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2020 (6) TMI 17 - HC - Companies LawReference of matter for arbitration - Works Contract - Invitation for tender for carrying out the balance work - privity of contract or not - Petition had sent pre-termination notice to respondent no.4, on the ground that respondent no. 4 had committed delay and breaches against the contractual delivery date of 12 months i.e. by 17th January, 2014 the respondent no.4 was not in a position to complete the said works - Micro, Small and Medium Enterprises Development Act, 2006 - HELD THAT - There is no privity of contract between the petitioner and respondents no. 2 and 3 - In view of various clauses of the contract, there is nothing on record to show that respondent no.4 had taken consent of the petitioner to give sub- contract to respondent no.2, who in turn gave further sub- contract to respondent no.3. Moreover, this Court in order dated 12th April, 2016 in Special Civil Application No. 3419/2016 has categorically held that there is no privity of contract between the petitioner and respondents nos. 2 and 3. Therefore, in no circumstances, application filed by respondent no.2 could have been proceeded further by respondent no.1 when it is an admitted position that there is no privity of contract between the petitioner and respondent nos. 2 and 3. If there is dispute between respondent no.2, 3 and 4, the petitioner is not liable in any manner whatsoever more particularly, when respondent no.4 has admitted that there is a final settlement between the petitioner and respondent no.4 with regard to the outstanding dues. The findings given by respondent no.1 Council in paragraph no. 3 and 4 as referred to herein above are self-contradictory. Respondent no.1 Council on one hand has observed that this is the only civil remedy for involving all the three respondents, except M/s. Indian Oil Corporation Limited but in the next paragraph it has observed that it is very shocking and painful argument by learned advocate of M/s. Indian Oil Corporation Limited before the Council that it has no knowledge of the work by M/s. Hariom Builders and M/s. H.P. Associate. The respondent no.1 council appears to have taken into consideration the work done by respondent no.2 and 3 only without referring to the respective clauses of the agreement between the petitioner and respondent no.4 - Moreover, in absence of any contract between petitioner and respondent nos. 2 and 3, the petitioner could not have been dragged to arbitration proceedings only because respondents no.2 and 3 have carried out work pursuant to the contract awarded to respondent no.4 by the petitioner. Findings given by respondent no.1 Council in the impugned order is therefore contrary to the facts materials on record. Respondent no.1 Council has not taken into consideration the relevant materials on record but has been swayed away by the factor of work being carried out by respondent nos. 2 and 3 - the petitioner cannot be said to be a buyer only because respondents no.2 and 3 carried out the work on behalf of respondent no.4 because definition of buyer means whoever buys goods or services for consideration. The petitioner has never bought any goods or received any service from respondents no. 2 and 3 who are suppliers for any consideration. According to provision of section 15, liability of the petitioner would arise only if the petitioner is a buyer. In the facts of the case, the petitioner cannot be said to be buyer as there was no privity of contract between the petitioner and the respondent nos. 2 and 3. Therefore, when there is no liability of the petitioner to make payment, provisions of section 18 would not come into operation because there is no amount due to be paid by the petitioner to either respondents no. 2 or 3 - the impugned order referring the matter to arbitration qua the petitioner is not tenable in law. The impugned order dated 17th April, 2018 passed by respondent no.1 council is modified so far as it directs the petitioner to be arrayed as respondent in the arbitration proceedings. The order passed by respondent no. 1 Council therefore, now would be applicable only qua respondents no. 3 and 4 who where original respondents no. 2 and 3 before respondent no. l Council - petition allowed in part.
Issues Involved:
1. Privity of Contract 2. Jurisdiction of the MSME Council 3. Applicability of the MSME Act, 2006 4. Role and Liability of the Petitioner 5. Validity of Arbitration Referral Issue-wise Detailed Analysis: 1. Privity of Contract: The petitioner, Indian Oil Corporation Limited (IOCL), contended that there was no privity of contract between it and respondents no. 2 (Hariom Builders) and no. 3 (H.P. Associates). The contract was solely between IOCL and respondent no. 4 (Das Offshore Private Limited). The Court upheld this argument, referencing clauses 4.8.1.0 to 4.8.5.0 of the contract, which explicitly required prior written approval for any subcontracting. The Court cited its previous order dated 12th April 2016, which confirmed the absence of privity of contract between IOCL and respondents no. 2 and 3. 2. Jurisdiction of the MSME Council: The MSME Council had referred the matter to arbitration under Section 18 of the MSME Act, 2006. IOCL argued that the Council had no jurisdiction to initiate proceedings against it due to the absence of a direct contractual relationship with respondents no. 2 and 3. The Court agreed, stating that the Council's decision was contrary to the established facts and the previous High Court order. 3. Applicability of the MSME Act, 2006: The Court examined whether the provisions of the MSME Act, 2006, were applicable. It concluded that IOCL could not be considered a "buyer" under Section 2(d) of the Act since it did not receive any services or goods from respondents no. 2 and 3 for consideration. Consequently, the MSME Act's provisions for delayed payments and arbitration did not apply to IOCL in this context. 4. Role and Liability of the Petitioner: The Court found that IOCL had no liability to respondents no. 2 and 3, as there was no contractual relationship. The accounts between IOCL and respondent no. 4 had been settled, with no outstanding dues. The Court emphasized that merely allowing respondents no. 2 and 3 to work on the project site did not create any legal obligation or liability for IOCL towards them. 5. Validity of Arbitration Referral: The Court scrutinized the MSME Council's decision to refer the matter to arbitration, noting that the Council had previously passed an order excluding IOCL from arbitration. The Council's subsequent decision to include IOCL was deemed contradictory and beyond its jurisdiction. The Court held that the Council should have adhered to its earlier order and excluded IOCL from the arbitration proceedings. Conclusion: The Court concluded that the MSME Council's order to refer IOCL to arbitration was not tenable in law due to the absence of privity of contract and the inapplicability of the MSME Act. The impugned order was modified to exclude IOCL from the arbitration proceedings, while the arbitration between respondents no. 2, 3, and 4 was allowed to continue. The petition was partly allowed, and the rule was made absolute to the extent specified.
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