[et_pb_section fb_built=”1″ _builder_version=”4.5.1″ _module_preset=”default” min_height=”7858.7px” custom_padding=”||0px|||”][et_pb_row _builder_version=”4.5.1″ _module_preset=”default” min_height=”7706.2px” custom_padding=”||0px|||”][et_pb_column type=”4_4″ _builder_version=”4.5.1″ _module_preset=”default”][et_pb_text _builder_version=”4.5.1″ _module_preset=”default” min_height=”7833px” inline_fonts=”Molengo,Cormorant Garamond,Abel”]<\/p>\n
Abstract<\/span><\/strong><\/span><\/p>\n Infrastructural contracts are often fraught with delays in completion, or breach of contract by the concessionaire or the authority. Supplementary Agreements (SAs) are commonly used in such cases to renegotiate the original contract and agree to new terms, or to waive claims against the other party. The terms of these agreements are often heavily in favour of the authority, particularly requiring the concessionaire to waive any or all claims it could raise against the authority under the original contract. This blog deals with SAs wherein the concessionaires agree, under economic duress, to waive existing or outstanding claims against the authority, or to accept a full and final settlement of a quantum lesser than their original claim. It discusses the factors the concessionaire needs to establish to demonstrate the presence of economic duress, and explores how the concessionaire can establish these factors.\u00a0<\/span><\/p>\n <\/strong><\/p>\n Introduction<\/span><\/strong>\u00a0<\/span>\u00a0<\/span><\/p>\n Though the Indian Contract Act does not explicitly lay down duress as a factor that vitiates free consent, the Delhi High Court has recognised<\/span>economic duress or economic coercion<\/a> as a facet of undue influence under Section 16 of the Act. The Supreme Court has recognised<\/span>duress<\/a>, including<\/span>economic duress<\/a>, as a common law remedy applicable even when the parties do not have unequal bargaining power. The concessionaire will have a remedy if its decision to waive a claim or accept a lower settlement was vitiated by an undue pressure of financial distress, and where it had no practical alternative but to sign the SA. <\/span><\/span><\/p>\n Authorities like the National Highways Authority of India (NHAI)<\/span>explicitly require<\/a> the concessionaire to declare in the SA that it \u201cvoluntary, consciously and wilfully\u201d waives any existing claim it could raise against NHAI in any court or arbitral tribunal, if that claim is with respect to issues that are the subject matter of that SA. However, this declaration still does not preclude the concessionaire from bringing and establishing a claim it has waived, if it did not freely consent to such a waiver.<\/span><\/span><\/p>\n This blog charts the process of challenging the validity of an SA on the basis of economic duress, by broadly delineating the issue under two heads: establishing a prima facie <\/em>case, and establishing economic duress on the merits of evidence on record. Both heads are further divided into relevant heads, to fully engage with possible counter-arguments and defences, and provide an exhaustive guide of the factors to be considered by the concessionaire while arguing economic duress.<\/span><\/p>\n <\/strong><\/p>\n Concession Agreements almost always contain a clause referring the parties to arbitration in case of a dispute. If a dispute regarding the validity of an SA is referred directly to an Arbitral Tribunal, the Tribunal itself decides whether the SA can be disputed. However, if a party approaches the court to appoint arbitrators as per Section 11 of the Arbitration Act, the Chief Justice of the court or its designate must<\/span>first decide<\/a> whether there is a prima facie <\/em>case of economic duress.<\/span><\/span><\/p>\n A concessionaire must establish a prima facie <\/em>claim of duress by<\/span>placing evidence on record<\/a>. If the concessionaire<\/span>fails to establish<\/a> a prima facie <\/em>claim, or if the<\/span>claim does not seem credible<\/a>, the court cannot refer the dispute to the arbitration tribunal. Additionally, the tribunal can rule on the question of duress only if the court<\/span>specifically leaves<\/a> this question to its discretion while referring the dispute. It is also important to note that though an arbitral tribunal must evaluate claims within the framework of the contract itself, duress is a factor that vitiates the validity of this contract, rendering the tribunal competent to examine the claim of duress. <\/span><\/span><\/p>\n Thus, the establishment of a prima facie <\/em>claim may be further subdivided into two stages: placing evidence on record that is a prima facie <\/em>indication of duress, and the concessionaire\u2019s actions that establish the claim as a credible one.<\/span><\/p>\n 1. Prima facie indications of duress<\/span><\/span><\/strong><\/span><\/p>\n Establishing a prima facie <\/em>case would require the concessionaire to establish that there exists sufficient evidence to merit a thorough examination of its claim. This section explores the kind of indications that the court has accepted as sufficient evidence to establish duress as a legitimate claim. <\/span><\/p>\n In<\/span>National Insurance Co. Ltd.<\/em>\u00a0v.<\/em>\u00a0Boghara Polyfab (P) Ltd.<\/em><\/a>, the Supreme Court held that a prima facie <\/em>case may be said to be established when the concessionaire\u2019s consent cannot be assumed to be voluntary. Such voluntariness may be considered vitiated if the authority only partially admits the concessionaire\u2019s claim for payment, and refuses to release even the partial amount until the concessionaire issues a discharge voucher accepting this partial payment as full and final consideration. This illustration is especially applicable when, in addition to threatening not to release the partial amount, the authority<\/span>unilaterally reduces<\/a> the concessionaire\u2019s claim and does not furnish any reason for such deductions.<\/span><\/span><\/p>\n Requiring the concessionaire to issue a<\/span>no claim certificate<\/a> even before it completes its work and the authority measures this work is a prima facie <\/em>indication of duress, especially because the authority often delays payments unless the concessionaire issues a discharge certificate<\/span>in advance<\/a>. When the authority<\/span>fails to prepare<\/a> bills before the SA is executed, or where bills cannot be prepared because the price index is not available, the court has concluded there to be a prima facie <\/em>case. The court has also held that releasing the security deposit and bank guarantee<\/span>only after<\/a> the concessionaire signs an SA and an unconditional no claim certificate is grounds for a prima facie <\/em>case of duress.<\/span><\/span><\/p>\n Additionally, when the<\/span>full and final settlement is itself disputed<\/a>, and when a proper examination of the evidence on record is necessary to determine the validity of the SA, the dispute can be admitted to the tribunal.<\/span><\/span><\/p>\n 2. Concerns about the credibility of the claim<\/span><\/strong><\/span><\/p>\n The Court has recognised that once a contract has been validly accepted, it is unfair to allow a party to wriggle out of it<\/span>when the contract is no longer beneficial<\/a> to it in the prevailing facts and circumstances. Thus, to protect the sanctity of contracts and prevent frivolous claims from entering lengthy and expensive proceedings, the courts have devised a second prong that needs to be satisfied for the concessionaire to establish a prima facie <\/em>claim. This prong requires the concessionaire to establish that its claim is credible, and not merely an afterthought or an attempt to stall the proceedings. This section explores actions that hurt the credibility of the concessionaire\u2019s claim.<\/span><\/span><\/p>\n The court has ruled that a concessionaire\u2019s claim would lack credibility if it approaches the court with a claim for expenses incurred during the execution of the contract<\/span>much after the final bill is settled<\/a>, and unsupported by other evidence. When the concessionaire raises a claim of duress<\/span>only during oral arguments<\/a>, fourteen months after the last payment, the court believes the claim to be lacking credibility. If the concessionaire attempts to conceal the existence of the SA from the court, and takes a plea of duress<\/span>only when the authority brings the SA\u2019s existence to light<\/a>, despite not having protested to the SA until then, its claim will be held to lack credibility.<\/span><\/span><\/p>\n However, the establishment of this prong may not be strictly necessary. In a case where the concessionaire raised the claim of duress<\/span>only in the rejoinder<\/a>, thus hurting its credibility, the court still proceeded to examine the tenability of the claim on its merits. In another case where the concessionaire alleged economic duress<\/span>only in its Statement of Claim<\/a>, the tribunal nevertheless permitted it to proceed with the claim because the concerned authority had allotted the concessionaire\u2019s work to another party before foreclosing the original contract with this concessionaire.<\/span><\/span><\/p>\n Thus, while establishing a prima facie <\/em>case of duress, the concessionaire must establish credible indications that its consent to the SA was vitiated by economic duress.<\/span><\/p>\n <\/strong><\/p>\n Once a prima facie <\/em>case has been established, the court or tribunal examines the validity of the claim of duress on its merits, using factors established under English common law.<\/span><\/p>\n Indian courts follow the test laid down in<\/span>Unikol Bottlers Ltd.\u00a0v.<\/em>\u00a0Dhillon Kool Drinks<\/em><\/a>,\u00a0as per which four factors must be considered while determining the voluntariness of the concessionaire\u2019s consent while signing the SA:<\/span><\/span><\/p>\n 1. Whether the concessionaire protested before or soon after the agreement;<\/span><\/p>\n 2. Whether the concessionaire took any steps to avoid the contract;<\/span><\/p>\n 3. Whether there was any alternative course of action or alternative remedy the concessionaire could practically have pursued, and whether it did in fact pursue or attempt to pursue this action or remedy; and<\/span><\/p>\n 4. Whether the concessionaire conveyed benefit of independent advice.<\/span><\/p>\n Part B examines these factors in detail. However, since a claim of economic duress falls under undue influence, a concessionaire must primarily provide proof of its financial distress, and evidence that it consented to the SA as a direct result of the authority\u2019s undue pressure.<\/span><\/p>\n 1. Proof of the concessionaire\u2019s financial distress<\/span><\/strong><\/span><\/p>\n This section explores various factors the concessionaire may use to prove that it was facing severe financial difficulties that made him vulnerable to the power of the authority.<\/span><\/p>\n A concessionaire can indicate its financial distress by repeatedly sending reminders to the authority to release outstanding payments, and by issuing a no claim certificate only with<\/span>the disclaimer that the issue is under duress<\/a> because it cannot afford to liquidate its dues in such a manner. When a prima facie <\/em>case of duress is established and the concessionaire supplies further evidence to establish its claim, but when the authority refuses to engage with this evidence or furnish documents it has been directed to furnish, the court or tribunal may draw<\/span>adverse inferences<\/a> on the facts and circumstances of the case. It may thus hold the concessionaire\u2019s claim of duress to have been established.<\/span><\/span><\/p>\n When the authority approves the final bill more than three years after the completion of the work, and simultaneously asks the concessionaire to issue a no claim certificate, the Court may<\/span>take this delay as proof<\/a> of the concessionaire\u2019s great financial distress. This evidence of duress may be corroborated by the fact that the concessionaire withdrew its no claim certificate at the first opportunity to do so after receiving the balance amount.<\/span><\/span><\/p>\n When the authority was aware of the concessionaire\u2019s financial distress and its obligations to other parties, and when the authority still fails to reimburse the concessionaire for bills or charges it has accepted as its responsibility to reimburse, despite repeated reminders by the concessionaire, and when the authority draws up the SA only after the issue of a show cause notice, there can be<\/span>no doubt as to the validity of the duress claim<\/a>. <\/sup><\/span><\/span><\/p>\n However, when the concessionaire raises a dispute against the SA fifteen months after its execution, does not mention additional expenses and losses at the time of or immediately after settling the final bill, and produces<\/span>no other evidence to back its claim<\/a>, it cannot validly claim duress.<\/span><\/span><\/p>\n Here it is important to note that the mere fact that the concessionaire was having financial difficulties does not mean that the authority coerced him into entering a full and final settlement of a lower amount than the original claim. In such a scenario, if the concessionaire does not plead to the authority that it is signing the settlement under duress, if it withdraws its original claim without protest, and if it does not pursue a legal remedy despite having ongoing litigations with the authority,<\/span>it cannot be said<\/a> that it was operating under duress.<\/span><\/span><\/p>\n 2. Direct causation between the authority\u2019s undue influence and the concessionaire\u2019s consent<\/span><\/strong><\/span><\/p>\n When a concessionaire has established that it was in severe financial distress at the time of consenting to the SA, it must further establish that the undue influence exerted by the authority was directly responsible for its consent to the SA. it can establish this by supplying proof of its active protest to the agreement or its terms, and by demonstrating that it was left with no practical alternative but for <\/em>consenting to the SA. Since these prongs constitute two of the four prongs needed to establish economic duress under English common law, they will be discussed in detail hereafter.<\/span><\/p>\n 3. Protest against the SA<\/span><\/strong><\/span><\/p>\n This prong requires the concessionaire to establish that it actively protested against the SA and its terms before, during, or soon after signing the agreement. The<\/span>tribunal considers protests<\/a> raised at the time of execution of the SA, refund of the bank guarantee, preparation of the final payment statement, receipt of cheque, or even immediately after this receipt.<\/span><\/span><\/p>\n When a concessionaire accepts the partial amount from the authority, it often does so to<\/span>offset its liabilities<\/a> towards banks and financial institutions. its quantum of investment is often so huge that it cannot afford not to take the partial amount. Thus, its acceptance does not imply free consent. <\/span><\/span><\/p>\n However, if the authority explicitly states that encashing the partial amount would amount to full and final consent, and asks the concessionaire to return the cheque if it does not find the settlement acceptable, a claim of duress may proceed only if the concessionaire communicates its protest or objection<\/span>before encashing the cheque<\/a>. If it does not communicate its objection or protest before encashing the cheque, the court will assume that it<\/span>changed its mind only after consenting<\/a> to the settlement. A situation where the authority merely writes a cheque in full and final settlement, without any instructions on its manner of acceptance, is different. Here,<\/span>it is sufficient<\/a> for the concessionaire to show that it did not pass a receipt in full satisfaction and prosecuted the authority to obtain the balance amount, and thus did not accept the cheque in full and final settlement.<\/span><\/span><\/p>\n Prima facie<\/em>, it seems easy for the concessionaire to make protests to the terms of the SA before signing it. However, it is important to note that authorities ask for a supplementary agreement to ensure that the concessionaire waives its right to raise claims against the authority. If the concessionaire records its protests before signing the agreement, the authority would obviously note that the concessionaire is giving himself leeway to raise a claim later, and thus refuse to make the payments so necessary for a concessionaire facing a shortage of funds. A concessionaire would thus<\/span>not wish to incur a risk<\/a> of losing even the partial amount offered, and would choose not to protest. Courts take these considerations into account and accept protests made even after the SA is signed or after the receipt of the cheque for the partial amount.<\/span><\/span><\/p>\n Additionally, courts accept proof of the authority withholding payment after the execution of the SA as a ground to establish duress to protect concessionaires. In a case where the concessionaire received full and final payment twelve days after the execution of the SA, the security deposit and earnest money twenty days after execution, and the FDR amount twenty seven days after execution, the Arbitrator used these delays as<\/span>corroborative evidence of duress<\/a>. It is notable that these delays were in addition to the eighteen month gap between the completion of work and the execution of the SA.<\/span><\/span><\/p>\n Additionally, it is important to note that protests after the agreement is signed or after receipt of payment must be immediate or at the earliest possible instance. As discussed previously, when a claim of duress is raised only during oral arguments, fourteen months after the last payment, the court believes the claim to be an<\/span>afterthought.<\/span><\/a> If the concessionaire attempts to conceal the SA\u2019s existence from the court, and pleads duress<\/span>only when the SA is brought to light<\/a>, the court will hold the plea of duress to be an afterthought.<\/span><\/span><\/p>\n 4. Steps taken to avoid the SA<\/span><\/strong><\/span><\/p>\n With respect to this factor, English courts examine whether the concessionaire challenges the validity of the SA in ongoing litigations before the termination of the claim. This factor<\/span>will not be fulfilled<\/a> if it is evident that the concessionaire had no issues with the validity of the agreement before its termination, and till that point has taken full advantage of the contract. Thus, this factor is interconnected with the previous and the next factor, because raising protests against the validity of the agreement is an alternative course of action the concessionaire could pursue.<\/span><\/span>\u00a0<\/span><\/p>\n 5. Alternative courses of action <\/strong><\/span><\/p>\n This prong is a manifestation of the but for <\/em>test mentioned under the second subhead of this part. The but for <\/em>test helps establish a causation with respect to duress, to the extent that the concessionaire would not have entered into the contract but for the undue pressure exerted on it by the authority. The concessionaire must establish here that there were no practical alternatives available to it, or alternative remedies it could pursue instead of signing the agreement. <\/span><\/p>\n The lack of availability of a reasonable practical alternative for the concessionaire means that it must intentionally submit to unfair contracts by the authority. Establishing a lack of practical alternatives but for signing the SA thus goes a long way in proving a claim of duress. <\/span><\/p>\nA. Prima Facie <\/em>Case<\/strong><\/h2>\n
B. Merits of the Evidence on Record<\/strong><\/span><\/h2>\n