Supreme Court's Verdict on Arbitration in ONGC Mangalore vs. ANS Constructions: No Dues Certificate and Contractual Disputes

The Supreme Court of India, in the case of M/s ONGC Mangalore Petrochemicals Ltd. vs. M/s ANS Constructions Ltd. & Anr., delivered a significant ruling on the enforceability of a No Dues Certificate in contractual disputes and the invocation of arbitration clauses. The case revolved around whether a contractor, after signing a No Dues Certificate, could still claim arbitration and dispute contractual payments. The ruling provided crucial clarity on the doctrine of economic duress, the finality of contractual settlements, and the binding nature of arbitration agreements.

Background of the Dispute

The dispute arose out of an infrastructure contract awarded by ONGC Mangalore Petrochemicals Ltd. (hereafter ONGC Mangalore) to ANS Constructions Ltd.. The contract involved large-scale civil work, including site grading, construction of roads, drains, and a boundary wall in Mangalore Special Economic Zone. Initially valued at Rs. 163.25 crores, the contract value was subsequently revised to Rs. 195.68 crores.

While the project was completed within the stipulated time, disputes emerged concerning payments and additional costs incurred by the contractor. ANS Constructions claimed additional expenses due to delays caused by ONGC Mangalore. The contractor alleged that ONGC Mangalore delayed payments, forcing them into financial distress, and coerced them into signing a No Dues Certificate.

The Core Legal Issue

The primary question before the Supreme Court was whether a No Dues Certificate, once signed, could be challenged based on claims of coercion and whether arbitration could still be invoked despite the settlement document.

Arguments Presented

Petitioner’s (ONGC Mangalore) Arguments

ANS Constructions voluntarily signed a No Dues Certificate on September 21, 2012, stating that all financial claims were settled.
On October 10, 2012, ONGC Mangalore made the final payment of Rs. 20.34 crores, after which the contractor had no legal basis for raising further claims.
Despite receiving full payment, ANS Constructions attempted to dispute the matter and invoke arbitration, which was not permissible under contract terms.
The contract clearly stated that any claims must be settled before signing the final bill. Once the contractor signed the No Dues Certificate, no further claims could be entertained.

Respondent’s (ANS Constructions) Arguments

The No Dues Certificate was obtained under economic duress, as ONGC Mangalore delayed payments deliberately.
Payments under Running Account (RA) Bills were frequently withheld, leaving the contractor with severe cash flow issues.
Additional costs were incurred due to site clearance delays, unforeseen regulatory changes, and approval issues, none of which were within the contractor’s control.
Despite the No Dues Certificate, contractual arbitration clauses allowed disputes to be resolved through an arbitral tribunal.

Key Observations of the Supreme Court

The Supreme Court, comprising Justice R.K. Agrawal and Justice Amitava Roy, examined the following crucial issues:

1. Validity of the No Dues Certificate

The Court ruled that a No Dues Certificate signed voluntarily is legally binding. However, if obtained under coercion, it may be challenged. The judgment stated:

“When both parties confirm in writing that the contract has been fully discharged and there are no outstanding claims, subsequent disputes cannot be entertained unless coercion is established.”

2. The Doctrine of Economic Duress

The Court examined the claim of economic duress and ruled that financial hardship does not automatically invalidate a settlement:

“Economic duress must be proved with concrete evidence demonstrating that the party had no viable alternative but to sign under coercion.”

Since ANS Constructions continued contractual obligations for months and accepted payments, the claim of coercion was not sufficiently established.

3. Arbitration Clause and Its Applicability

The Court ruled that once a No Dues Certificate is signed, arbitration cannot be invoked unless the certificate is proven to be coerced:

“If a dispute exists regarding contract execution, the arbitration clause remains applicable unless a final settlement agreement was entered into voluntarily.”

4. The Final Decision of the Supreme Court

The Court quashed the Karnataka High Court’s order appointing an arbitrator.
The Court ruled that ANS Constructions failed to prove coercion in signing the No Dues Certificate.
The arbitration request was dismissed, and ONGC Mangalore’s stance was upheld.

Impact of the Judgment

This ruling sets a strong precedent in contract law, particularly in large-scale infrastructure projects. It establishes that:

Once a No Dues Certificate is signed voluntarily, it becomes legally binding.
Claims of coercion must be substantiated with concrete evidence.
Arbitration cannot be invoked post-settlement unless coercion is proven.

Conclusion

The Supreme Court’s ruling in ONGC Mangalore vs. ANS Constructions reinforces contractual finality and prevents frivolous disputes. By affirming the validity of No Dues Certificates and setting a high standard for proving economic duress, the judgment strengthens India’s arbitration framework and contractual enforcement mechanisms.

Petitioner Name: M/s ONGC Mangalore Petrochemicals Ltd.
Respondent Name: M/s ANS Constructions Ltd. & Anr.
Judgment By: Justice R.K. Agrawal, Justice Amitava Roy
Judgment Date: 07-02-2018

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