No dues certificate signifies finial settlement between an employer and an employee especially in instances where there is consideration or remuneration offered by the employer to the employee for the performance of a duty. The certificate is a conclusion to a contract that may or may not have reached or determine a definite conclusion.
The conclusion can either be the completion of the contract as agreed by all parties or it can be a failure of the parties to express all the terms of their bargain. In such instance, the employer may complete the end of his or her deal by paying off the employee and obtaining a ‘No Due Certificate’ from the employee.
Or a Student may obtain the certificate upon complete payment of tuition and other fees from an institution. Or a Nominee may obtain a ‘No Due Certificate’ from the regulatory bodies or agencies certifying that he or she is not in debt and can vie for any position in India. In this instance, an individual may be required to produce clearance of Electricity Bills, Water bills, and other related bills.
Also, when erecting a new structure or to renovate an existing building, such certificate is obtained to show that there is an approval for whatever may happen on the land in accordance to the submissions made to the appropriate authority Arm Construction Co. v. Union Of India ILR 1977 Delhi 748.
No dues certificate is a legal certificate issued by any agency, organization, institute or an individual. It forms the basis of a contractual relationship or employer/employee relationship, or institution/student relationship, or Political Party/Nominee relationship.
A contractual obligation is often the best way to define the relationship above. That is, the parties enter into a binding contract whether or not out of mutual consent. The same also is applicable to the certificate.
The certificate comes as a confirmation that all debts have been cleared. This is an important document for both parties. It is also a confirmation that the employee has handed over all company asset as well as paid in full all amount that they owe the company and vice versa. Therefore, there is no outstanding amount left to be paid.
The No Due Certificate is also called a No Objection Certificate (NOC). The NOC is particularly required in India for several instances. They are enumerated below.
- Art and Writing – In this instance, an Author or an Artist must provide a NOC signifying that he or she does not object to the use of his or her copyrighted writings or artwork. This is mildly applicable to the website without the phrase “All Rights Reserved”.
- Employment – The NOC offered by a previous employer of an organization to the prospective employer informing him or her that there is no objection to the current hiring of the employee. This Certificate sometimes serves as a Letter of Reference/Recommendation from the previous place of employment.
- Immigration – This certificate is usually granted to a person migrating to another country specifying that there is no objection as to the immigrant getting an employment, schooling or working while in school.
- Travel – In this instance, a NOC is needed from the primary place of employment of an individual claiming that there is no objection as to his or her travel for six months or more. It is assumed that traveling out of the workplace for up to six months signifies resignation. The NOC disputes such a claim but stating that the company is aware of the employee’s travel and the timeframe for the said travel.
Some companies are fond of issuing the ‘No due certificate’ late in order to delay the resignation of the employee. The delay usually takes 10 – 15 days or more while clearance is still needed from the employee in form of restitution of every asset of the company and payment of debt being owned to the company.
In some cases when a deal has not been sealed, the employee is required to stay put till all contracts are signed before being issued a ‘No due certificate’.
Can You Claim Damages After Signing No Dues Certificate?
For one to claim damages after signing a No Due Certificate, you must provide reasonable and cogent reasons for the claim. But can you make claim damages after signing “No Due Certificate” when the certificate is issued under duress? The answer is absolute Yes!
Before further information is provided, it is pertinent to explain Duress.
What is Duress?
Duress is the compulsion under which a person acts through fear of personal suffering such as injury to the body, confinement, actual or real threat – Smith v. Kay (1859) 7 HLC 750, Ambica Construction v. Union Of India Appeal (Civil) 5093 of 2006.
Signature obtained under duress may be void or voidable depending upon the relief sought by the aggrieved either under the Common Law, which renders the signature void or in Equity, which results in a claim of damages such as rescission or rectification – Munro & Co. Ltd v. Meyer (1930) 2 KB 312, Dewan Chand v. Indian Welfare Railway Organisation (2012) 1 SCC 101.
Note that, a threat of prosecution on security for due debt does not amount to duress unless there was agreement expressed or implied to abstain from prosecution upon the security being given – Esso Petroleum Co. Ltd v. Mardon (1975) 1 AER 203.
When Is It Applied?
A certificate issued under duress applies to when a contract is breached before the proposed deadline and No due certificate is issued. The non-issuance must be unfavorable to the aggrieved party. Thus, he or she can claim damages.
In some cases, when an employee resigns from the organization, it is customary to settle all dues in the cases of both parties. But when all dues meant to be delivered to the employee is not settled and the employer imposes on the employee to sign on No due certificate, he or she (the aggrieved) is liable to claim damages.
In some cases, threats are made which is against Section 503 in the Indian Penal Code. The section of the law stipulates that it is a criminal offense to threaten another person with any form of bodily harm, dent to reputation or destruction of property.
It is necessary for the employee to point out some dues not paid to the employer. When this is done, the parties can dialogue on the best way to calculate and resolve the issue before escalating it further into litigation.
But in such dialogue, no party should be made to sign a paper which he or she does not find favorable.
Indian Contract Act, Section 73 lays down the provision relating to damages. The law makes provision for compensation of a breach of contract by a party to an aggrieved party. In such instance, the aggrieved party is entitled for the loss and damages caused by the party in breach.
Damages in the law of contract are designed purely to compensate the aggrieved party for the damage, loss or injury caused by a breach. This, they are not punitive, exemplary or vindictive in nature, no matter how outrageous the defendant’s conduct may be.
Where the aggrieved party has suffered no loss by reason of the breach, he or she is entitled to nominal damages.
But where the aggrieved party has suffered physical inconveniences or disappointment, frustration or distress, he or she is entitled to either liquidated damages (Cellulose Acetate Silk Co. v. Windes Foundry Ltd (1933) A.C. 20.), penal damages or penalties (Ford Motor Co. v. Armstrong (1915) 31 TLR 267) or un-liquidated damages – Jarvis v. Swans Tours Ltd. (1973) Q.B. 233.
Nonetheless, Damages under Section 73 of the Act are compensatory and not penal in nature.
Often, ‘No due certificate’ is issued to an individual when his or her payment is not fully covered based on the agreement made with the employee. Such certificates are forcefully issued thereby breaching the contract between the two parties.
It imposes on an individual to impliedly claim that the full amount has been paid whereas such is not the fact in the agreement. This may be imposed on the employee to offset any dispute or misunderstanding that may have ensued between the parties.
The aggrieved has every right to sue for damages against the employer with or without singing the ‘No due certificate’. This is applicable when the employee or the aggrieved party can establish that he or she is entitled to a further amount for which he or she have been barred from claiming.
This is especially so when there the employee has rendered full services to the employer without remuneration or compensation as earlier agreed by both parties. It is advisable to always take precaution to ensure that a No due certificate when signed does not bar the aggrieved party from raising issues pertaining to the contract now or in future or to obviate any issue in future.
Importance of No Dues Certificate
In other to acquire another transaction (banking loans, light bills, land payment, house bills etc.) or seek employment in other companies ‘No due certificate’ is essentially required. However, the importance of No due certificate cannot be ignored but must be favorable to both parties involved. The popular phrase is usually “It is essential for one to clear all dues and obtain a history of clean credit.”
In cases of banking loans, before a bank issues a loan, a No due certificate is required to show that there are no previous debt, mortgage, or unpaid or outstanding loan by the Borrower. It is advisable to pay off all outstanding debts or loan before seeking out a new one. This is because such new loan may affect the payment of the old one.
If there is No due certificate, such a transaction is usually should be terminated. It should be noted that the certificate should be ignored in order to advance loan to small-scale business owners around rural areas and rural-urban areas.
Banks are encouraged to use the alternative framework of due diligence as part of credit appraisal exercise other than the ‘No Dues Certificate’ which consists of the following:
- Self-declaration or an affidavit from the borrower,
- CERSAI registration (Central Registry of Securitization Assets Reconstruction and Security Interest) created to check fraud in lending against equitable mortgages, in which people would take multiple loans on the same asset from different banks.
- Registration must be completed within 30 days of the creation of security interest.
- Peer monitoring
- Information sharing among lenders.
- Banks are also advised to submit credit information or data to all credit information companies (CICs).
Nonetheless, one should be careful in any transaction that requires ‘No Due Certificate’ especially in cases of compromise settlements. When such contracts are breached, or when an individual is being forced to sign’ No Due Certificate’, it is possible to claim damages even when the certificate is signed. As an individual, you have the right against exploitation.
A No Dues Certificate or a No Objection Certificate has similar meaning but varying instances. The certificate simply certifies that one is no longer in debt to another. But in a situation where it is obtained under duress, the aggrieved party has a right to claim damages against the employer.
In this instance, the aggrieved must prove that the signature was obtained under duress.