreement itself,
    Dicitex had to explain the exact correctness of the allegation of
    coercion and duress with details and particulars about signing
    the discharge voucher. It was further contended that though the
    payment was received by Dicitex on 09.06.2014, it raised protest
    only on 21.06.2014. Even in the letter dated 21st June 2014,
    Dicitex referred to the discharge voucher dated 31.05.2014 which
    was not admittedly acted upon by the insurer. Dicitex did not
    14
    resile from the discharge voucher dated 31.05.2014, and thus on
    that ground also, this arbitration application is not maintainable.
  8. The appellant relied on some decisions of this court (New
    Indian Assurance Co. Ltd v Genus Power Infrastructure Ltd. (2015)
    2 SCC 424. National Insurance Co. Ltd v Boghara Polyfab Pvt
    Ltd (2009) 1 SCC 267; Union of India (UOI) and Ors. v Master
    Construction Co. (2011) 12 SCC 349 etc.
  9. In the impugned judgment, while allowing the application,
    the single judge analysed the decisions of this court, including
    Boghara Polyfab (supra). It was noted that a perusal of the
    correspondence prima facie indicated that the first surveyor
    appointed by the insurer had recommended the payment of more
    than 12 crores in favour of Dicitex. For some reasons, the ₹
    appellant did not accept the said report submitted by their own
    surveyor and instead appointed M/s Naveen Jhand and
    Associates to re­compute the costings. It was also held that
    Dicitex had furnished more than 37,700 documents to the
    surveyor for their appraisal for submitting the report. Dicitex had
    placed on record from time to time, documents to show that it
    had taken loans from the banks who were pressurising it for
    15
    repayment of those loans and interest. The account of Dicitex
    with those banks had drawn the excess amount. The final
    amount was sanctioned by the respondents only after 27 months
    of the fire having taken place, which caused loss to Dicitex.
    Dicitex had produced about 11 letters addressed by the banks to
    Dicitex, calling upon Dicitex to regularize their bank accounts
    and showing the excess amount drawn by it in various accounts.
    Dicitex had also placed on record, the conduct of the second
    surveyor, who was, according to it, demanding several other
    documents which were unwarranted and/or already submitted
    by it. The learned judge noticed that prima facie, Dicitex was
    facing financial distress and economical duress and in view of its
    various urgent business liabilities, it apparently signed the said
    discharge voucher reluctantly. It is not in dispute that the
    appellant refused to accept such discharge voucher signed by
    Dicitex with letter of protest. Therefore, a few days later, a
    discharge voucher was signed by Dicitex. It was, however,
    Dicitex’s case that the appellant had insisted upon it to sign a
    clean discharge voucher and to withdraw the letter of protest
    addressed by it, failing which, the insurer would not release the
    16
    amount, even that was reflected in the discharge voucher. Dicitex
    thereafter withdrew the letter dated 31.05.2014, and signed
    another discharge voucher. After signing another discharge
    voucher, Dicitex placed on record their objection that the same
    was signed due to pressure of the respondents.
  10. In view of the analysis made, the single judge allowed the
    application, observing as follows:
    “57. On perusal of the large number of
    correspondence exchanged between Dicitex and
    the respondents which were not disputed by the
    respondents, in my prima facie view, it indicates
    that Dicitex was facing the financial constraint
    and economical and financial duress on the part
    of the respondents in not sanctioning and paying
    the final claim for 27 months from the date of fire.
    Dicitex having faced pressure from their bankers
    and suffering from other business liabilities
    including the demand of income tax department,
    Dicitex was under the economical and financial
    duress and the said discharge voucher thus, in
    my prima facie view, cannot be considered as an
    unconditional discharge voucher thereby Dicitex
    giving up their claim in future arising out of the
    said discharge voucher.
  11. In my view, if Dicitex would not have signed
    such discharge voucher acknowledging the
    payment of the lesser amount than what was
    alleged to be due to Dicitex after 27 months of the
    loss suffered, the respondents would not have
    released even the said amount mentioned in the
    discharge voucher. In my view, if according to the
    17
    respondents, Dicitex was not entitled to recover
    the amount as claimed by Dicitex, but the lesser
    amount, the respondents could have released the
    amount as payable according to the respondents,
    but could not have insisted for execution of a
    discharge voucher as a pre­condition before
    releasing such payment.
  12. Learned counsel for the respondents could not
    refer to any provision in the insurance policy or
    any other provision of law in support of their claim
    that the respondents were entitled to insist for
    execution of such discharge voucher before
    releasing any payment in favour of Dicitex with a
    confirmation not to make any claim in future
    arising out of the said claim. The Supreme Court
    has already deprecated the practice followed by
    the government departments, statutory
    corporations and government companies for
    obtaining such undated discharge voucher as the
    condition for releasing lesser amount and has
    held that the said procedure is unfair, irregular
    and illegal. Though the Chief Justice or his
    designate is empowered to decide the issue as to
    whether the parties had concluded the contract by
    recording satisfaction of their mutual rights and
    obligations thereby receiving the final payment
    without objection based on the affidavits and the
    pleadings or can leave the said issue to be
    decided by the arbitral tribunal, in my view, it
    would be appropriate if the issue raised by the
    respondents that Dicitex had signed such
    discharge voucher unconditionally and the issue
    raised by Dicitex that the same was under duress
    and coercion is conclusively decided by the
    arbitral tribunal and if necessary, by leading oral
    evidence. The learned designate of the Chief
    Justice in case of M/s.Yasho Industries Pvt. Ltd.
    Vs. The New India Assurance Company Limited in
    18
    Arbitration Petition No.314 of 2014 decided on
    24th June 2015 which is relied upon by one of the
    party has taken a similar view. Special Leave
    Petition against the said order is rejected.
  13. In so far as the issue of arbitrability of the
    claim raised by the respondents on the ground
    that Dicitex proposed to make the claim amount
    higher than the insured sum is concerned, if any
    claim higher than the insured sum is made by
    Dicitex before the arbitral tribunal, the
    respondents can raise such issue of arbitrability
    and the same can be decided by the arbitral
    tribunal. The issue of arbitrability of claim on such
    ground cannot be decided in these proceedings.
  14. Clause 13 of the arbitration agreement of the
    policy which provides that if any dispute or
    difference shall arise as to the quantum to be paid
    under the policy, such difference shall be referred
    to the decision of a sole arbitrator to be appointed
    in writing by the parties or if they cannot agree
    upon a single arbitrator within 30 days of any
    party invoking arbitration, the same shall be
    referred to a panel of three arbitrators. Since the
    respondents have refused to appoint any
    arbitrator out of the names suggested by Dicitex in
    their letter dated 14th July 2014 and had not
    suggested any other name, this application filed
    under Section 11 (6) of the Arbitration Act is
    maintainable. In my view, the arbitration
    agreement exists between the parties.”
  15. The appellant urges that the impugned judgment is
    erroneous. It is pointed out that the effect of the decisions in
    Boghara Polyfab, Master Construction and Genus Power
    Infrastructure (supra) and having regard to the facts
    19
    and circumstances of this case, there can be no question
    that any arbitrable dispute existed between the parties.
    Having accepted the proffered amounts, and having
    withdrawn the reservation and protest, Dicitex could not
    have argued that it was subjected to coercion or that the
    appellant forced it to sign the final discharge voucher.
    Emphasis is placed on Dicitex’s letter dated 06.06.2014,
    whereby it withdrew the previous letter dated 31.05.2014,
    which had contained reservations about the amount offered
    in full settlement.
  16. Counsel for Dicitex urges that this court should not
    interfere with the impugned judgment. It was urged that the
    material in the form of the record, particularly the
    consistent trend of letters, prior to the letter of 06.06.2014
    as well as the correspondence after that, clearly reveal that
    Dicitex was undergoing severe financial crisis and that the
    prolonged process of settlement claim constrained it to issue
    the said letter of 06.06.2014. However, the fact remained
    that at the relevant time, it faced a crisis of existence. Its
    acceptance was under financial compulsion which
    20
    amounted to economic coercion. Therefore, the learned
    single judge very properly analysed all these materials and
    held that prima facie, there was no full and final settlement
    or discharge.
    Analysis & Conclusions
  17. The main theme of the appellant’s argument in this
    case is that Dicitex could not have invoked the arbitration
    clause, since it had fully and finally accepted the amount
    offered (i.e..) and withdrawn its protests and reservations,
    by the letter dated 06.06.2014. It cites the decisions in
    Boghara Polyfab, Master Construction and Genus Power
    (supra) in this regard.
  18. The issue of the court’s jurisdiction to examine
    whether a dispute is arbitrable, in the context of no
    objection certificates or discharge vouchers, was examined
    in Boghara Polyfab for the first time. This court in the
    context of an application under Section 11(6) dealt with the
    issue, holding that if there was accord and satisfaction due
    to a no dues certificate, a reference under Section 11 was
    not maintainable. It held, inter alia, that:
    21
    “51. 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 the
    plaintiff, and the plaintiff alleges that it was
    obtained by fraud/coercion/undue influence and
    therefore not valid. It 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
    obtained by fraud/undue influence/coercion, it
    will ignore the same, examine whether the
    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.
  19. Some illustrations (not exhaustive) as to when
    claims are arbitrable and when they are not,
    when discharge of contract by accord and
    satisfaction are disputed, to round up the
    discussion on this subject:
    (i) A claim is referred to a conciliation or a prelitigation Lok Adalat. The parties negotiate and
    arrive at a settlement. The terms of settlement are
    drawn up 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 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
    22
    is paid and the contractor also issues a 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.
    (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 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 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. 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.
    (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), 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 and satisfaction in such a case
    23
    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.
    (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 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, the accord and satisfaction is binding
    and valid and there cannot be any subsequent
    claim or reference to arbitration.
  20. Let us now examine the receipt that has been
    taken in this case. It is undated and is in a pro
    forma furnished by the appellant containing
    irrelevant and inappropriate statements. It states:
    “I/we hereby assign to the company, my/our right
    to the affected property stolen which shall, in the
    event of their recovery, be the property of the
    company”. The claim was not in regard to theft of
    any property nor was the claim being settled in
    respect of a theft claim. We are referring to this
    aspect only to show how claimants are required to
    sign on the dotted line, and how such vouchers
    are insisted and taken mechanically without
    application of mind.”
  21. In Master Construction (supra), this Court held that:
    24
    “20. The Bench in Boghara Polyfab Private Limited
    in paragraphs 42 and 43, with reference to the
    cases cited before it, inter alia, noted that there
    were two categories of the cited cases; (one)
    where the Court after considering the facts found
    that there was a full and final settlement resulting
    in accord and satisfaction, and there was no
    substance in the allegations of coercion/undue
    influence and, consequently, it was held that
    there could be no reference of any dispute to
    arbitration and (two) where the court found some
    substance in the contention of the claimants that
    no dues/claim certificates' orfull and final
    settlement discharge vouchers’ were insisted and
    taken (either in printed format or otherwise) as a
    condition precedent for release of the admitted
    dues and thereby giving rise to an arbitrable
    dispute.
  22. In Boghara Polyfab Private Limited, the
    consequences of discharge of the contract were
    also considered. In para 25 (page 284), it was
    explained that when a contract has been fully
    performed, then there is a discharge of the
    contract by performance and the contract comes to
    an end and in regard to such a discharged
    contract, nothing remains and there cannot be any
    dispute and, consequently, there cannot be
    reference to arbitration of any dispute arising from
    a discharged contract. It was held that the
    question whether the contract has been
    discharged by performance or not is a mixed
    question of fact and law, and if there is a dispute
    in regard to that question, such question is
    arbitrable. The Court, however, noted an exception
    to this proposition. The exception noticed is that
    where both the 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 disputes,
    25
    courts will not refer any subsequent claim or
    dispute to arbitration. Yet another exception noted
    therein is with regard to those cases where one of
    the parties to the contract issues a full and final
    discharge voucher (or no­dues certificate, as the
    case may be) confirming that he has received the
    payment in full and final satisfaction of all claims,
    and he has no outstanding claim. It was observed
    that issuance of full and final discharge voucher
    or no­dues certificate of that kind amounts to
    discharge of the contract by acceptance or
    performance and the party issuing the discharge
    voucher/certificate cannot thereafter make any
    fresh claim or revive any settled claim nor can it
    seek reference to arbitration in respect of any
    claim.
  23. In paragraph 26 (pages 284­285), this Court in
    Boghara Polyfab Private Limited held that if a
    party which has executed the discharge
    agreement or discharge voucher, alleges that the
    execution of such document was on account of
    fraud/coercion/undue influence practiced by the
    other party, and if that party establishes the
    same, then such discharge voucher or agreement
    is rendered void and cannot be acted upon and
    consequently, any dispute raised by such party
    would be arbitrable.
  24. In paragraph 24 (page 284) in Boghara
    Polyfab Private Limited, this Court held that a
    claim for arbitration cannot be rejected merely or
    solely on the ground that a settlement agreement
    or discharge voucher has been executed by the
    claimant. The Court stated that such dispute will
    have to be decided by the Chief Justice/his
    designate in the proceedings under Section 11 of
    the 1996 Act or by the Arbitral Tribunal.
  25. In our opinion, there is no rule of the absolute
    kind. In a case where the claimant contends that
    26
    a discharge voucher or no­claim certificate has
    been obtained by fraud, coercion, duress or undue
    influence and the other side contests the
    correctness thereof, the Chief Justice/his
    designate must look into this aspect to find out at
    least, prima facie, whether or not the dispute is
    bona fide and genuine. Where the dispute raised
    by the claimant with regard to validity of the
    discharge voucher or no­claim certificate or
    settlement agreement, prima facie, appears to be
    lacking in credibility, there may not be necessity
    to refer the dispute for arbitration at all. It cannot
    be overlooked that the cost of arbitration is quite
    huge ­ most of the time, it runs in six and seven
    figures. It may not be proper to burden a party,
    who contends that the dispute is not arbitrable on
    account of discharge of contract, with huge cost of
    arbitration merely because plea of fraud, coercion,
    duress or undue influence has been taken by the
    claimant. A bald plea of fraud, coercion, duress or
    undue influence is not enough and the party who
    sets up such plea must prima facie establish the
    same by placing material before the Chief
    Justice/his designate. If the Chief Justice/his
    designate finds some merit in the allegation of
    fraud, coercion, duress or undue influence, he
    may decide the same or leave it to be decided by
    the Arbitral Tribunal. On the other hand, if such
    plea is found to be an after­thought, make­believe
    or lacking in credibility, the matter must be set at
    rest then and there.”
  26. In Genus Power (supra), the relevant observations of
    this court are as follows:
    “8. It is therefore clear that a bald plea of fraud,
    coercion, duress or undue influence is not enough
    and the party who sets up a plea, must prime
    facie establish the same by placing material
    27
    before the Chief Justice/his designate. Viewed
    thus, the relevant averments in the petition filed
    by the Respondent need to be considered, which
    were to the following effect:
    *
    (g) That the said surveyor, in connivance with the
    Respondent Company, in order to make the
    Respondent Company escape its full liability of
    compensating the Petitioner of such huge loss,
    acted in a biased manner, adopted coercion
    undue influence and duress methods of assessing
    the loss and forced the Petitioner to sign certain
    documents including the Claim Form. The
    Respondent Company also denied the just claim
    of the Petitioner by their acts of omission and
    commission and by exercising coercion and undue
    influence and made the Petitioner Company sign
    certain documents, including a pre­prepared
    discharge voucher for the said amount in
    advance, which the Petitioner Company were
    forced to do so in the period of extreme financial
    difficulty which prevailed during the said period.
    As stated aforesaid, the Petitioner Company was
    forced to sign several documents including a letter
    accepting the loss amounting to Rs. 6,09,55,406/­
    and settle the claim of Rs. 5,96,08,179/­ as
    against the actual loss amount of Rs.
    28,79,08,116/­ against the interest of the
    Petitioner company. The said letter and the
    aforesaid pre­prepared discharge voucher stated
    that the Petitioner had accepted the claim amount
    in full and final settlement and thus, forced the
    Petitioner company to unilateral acceptance the
    same. The Petitioner company was forced to sign
    the said document under duress and coercion by
    the Respondent Company. The Respondent
    Company further threatened the Petitioner
    Company to accept the said amount in full and
    final or the Respondent Company will not pay any
    28
    amount toward the fire policy. It was under such
    compelling circumstances that the Petitioner
    company was forced and under duress was made
    to sign the acceptance letter.
  27. In our considered view, the plea raised by the
    Respondent is bereft of any details and
    particulars, and cannot be anything but a bald
    assertion. Given the fact that there was no protest
    or demur raised around the time or soon after the
    letter of subrogation was signed, that the notice
    dated 31.03.2011 itself was nearly after three
    weeks and that the financial condition of the
    Respondent was not so precarious that it was left
    with no alternative but to accept the terms as
    suggested, we are of the firm view that the
    discharge in the present case and signing of letter
    of subrogation were not because of exercise of any
    undue influence. Such discharge and signing of
    letter of subrogation was voluntary and free from
    any coercion or undue influence. In the
    circumstances, we hold that upon execution of the
    letter of subrogation, there was full and final
    settlement of the claim. Since our answer to the
    question, whether there was really accord and
    satisfaction, is in the affirmative, in our view no
    arbitrable dispute existed so as to exercise power
    Under Section 11 of the Act. The High Court was
    not therefore justified in exercising power Under
    Section 11 of the Act.”
  28. In Velugubanti Hari Babu v. Parvathini Narasimha Rao
    & Anr. (2016) 14 SCC 126, the line of judgments in Boghara
    Polyfab (supra) was followed. Later, in ONGC Mangalore
    29
    Petrochemicals Ltd. v ANS Constructions Ltd. and Anr. (2018)
    3 SCC 373, the court held as follows:
    “24. From the materials on record, we find that the
    contractee­ Company had issued the “No Dues/No
    Claim Certificate” on 21.09.2012, it had received
    the full amount of the final bill being Rs. 20.34
    crores on 10.10.2012 and after 12 days
    thereafter, i.e., only on 24.10.2012, the
    contractee­Company withdrew letter dated
    21.09.2012 issuing “No Dues/No Claim
    Certificate”. Apart from it, we also find that the
    Final Bill has been mutually signed by both the
    parties to the Contract accepting the quantum of
    work done, conducting final measurements as per
    the Contract, arriving at final value of work, the
    payments made and the final payment that was
    required to be made. The contractee­Company
    accepted the final payment in full and final
    satisfaction of all its claims. We are of the
    considered opinion that in the presents facts and
    circumstances, the raising of the Final Bill and
    mutual agreement of the parties in that regard, all
    claims, rights and obligation of the parties merge
    with the Final Bill and nothing further remains to
    be done. Further, the Appellant­Contractor issued
    the Completion Certificate dated 19.06.2013
    pursuant to which the Appellant­Contractor has
    been discharged of all the liabilities. With regard
    to the issue that the “No­Dues Certificate” had
    been given under duress and coercion, we are of
    the opinion that there is nothing on record to prove
    that the said Certificate had been given under
    duress or coercion and as the Certificate itself
    provided a clearance of no dues, the contractee
    could not now turn around and say that any
    further payment was still due on account of the
    losses incurred during the execution of the
    30
    Contract. The story about duress was an
    afterthought in the background that the losses
    incurred during the execution of the Contract were
    not visualised earlier by the contractee. As to
    financial duress or coercion, nothing of this kind is
    established prima facie. Mere allegation that noclaim certificates have been obtained under
    financial duress and coercion, without there being
    anything more to suggest that, does not lead to an
    arbitrable dispute. The conduct of the contractee
    clearly shows that “no­claim certificate” was given
    by it voluntarily; the contractee accepted the
    amount voluntarily and the contract was
    discharged voluntarily.
    Conclusion:
  29. Admittedly, No­Dues Certificate was
    submitted by the contractee­Company on
    21.09.2012 and on their request Completion
    Certificate was issued by the AppellantContractor. The contractee, after a gap of one
    month, that is, on 24.10.2012, withdrew the No
    Dues Certificate on the grounds of coercion and
    duress and the claim for losses incurred during
    execution of the Contract site was made vide letter
    dated 12.01.2013, i.e., after a gap of 3 1/2 (three
    and a half) months whereas the Final Bill was
    settled on 10.10.2012. When the contractee
    accepted the final payment in full and final
    satisfaction of all its claims, there is no point in
    raising the claim for losses incurred during the
    execution of the Contract at a belated stage which
    creates an iota of doubt as to why such claim was
    not settled at the time of submitting Final Bills
    that too in the absence of exercising duress or
    coercion on the Contractee by the AppellantContractor. In our considered view, the plea raised
    by the contractee­Company is bereft of any details
    and particulars, and cannot be anything but a
    bald assertion. In the circumstances, there was
    31
    full and final settlement of the claim and there
    was really accord and satisfaction and in our
    view no arbitrable dispute existed so as to
    exercise power Under Section 11 of the Act. The
    High Court was not, therefore, justified in
    exercising power Under Section 11 of the Act.”
  30. It is clear that in Boghara Polyfab (supra), no rule of
    universal application was indicated. No doubt, subsequent
    judgments which followed it, were in the context of the
    facts as were presented to the court. Proposition (iii) of the
    conclusions recorded in Boghara Polyfab (supra) visualize
    duress or coercion on account of withholding of payments
    due. The court – in more places than one, recognized that
    an aggrieved party can be the victim of economic coercion
    which results in its signing a document which discharges
    the other party of its obligations. Master Construction
    (supra) placed the matter in perspective, when the court
    enunciated the principle in the following terms:
    “In our opinion, there is no rule of the absolute
    kind. In a case where the claimant contends that
    a discharge voucher or no­claim certificate has
    been obtained by fraud, coercion, duress or undue
    influence and the other side contests the
    correctness thereof, the Chief Justice/his
    designate must look into this aspect to find out at
    least, prima facie, whether or not the dispute is
    32
    bona fide and genuine. Where the dispute raised
    by the claimant with regard to validity of the
    discharge voucher or no­claim certificate or
    settlement agreement, prima facie, appears to be
    lacking in credibility, there may not be necessity
    to refer the dispute for arbitration at all.”
    Likewise, in Genus Power (supra), the court cautioned that a
    “bald plea” of coercion, without any supporting material is
    insufficient for a court to hold that the accord/satisfaction
    or no dues certificate was involuntarily given.
  31. A close look at the facts in the present case would
    show that though the pleadings in the initial application
    under Section 11(6) are weak, nevertheless, the materials
    on the record, in the form of copies of the inter se
    correspondence of the parties – which span over 2 years,
    clearly show that Dicitex kept repeatedly stating that it was
    facing financial crisis; it referred to credits obtained for its
    business and the urgency to pay back the bank. It is a
    matter of record that the Surveyor’s report, dated
    14.08.2014, recommended payment of 12,93,26,704.98/­ ₹
    to Dicitex. Equally, it is a matter of record that the
    appellant referred the matter to a chartered accountant’s
    33
    firm, to verify certain inventory and sales figures. It went
    by the report of the latter, who stated that the estimate of
    loss could not be more than 7,16,30,148/­. This is what ₹
    was offered to Dicitex, by May, 2014. Dicitex’s application
    under Section 11(6) is replete with references to the
    number of letters written to the appellant, seeking release
    of amounts; it also averred to inability to pay its income tax
    dues, the pressure from bankers (in support of which,
    copies of letters of bankers were produced along with the
    application).
  32. The averments by Dicitex, regarding the
    circumstances which led it to execute the no objection
    discharge voucher, are reproduced below:
    “31. The Respondents did not pay anything to
    the Petitioner after the submission of its letter,
    dated 31st May, 2014 and the submission of its
    letter, dated 31st May, 2014 and therefore
    several telephonic calls were made on behalf of
    the Petitioner, to the Respondent’s Regional
    Office at Mumbai in an effort to persuade the
    Respondents to increase the settlement amount
    so as to include the differential amount of about
    Rs. 7 crores. The Petitioner also specifically
    requested the Respondents not to, in any event,
    insist on the execution of the Discharge Voucher
    strictly as prescribed as a condition precedent
    34
    for the payment of any part of the balance
    amount of claim.
  33. Since, on the one hand, the Respondents
    did not show any inclination to relent on any
    count and instead continued to insist continued
    to insist that any further payment would be
    made to the Petitioner if and only if the
    Discharge Voucher was executed exactly at the
    time and in the form and manner as required by
    the Respondents as well as the letter dated 31st
    May, 2014 withdrawn and, on the other hand,
    the Petitioner was in urgent need of funds to
    meet its mounting liabilities the Petitioner was
    forced to withdraw its earlier letter dated 31st
    May, 2014 and coerced into executing the
    Discharge Voucher exactly as dictated by the
    Respondents. Accordingly, the Petitioner wrote a
    letter dated 6th June, 2014 to the Respondent No.
    2 stating therein that it was withdrawing its
    letter dated 31st May, 2­14 and also enclosing
    the duly executed discharge Voucher. The
    Petitioner also requested that the claim amount
    be paid over to it, immediately.”
    The averments in the application, later are that the
    appellant paid the amount. Dicitex, nevertheless later, by three
    letters questioned the basis of reduction of the amount of claim.
    It later alleged that it wrote a letter “dated 14th July, 2014 to the
    respondents stating therein, inter alia, that since they were forced
    to accept the offered amount and that since there was a dispute on
    the quantum of claim settlement paid to the Petitioner, the
    35
    Petitioner was invoking arbitration proceedings under Clause 13 of
    the said Policy to recover the differential amount.”
  34. An overall reading of Dicitex’s application (under
    Section 11(6)) clearly shows that its grievance with respect to the
    involuntary nature of the discharge voucher was articulated. It
    cannot be disputed, that several letters – spanning over two
    years­ stating that it was facing financial crisis on account of the
    delay in settling the claim, were addressed to the appellant. This
    court is conscious of the fact that an application under Section
    11(6) is in the form of a pleading which merely seeks an order of
    the court, for appointment of an arbitrator. It cannot be
    conclusive of the pleas or contentions that the claimant or the
    concerned party can take, in the arbitral proceedings. At this
    stage, therefore, the court­ which is required to ensure that an
    arbitrable dispute exists, has to be prima facie convinced about
    the genuineness or credibility of the plea of coercion; it cannot be
    too particular about the nature of the plea, which necessarily has
    to be made and established in the substantive (read: arbitration)
    proceeding. If the court were to take a contrary approach and
    minutely examine the plea and judge its credibility or
    36
    reasonableness, there would be a danger of its denying a forum
    to the applicant altogether, because rejection of the application
    would render the finding (about the finality of the discharge and
    its effect as satisfaction) final, thus, precluding the applicant of
    its right event to approach a civil court. There are decisions of
    this court (Associated Construction v Pawanhans Helicopters
    Ltd. (2008) 16 SCC 128 and Boghara Polyfab (supra) upheld the
    concept of economic duress. Having regard to the facts and
    circumstances, this court is of the opinion that the reasoning in
    the impugned judgment cannot be faulted.
  35. In view of the foregoing discussion, the appeal is held
    to be unmerited; it is dismissed, without order as to costs.
    ………………………………….J.
    [ARUN MISHRA]
    ………………………………….J.
    [S. RAVINDRA BHAT]
    New Delhi,
    November 13, 2019.