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No Claim Certificate Is Invalid If It Is A Pre-Condition To The Release Of Final Payment: In Calcutta High Court

According to the Calcutta High Court, submitting a discharge voucher or a no-claims certificate as a requirement for receiving final payment would constitute “coercion” and render the document void.

In the case of West Bengal Tourism Development Corporation Ltd. v. Supratik Banerjee and Anr. (AP no. 206 of 2013), the Honourable Justice Krishna Rao Bench determined that the circumstances in which the employer refuses to pay the contractor’s debts unless the contractor provides an undertaking to the employer not to make any additional claims would satisfy the requirements of Section 15 of the Indian Contract Act and the obtained undertaking would be void.

Facts of the case:

A contract between the parties stated that the respondent would perform remodelling and interior design work for the petitioner. On the petitioner’s directions, the respondent carried out a variety of extra tasks while working on the project.

The respondent’s debt was not paid in full for a long time. The petitioner then consented to pay a portion of the respondent’s entire sum sought during a meeting, but only under the condition that it would be the petitioner’s last and complete payment and that the respondent would provide an undertaking to that effect.

After that, the respondent informed the petitioner in a letter dated July 1, 2009 that it had no choice but to comply with the petitioners’ requests owing to severe financial hardships.

As a result, the respondent provided a 13.07.2009 undertaking/no claim certificate. The petitioner did not pay the respondent in full even after submitting the undertaking.

The respondent invoked the arbitration after becoming enraged by the petitioner’s decision to withhold the entire payment, and the Court subsequently appointed an arbitrator as a result.

Before the arbitrator, the respondent raised a number of issues, including the additional work it completed for which it had provided the undertaking. The petitioner disputed the petitioner’s claims principally on the grounds that since the petitioner had already provided an undertaking on the claims, it was not permitted to re-agitate them.

The arbitrator ruled that the respondent’s undertaking was invalid since it was coerced into being because the petitioner had withheld payment from the respondent and the respondent had submitted it despite severe financial hardships.

As a result, the arbitration party dismissed the petitioner’s counterclaim and approved the respondent’s claims.

The petitioner contested the decision on the grounds that the arbitrator’s findings were not supported by the information and records in the file. The arbitrator made the contested award without considering the admissibility, relevance, or weight of the documentary evidence that was submitted to the court and in the absence of oral testimony.

Because the petitioner did not respond to the letter dated July 1, 2009, the arbitrator erroneously inferred that the undertaking had not been submitted freely. Without taking into account the fact that the rates lacked any supporting data, the arbitrator merely accepted the respondent’s analysis of rates. The petitioner had unequivocally indicated in its letter dated 14.12.2009 that the department would not accept the rates the petitioner had submitted. Additionally, claims that were either already paid or not at all payable were included in the final amount.

Court’s Findings:

The Court noted that the arbitrator had visited the job site before making the contested judgement. It is further noted that the arbitrator assigned suitable justifications for the award, which is supported by evidence.

The petitioner’s primary argument, according to the court, is that the respondent’s undertaking is invalid. It was decided that the respondent had explicitly stated in paragraph 2 of its letter dated 01.07.2009 that the petitioner would withhold the final payment if it did not provide the undertaking.

The court ruled that the filing of the undertaking could not be regarded as voluntary because it was a requirement before the release of the final payment and because the respondent was in extreme financial need.

The court ruled that because the undertaking was filed as a requirement before releasing the final payment, it was illegal due to “coercion.”

According to the Court, if an employer refuses to pay a contractor’s dues unless the contractor provides an undertaking to the employer promising not to make any additional claims, this situation satisfies the requirements of Section 15 of the Indian Contract Act, and the obtained undertaking is invalid. As a result, it rejected the reward challenge.

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Judgement Reviewed By Manju Molakalapalli.

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