Understanding Coercion and Economic Duress in Infrastructure Projects

"Delay" in infrastructure projects has become the norm, whereas timely completion of the project has become the exception. During the execution of an infrastructure project, the contractor encounter with several events which delay the execution and completion of the project. The project completion is delayed for reasons beyond the control of the contractor. Few are mobilisation of staff, timely deployment of machinery, non-availability of clear right of way and delay of land acquisition, forest clearance, force majeure events, slow progress by the EPC Contractor etc. In such a scenario the contractor cannot gain financially by delaying the project.

?

Delay in completion of projects brings with itself a host of questions left to be determined by contract administrators, courts and tribunals. At its core, lies the question - who is responsible for the delay? & Consequences thereof!

?

However, if the delay is occasioned by any act of the Employer, the Contractor will be entitled to an extension of time and / or compensation for such extended period of works.

?

Coercion and Economic Duress

?

In multiple cases, a supplementary agreement with a waiver clause is forced upon the contractor to forgo all their claims against the employer for the delay and extension of scheduled project date. In practical terms, this is only a method to legitimise the illegal acts of the petitioner using arm twisting methods. The contractor has no option but to accept the waiver clause in the Supplementary Agreement or else to face financial ruin and legal death. Apparently, the economic duress and coercion is practised upon the contractor shown from an overall conspectus of the circumstances; In case of National Highway Authority of India Vs M/s T.K. Toll Private Limited (O.M.P. (COMM) 24/2023) (Justice Yogesh Khanna) (Order dated 09 August 2023).

?

In Chairman and MD, NTPC Ltd. Vs. Reshmi Constructions, Builders & Contractors, (SC) (CJI & Justice S.B. Sinha) (2004) 2 SSC 663 even when rights and obligations of the parties are worked out, the contract does not come to an end inter alia for the purpose of determination of the disputes arising thereunder, and, thus, the arbitration agreement can be invoked. The ground reality is that in a case where a contractor has made huge investment, he cannot afford not to take from the employer the amount under the bills, for various reasons which may include discharge of his liability towards the banks, financial institutions and other persons. In such a situation, the public sector undertakings would have an upper hand. They would not ordinarily release the money unless a "No-Demand Certificate" is signed.

Further, necessitas non habet legem is an age-old maxim which means necessity knows no law. A person may sometimes have to succumb to the pressure of the other party to the bargain who is in a stronger position.

?

A clear illustration of a case of duress, compulsion and coercion in the judgment of the Supreme Court in the case of National Insurance Co. Ltd. Vs. Boghara Polyfab Pvt. Ltd., (2009) 1 SCC 267 says when claims remain arbitrable even when discharge of contract by accord and satisfaction is pleaded as a defense. “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 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.”

?

The Supreme Court in the case of R.L. Kalathia and Company Vs. State of Gujarat, (2011) 2 SCC 400 held that

• Merely because the contractor has issued "No Dues Certificate", if there is an acceptable claim, the court cannot reject the same on the ground of issuance of "No Dues Certificate".
• Inasmuch as it is common that unless a discharge certificate is given in advance by the contractor, payment of bills are generally delayed, hence such a clause in the contract would not be an absolute bar to a contractor raising claims which are genuine at a later date even after submission of such "No-claim Certificate".
• Even after execution of full and final discharge voucher/receipt by one of the parties, if the contractor is able to establish that he is entitled to further amount for which he is having adequate materials, he is not barred from claiming such amount merely because of acceptance of the final bill by mentioning "without prejudice" or by issuing 'No Dues Certificate'.”

?

Hence, merely because the respondent had executed the settlement agreement cannot ipso facto mean that the respondent lost his rights to claim legitimate dues which had been wrongly withheld by the petitioners. The High Court rejected the challenge of NHAI by holding that the Award was correct and that a government enterprise cannot be allowed to take undue advantage and seen indulging in arm twisting of a contractor; In case NHAI Vs. M/s. Madhucon Project Ltd. OMP(COMM) 292/2017, (DHC) (Justice Jayant Nath) (18 August 2017). In the other judgment between the same parties the appeal of NHAI bearing no. FAO (OS) (COMM) 17/2018 (17 April 2018) was dismissed by the Division Bench of the Delhi High Court consisting of Justices S. Ravindra Bhatt and A.K. Chawla. The above judgements leave no manner of doubt that an unfair Clause of waiver introduced by a stronger party and thrust upon a weaker party by coercion and taking advantage of economic duress can be disregarded by Court regardless of other Clauses in the same agreement. Courts grant relief by ignoring forced waiver or discharge certificate and grant whatever relief the victim party is found entitled to under law and the relevant facts.

?

?

Commencement of Limitation Period in such cases

?

?In M/s T.K. Toll Private Limited (2023), the court noted that the period of limitation would start from the date when the supplementary agreement is signed as it sought to redefine the rights and obligations of the parties afresh in conjunction with the provisions in the Contract Agreement (CA). There is no rejection of the claims made by the claimant when the project work was still going on. Even if there were claims made earlier, those remained pending and in absence of rejection by NHAI, period of limitation would not begin. In a matter against GMR Chennai, the Delhi High Court held that the payable dues can be quantified only after completion of the work. Hence, till the expiry of the extended period the claims cannot be barred by limitation.

?

?

Conclusion and Suggestions:

?

1. To submit all the expenses to the employer incurred by the contractor while the project was in operation.
2. The scope of work in the supplementary agreement should be more detailed, it should includes all the possible expenses and events that would come across by the contactor while executing the project work