2015 (5) TMI 1194 - SC - Indian Laws

Arbitral Award - Sub-contract - privity of contract - HELD THAT - While the Award in the SIPCOT arbitration is not immediately an appellate subject herein, yet it is still part of the record and therefore merits our consideration. Until an order to the contrary be adduced before this Court, this Award must be assumed to be standing and valid. Its validity and legitimacy in law, insofar as it has depended on the earlier Award qua the adjudication of claims, would only be justifiable by the validity of the earlier Award in the Respondent s favour. The earlier Award must, therefore, be presupposed to be valid, when the validity of the later Award has not been disproved or rebutted - the Award in favour of the Appellant is positively valid, and its unsettlement an uninviting prospect. Law on subcontracts - Primary liability - employer liability - HELD THAT - In the absence of covenant in the main contract to the contrary, the rules in relation to privity of contract will mean that the jural relationship between the employer and the main contractor on the one hand and between the sub-contractor and the main contractor on the other will be quite distinct and separate. No such clause to the contrary, existent in the main contract between Appellants and SIPCOT, has been highlighted before us by the Appellants, which would persuade us towards a deviation from the presumption of distinct and sole liability of the Appellant-Contractor as employer viz. a. viz. the Respondent-Sub Contractor. The Appellant exercised care to make this concession by conjoining therewith its demand for adjustment in the Second Arbitration. To that extent the concession could be called a conditional one. At the heart of the concession however, the admission itself, taken alone, was not conditional. The Appellant thereby admitted an unconditional contractual liability on its part to pay the Respondent s contractual claim, albeit dressing the same in the shroud of conditionality, by the expedient of making the concession dependent upon a consequent favourable outcome in the Second Arbitration. We cannot subscribe to the argument on behalf of the Appellant that it was merely a Consultant and therefore could not be fastened with liability or was imperious to claims preferred by the Respondent for work contractually carried out, or, in respect of claims founded on the bedrock of quantum meruit. Appeal dismissed.

Summary

Issues Involved:
1. Validity of the "back-to-back" contract principle.
2. Primary liability for payment to the subcontractor.
3. Appellant's conflicting claims in different arbitrations.
4. Award of payment to the Respondent by the Arbitrator.
5. Appellant's concession of liability before the Arbitrator.
6. Applicability of the ONGC vs. Western Geco International Ltd. decision.

Issue-wise Detailed Analysis:

1. Validity of the "back-to-back" contract principle:
The Appellant argued that the main contract with SIPCOT and the subcontracts with the Respondent were of a "back-to-back" nature, implying that the Appellant's liability was contingent on SIPCOT's acknowledgment of the Respondent's claims. The Arbitrator found that "back-to-back" only applied to technical specifications and not to the primary liability of payment, which remained with the Appellant. The Single Judge and the Division Bench upheld this view, affirming that the Appellant was primarily liable to the Respondent.

2. Primary liability for payment to the subcontractor:
The Arbitrator and the courts below determined that the Appellant, as the employer in the subcontracts, was primarily liable for the Respondent's claims. The Appellant's argument that SIPCOT was responsible for the payment due to the "back-to-back" nature of the contracts was rejected. The courts emphasized the distinct jural relationships between the main contract and the subcontracts, with no clause in the main contract transferring liability to SIPCOT.

3. Appellant's conflicting claims in different arbitrations:
The Appellant had contradictory positions in two arbitrations: it rejected the Respondent's claims in the first arbitration while simultaneously claiming those amounts from SIPCOT in the second arbitration. The Single Judge noted that the Appellant had obtained a favorable Award against SIPCOT based on the adverse Award in favor of the Respondent, yet appealed against the latter. This inconsistency was pivotal in dismissing the Appellant's petitions.

4. Award of payment to the Respondent by the Arbitrator:
The Arbitrator awarded the Respondent Rs. 7,87,21,820/- for C1 and Rs. 1,38,78,139/- for C2, with interest from 04.03.2001 until payment. The Appellant's petitions challenging this Award were dismissed by the Single Judge and the Division Bench, which found no merit in the Appellant's arguments against the Award.

5. Appellant's concession of liability before the Arbitrator:
The Appellant had conceded before the Arbitrator that it would accept an Award in favor of the Respondent if it was indemnified by a corresponding Award against SIPCOT. This conditional concession was later retracted by the Appellant, which then denied any liability. The courts held the Appellant to this initial admission, emphasizing the legal consequences of its concession.

6. Applicability of the ONGC vs. Western Geco International Ltd. decision:
The Appellant's reliance on the ONGC vs. Western Geco International Ltd. case was found unpersuasive. The court did not accept the argument that the Appellant was merely a consultant and thus not liable for the Respondent's claims. The court upheld the Arbitrator's and lower courts' decisions, affirming the Appellant's liability.

Conclusion:
The Supreme Court dismissed the Appeals, affirming the Arbitrator's and lower courts' decisions. The Appellant was held primarily liable for the Respondent's claims, and the "back-to-back" contract principle was deemed inapplicable to transfer liability to SIPCOT. The Appellant's conflicting positions in different arbitrations and its initial concession of liability were significant factors in the judgment. The reliance on the ONGC case was rejected, and the impugned order was sustained in its entirety.