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Tuesday, July 7, 2015

In our opinion, the High Court had committed an error by not considering the above facts and by observing that the appellant will have to take legal action against the ONGC for recovery of the amount payable to it. If one looks at the relationship between the appellant and the respondent, it is very clear that the respondent had given a sub-contract to the appellant and in the said agreement of sub-contract, the ONGC was not a party and there was no liability on the part of the ONGC to make any payment to the appellant. Moreover, we could not find any correspondence establishing contractual relationship between the ONGC and the appellant. In the circumstances, the ONGC cannot be made legally liable to make any payment to the appellant. As stated hereinabove, only for the sake of convenience and to get the work of the ONGC done without any hassle, the ONGC had made payment to the appellant on behalf of the respondent without incurring any liability to make complete payment on behalf of the respondent. 28. The learned counsel appearing for the appellant failed to show any document in the nature of a contract entered into between the appellant and the ONGC whereby the ONGC had made itself liable to make payment to the appellant. Even when the payment had been made by the ONGC, it was very clear that the payments were made on behalf of the respondent as the ONGC was debiting the account of the respondent by the amount paid to the appellant. It is important that the payment was made to the appellant only upon certification of work done by the respondent. The ONGC had given a contract to the respondent. The ONGC had never entered into any contract with the appellant and therefore, it did not rely upon any certification or any statement made by the appellant in relation to quantum of work done by the appellant. This fact also shows that the ONGC was concerned with the work which had been approved by the respondent and instead of making payment to the respondent, the ONGC had made payment to the appellant on behalf of the respondent, though there was no legal obligation on the part of the ONGC to make such a payment to the appellant. 29. For the aforestated reasons, we do not agree with the view expressed by the High Court and the impugned judgment delivered by the High Court is set aside. The ONGC shall not be liable to make payment, as rightly decided by the Arbitral Tribunal, to the appellant but the payment shall have to be made by the respondent, who had given a sub- contract to the appellant. Majority view of the Arbitral Tribunal on the above issue is confirmed and the view of the High Court is not accepted. The respondent shall accordingly make payment to the appellant.

                                                                  REPORTABLE

                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO.3353 OF 2005



    M/S ESSAR OIL LTD.                      ... APPELLANT


                                   VERSUS




    HINDUSTAN SHIPYARD LTD. & ORS.        ... RESPONDENTS


                                    WITH

                        CIVIL APPEAL NO.3355 OF 2005



                               J U D G M E N T




    ANIL R. DAVE, J.

    1.     Being aggrieved by a common judgment dated 29th September, 2004,
    delivered in Appeals Against Order Nos.255 and 624 of 2003 by the  High
    Court of Andhra Pradesh at Hyderabad, these appeals have been filed  by
    M/s Essar Oil Ltd., who had been given  a  sub-contract  by  the  first
    respondent, Hindustan Shipyard Ltd., in respect of a contract which was
    given to it by the Oil and Natural Gas Commission.

    2.     The facts giving rise to the present litigation, in a  nutshell,
    are as under:-

           The Oil and Natural Gas Commission (hereinafter referred  to  as
    ‘the ONGC’) had given a contract to Hindustan Shipyard  Ltd.  to  carry
    out work of fabrication, skidding, sea fastening,  transportation  etc.
    at various stations located in  the  coastal  areas  of  India.  It  is
    pertinent to note that the contractor, Hindustan Shipyard Ltd., who  is
    respondent no.1 in both  the  appeals,  had  been  permitted  to  avail
    services of any other person for doing the aforestated  work  entrusted
    to it.  In other words, it was open to respondent no.1 to engage a sub-
    contractor for getting  the  work  done.  Other  respondents  in  these
    appeals are the arbitrators, who are formal parties.

    3.     In pursuance of the aforestated understanding arrived at and the
    contract entered into between the ONGC and Hindustan Shipyard Ltd. (who
    has been referred to as ‘the respondent’ hereinafter),  the  respondent
    had entered into a contract  with  M/s  Essar  Oil  Ltd.,  who  is  the
    appellant in both these  appeals.   Thus,  the  appellant  was  a  sub-
    contractor in respect of the  contract  which  the  respondent  had  to
    fulfill for the ONGC.

    4.     It appears that for the sake of convenience and so as to obviate
    certain financial difficulties of the respondent, certain payments  had
    been made to the appellant directly by the ONGC.  The  appellant,  upon
    getting certain work done  under  the  sub-contract  and  upon  getting
    necessary certificates with regard to the quality and quantity  of  the
    work done from the respondent, had received some payment from the  ONGC
    on the strength of those certificates.

    5.     In the process of carrying out the contract, the  appellant  was
    not paid by the respondent for the work done and therefore,  a  dispute
    had arisen between the appellant and the respondent.  Let us  not  look
    at the nature of the dispute or the amount  claimed  or  the  liability
    with regard to making payment to the appellant at this  stage,  suffice
    it to state  that  there  was  an  Arbitration  Agreement  between  the
    appellant and the  respondent  and  therefore,  the  dispute  had  been
    referred to the Arbitral Tribunal.  Respondent nos.2, 3 and 4  are  the
    Arbitrators, who had made the  Award  with  regard  to  which  we  will
    discuss presently.

    6.     Thus, the dispute with regard  to  non-payment  and  some  other
    disputes had been referred  to  the  Arbitral  Tribunal  consisting  of
    Respondent nos.2, 3 and 4.   It is pertinent  to  note  here  that  the
    ONGC, who had given a contract to the respondent, was  not  before  the
    Arbitral Tribunal because the ONGC was not a party to  the  Arbitration
    Agreement entered into between the appellant and the  respondent.   The
    question which was involved in the  said  dispute  was  not  only  with
    regard to determination of the amount to be paid to the appellant,  but
    was also with regard to determination of a person  who  was  liable  to
    make payment to the appellant.

    7.     After hearing the concerned parties, the Arbitral Tribunal  made
    an Award, but all the three Members of the Tribunal could not  come  to
    the same conclusion.  The majority i.e. two  Members  of  the  Tribunal
    came to the conclusion that there was no privity  of  contract  between
    the appellant and the ONGC; and  the  ONGC  was  not  a  party  to  the
    contract between the appellant and the respondent.   In the aforestated
    circumstances, the ONGC, according to the majority view, could  not  be
    held liable for making payment to the appellant and  the  liability  to
    make payment to the appellant was that of the respondent.  It was  also
    held by the majority that the appellant could not even sue the ONGC for
    the unpaid amount.  Accordingly, the Award was made.  At this stage, we
    are not concerned with the other facts and the amount  awarded  by  the
    majority of the Tribunal.

    8.     On the other hand, the dissenting Member, who was  in  minority,
    was of the opinion that there was a contract between the appellant  and
    the ONGC and therefore, the ONGC was liable  to  make  payment  to  the
    appellant,  but  he  expressed  an  opinion  to  the  effect  that  the
    respondent should be directed to make payment to the appellant only  if
    the respondent is paid the  unpaid  amount  by  the  ONGC.   Thus,  the
    minority view was that the liability to make payment to  the  appellant
    was that of the ONGC, but as the  ONGC  was  not  a  party  before  the
    Tribunal,  the  proper  course  open  to  the  appellant  was  to  take
    appropriate legal action against the ONGC for recovery  of  the  amount
    due and payable to the appellant.

    9.     The respondent was  aggrieved  by  the  Award  of  the  Arbitral
    Tribunal as according  to  the  majority  view  of  the  Tribunal,  the
    respondent was  liable  to  make  payment  to  the  appellant.  In  the
    circumstances, the respondent filed OP NoS.989 of 2001 and 96  of  2002
    before the Principal District Judge, Visakhapatnam, under Section 34 of
    the Arbitration and Conciliation Act, 1996.

    10.    The Principal District Judge, Visakhapatnam,  decided  both  the
    Original Petitions by orders dated 10th October, 2002 and 1st November,
    2002, respectively. The learned Principal District Judge confirmed  the
    award on the issues with which we are concerned, but  he  remanded  the
    matter to the Arbitral Tribunal on the issues regarding  counter  claim
    etc., with which we are not concerned in this case.

    11.    Being aggrieved by the aforestated  two  orders  passed  in  two
    Original Petitions, the respondent filed Appeals Against Order  Nos.255
    and 624 of 2003 before the High Court of Andhra Pradesh  and  the  High
    Court allowed the appeals by a common judgment  dated  29th  September,
    2004, validity of which has been challenged before this Court in  these
    appeals.

    12.    The High Court came to a conclusion that there was a  tripartite
    agreement among the ONGC, the appellant and the respondent.   The  High
    Court had relied upon some letters written by the appellant to the ONGC
    and therefore, the ONGC was also treated as a party  to  the  contract.
    It also held that as the ONGC was a party to the contract, it ought  to
    have been made a party before the Arbitral Tribunal but as the ONGC was
    not represented before the Arbitral Tribunal, the  Award  made  by  the
    Tribunal was bad in law.  The Award deserved to be  set  aside  by  the
    Principal District Judge but he  did  not  and  therefore,  the  orders
    passed in the Original Petitions filed  before  the  learned  Principal
    District Judge were also bad in law and accordingly the Award  and  the
    orders passed in the Original Petitions were quashed and set aside.

    13.    The main issue which is  involved  in  these  appeals  is  about
    ascertainment of a person,  who  is  liable  to  make  payment  to  the
    appellant.  There is no dispute with regard to quality or  quantity  of
    the work done by the appellant at this stage.   It is  not  in  dispute
    that the appellant has not been paid the amount payable to it.   It  is
    also not in  dispute  that  the  appellant  had  been  engaged  by  the
    respondent  in  pursuance  of  a  contract  entered  into  between  the
    respondent and the ONGC and it was open  to  the  respondent  to  avail
    services of any other person for doing the work entrusted to it by  the
    ONGC.   In the light of the aforestated undisputed facts, the  question
    is only with regard to determination of liability of the person who has
    to make payment to the appellant.

    14.    The learned counsel appearing for the appellant  had  vehemently
    submitted that the view taken by the majority of the Arbitral  Tribunal
    being correct, the High Court ought not to  have  interfered  with  the
    said view.  So as to substantiate his submission, the  learned  counsel
    had mainly submitted that there was no privity of contract between  the
    appellant and the ONGC.  The appellant had performed the  work  of  the
    ONGC in pursuance of a contract given to it by  the  respondent,  which
    was a sub-contract in nature.   In absence of any contract between  the
    ONGC and the appellant, the appellant could not  have  made  any  claim
    before the ONGC and as there was no contract between them, it was  also
    not possible for the appellant to make the  ONGC  a  party  before  any
    Court or Authority  for  recovery  of  the  amount  payable  to  it  in
    pursuance of the sub-contract given by the respondent.

    15.    It had been fairly admitted by the learned counsel appearing for
    the appellant that very often payments were made to  the  appellant  by
    the ONGC.  It had further been submitted that the payments were made by
    the ONGC so as to facilitate the appellant and to get the work  of  the
    contract done smoothly.  Every time when payment was made by  the  ONGC
    to the appellant, the ONGC used to debit the account of the  respondent
    i.e. the amount so paid by the ONGC to the appellant was treated by the
    ONGC as if the said payment was made by the  ONGC  to  the  respondent.
    Thus, so as to obviate a long procedure and to expedite payment to  the
    appellant, who was actually doing the job for the ONGC, instead of  the
    ONGC paying to the appellant  through  the  respondent,  the  ONGC  was
    paying directly to the appellant.

    16.    The learned counsel for the  appellant  had  with  great  stress
    submitted that there was not a single contract  between  the  appellant
    and the ONGC and there was no tripartite contract among the  appellant,
    the respondent and the ONGC, whereby the ONGC was made  liable  to  pay
    the appellant in respect of the work done by it.

    17.    For the aforestated simple reason, it had been submitted by  the
    learned counsel for  the  appellant  that  the  majority  view  of  the
    Arbitral Tribunal was correct and the  respondent  is  liable  to  make
    payment to the appellant with whom it had entered into the contract. It
    had been further submitted by the learned counsel that in view  of  the
    aforestated factual and legal  position,  the  appeals  deserve  to  be
    allowed and the respondent should be made liable to make payment to the
    appellant.

    18.    On the other hand, the learned counsel for  the  respondent  had
    submitted that the ONGC was liable to make payment to the appellant and
    therefore, there is no liability on the part of the respondent to  make
    payment to the appellant.

    19.    It had further been submitted by the  learned  counsel  for  the
    respondent that it is not necessary that in each  and  every  case  the
    contract should be in writing. The contract can be very  well  inferred
    by the act or  conduct  of  the  parties,  whereby  impliedly  a  party
    undertakes to make  good  a  liability  to  make  payment  to  someone.
    According to the learned counsel, even in the instant case,  there  was
    an implied contract amongst the appellant, the respondent and the  ONGC
    and therefore, it was the liability of the ONGC to make payment to  the
    appellant.

    20.    The learned counsel for the respondents had drawn our  attention
    to correspondence exchanged between the ONGC and the respondent. He had
    specially referred to a letter dated 25th October,  1991  addressed  by
    the respondent to the ONGC, wherein it was stated  that  the  ONGC  had
    desired to make payment directly  to  the  appellant  in  pursuance  of
    meetings convened among the representatives of the respondents and  the
    ONGC.  He had also submitted that some of the letters  written  by  the
    ONGC to the respondent clearly denoted that the ONGC had  accepted  the
    liability to make payment to the appellant and therefore, there was  no
    liability on the part of the respondent to  make  any  payment  to  the
    appellant.   He had further submitted that the  subsequent  conduct  of
    the ONGC of making direct payment to the appellant established the fact
    that the ONGC had undertaken the  liability  to  make  payment  to  the
    appellant.  The aforestated letter dated 25th October, 1991  and  other
    letters which had been exchanged between the respondent  and  the  ONGC
    were placed on record to show that there was  a  contract  between  the
    ONGC and the appellant.

    21.    For the aforestated  reasons,  it  had  been  submitted  by  the
    learned counsel for the respondent that the view of the High Court that
    the ONGC was liable to make payment to the  appellant  is  correct  and
    therefore, the appellant should take  appropriate  action  against  the
    ONGC for recovery of  the  unpaid  amount.  The  learned  counsel  had,
    therefore,  submitted  that  the  view  taken  by  the  High  Court  is
    absolutely correct and the respondent is no more  liable  to  make  any
    payment to the appellant.

    22.    We have heard the learned counsel for the parties at length  and
    have also considered some judgments cited by  them  and  the  documents
    which had been placed on record and relied upon by them.

    23.    Upon hearing the learned counsel and  looking  at  the  contract
    entered into between the appellant and the respondent and upon  perusal
    of other letters, we believe that the view expressed by the High  Court
    cannot be accepted.

    24.    It is true that the ONGC  had  made  payment  to  the  appellant
    directly on several occasions.  Upon perusal of the correspondence,  we
    find that some understanding, but not amounting  to  any  agreement  or
    contract, was arrived at between the ONGC and the respondent for making
    direct payment to the appellant, possibly because  the  respondent  was
    not in a position to make prompt payments to the  appellant.   It  also
    appears that  on  account  of  the  delay  in  making  payment  to  the
    appellant, the work of the ONGC was likely to  be  adversely  affected.
    The ONGC was interested in getting its work done promptly  and  without
    any hassles.  In the circumstances, upon perusal of the correspondence,
    which had taken place between the ONGC and the respondent, it is  clear
    that so as to facilitate the respondent, the ONGC had made payments  on
    behalf of the respondent to the appellant directly.

    25.    Simply because some payments had been made by the  ONGC  to  the
    appellant, it would not be established that  there  was  a  privity  of
    contract between the ONGC and the appellant and only  for  that  reason
    the ONGC cannot be saddled with a liability to pay the  amount  payable
    to the appellant by the respondent.

    26.  It is also pertinent to note that the  Arbitration  Agreement  was
    only between the appellant and the respondent.   The  ONGC  was  not  a
    party to the Arbitration Agreement.  When a dispute had arisen  between
    the appellant and the respondent in relation to payment of  money,  the
    appellant had initiated the arbitration proceedings.  As the  ONGC  was
    not a party to the  Arbitration  Agreement,  it  could  not  have  been
    represented before the Arbitral Tribunal.  If the ONGC was not a  party
    before the Arbitral Tribunal, the Tribunal  could  not  have  made  any
    Award making the ONGC liable to make payment to the appellant.  In  the
    aforestated factual and legal position, the Arbitral Tribunal could not
    have made the ONGC liable in any respect and rightly, the majority view
    of the Arbitral Tribunal was to the effect that the ONGC, not  being  a
    party to any contract or  Arbitration  Agreement  with  the  appellant,
    could not have been made liable to make any payment to the appellant.

    27.    We are in agreement with the view expressed by the  majority  of
    the Arbitral Tribunal.  In our opinion, the High Court had committed an
    error by not considering the above facts  and  by  observing  that  the
    appellant will have to take legal action against the ONGC for  recovery
    of the amount payable to it.  If one looks at the relationship  between
    the appellant and the respondent, it is very clear that the  respondent
    had given a sub-contract to the appellant and in the said agreement  of
    sub-contract, the ONGC was not a party and there was  no  liability  on
    the part of the ONGC to make any payment to the appellant. Moreover, we
    could not find any correspondence establishing contractual relationship
    between the ONGC and the appellant.  In  the  circumstances,  the  ONGC
    cannot be made legally liable to make any payment to the appellant.  As
    stated hereinabove, only for the sake of convenience  and  to  get  the
    work of the ONGC done without any hassle, the ONGC had made payment  to
    the appellant  on  behalf  of  the  respondent  without  incurring  any
    liability to make complete payment on behalf of the respondent.

    28.    The learned counsel appearing for the appellant failed  to  show
    any document in the nature of  a  contract  entered  into  between  the
    appellant and the ONGC whereby the ONGC had made itself liable to  make
    payment to the appellant.  Even when the payment had been made  by  the
    ONGC, it was very clear that the payments were made on  behalf  of  the
    respondent as the ONGC was debiting the account of  the  respondent  by
    the amount paid to the appellant.  It is important that the payment was
    made to the appellant only upon  certification  of  work  done  by  the
    respondent.  The ONGC had given a contract to the respondent.  The ONGC
    had never entered into any contract with the appellant  and  therefore,
    it did not rely upon any certification or any  statement  made  by  the
    appellant in relation to quantum of work done by the  appellant.   This
    fact also shows that the ONGC was concerned with  the  work  which  had
    been approved by the respondent and instead of making  payment  to  the
    respondent, the ONGC had made payment to the appellant on behalf of the
    respondent, though there was no legal obligation on  the  part  of  the
    ONGC to make such a payment to the appellant.

    29.    For the aforestated reasons, we  do  not  agree  with  the  view
    expressed by the High Court and the impugned judgment delivered by  the
    High Court is set aside.  The ONGC shall not be liable to make payment,
    as rightly decided by the Arbitral Tribunal, to the appellant  but  the
    payment shall have to be made by the respondent, who had given  a  sub-
    contract to the appellant.  Majority view of the Arbitral  Tribunal  on
    the above issue is confirmed and the view of  the  High  Court  is  not
    accepted.   The  respondent  shall  accordingly  make  payment  to  the
    appellant.

    30.    For the reasons enumerated hereinabove, the appeals are  allowed
    with no order to costs.




                                                      …………………………………………………….J
                                   (ANIL R. DAVE)






                                                      …………………………………………………….J
                                     (VIKRAMAJIT SEN)






                                                      …………………………………………………….J
                                         (PINAKI CHANDRA GHOSE)
    NEW DELHI;
    JULY 2, 2015.

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