ZONAL.GEN.MANAGER,IRCON INTER.NATNL.LTD. Vs. M/S VINAY HEAVY EQUIPMENTS
Supreme Court of India (Division Bench (DB)- Two Judge)
Appeal (Civil), 7205 of 2006, Judgment Date: May 06, 2015
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 4211 OF 2015
[Arising out of SLP (Civil) No. 7205 of 2007]
ZONAL GENERAL MANAGER, M/S IRCON
INTERNATIONAL LTD. .. APPELLANT
VERSUS
M/S VINAY HEAVY EQUIPMENTS .. RESPONDENT
WITH
Civil Appeal No. 4213 of 2015 [arising out of SLP (C) No. 7216 of 2007] and
Civil Appeal No. 4212 of 2015 [arising out of SLP (C) No. 33491 of 2009]
J U D G M E N T
VIKRAMAJIT SEN, J.
1 Leave granted.
2 The Appellant, IRCON International, is impugning the Judgment of the
Learned Division Bench of the Madras High Court, which had dismissed two
Original Second Appeals preferred by the Appellant. Recapitulating the
facts of this litigation, the Appellant was the successful tenderer in
respect of a contract awarded to it by SIPCOT (not a party to the present
dispute/ Appeal), for the construction of an Internal Road for the
Industrial Complex at Irungattukottal, Sriperumbpudur Taluk, Kanchipuram
District, Tamil Nadu. The contract between these parties was made on
10.07.1997 and was valued at Rs.13,06,60,587/-. In furtherance of the
execution of this contract, the Appellant entered into two subcontracts
(hereinafter, “the subcontracts”) with the Respondent herein, in respect of
two Packages, namely “C1” and “C2”, for the laying of roads valued at
Rs.3,20,64,752/- and Rs.1,67,01,821/- respectively. The cumulative value of
both packages amounted to Rs.4,87,66,573 /-.
3 The Respondent completed approximately 67 per cent of the work under
the two subcontracts but thereafter ceased work on both. The Appellant
cancelled the subcontracts, and managed the completion of the work by
engaging other agencies. The cost of 67 per cent of the contractual work
completed by the Respondent was estimated at Rs.3.23 crores, out of which
the Appellant admittedly paid a sum of Rs.2.62 crores. The Respondent
claimed an unpaid balance of Rs.61 lakhs as arrears due to it by the
Appellant, and resorted to arbitration. The Appellant also took recourse
to arbitration against the main contracting authority, SIPCOT, in respect
of the pending payments pertaining to C1 and C2 packages. The Arbitrator
was thus adjudicating the claims made by the Respondent against the
Appellant in the First Arbitration, and the claims made in turn by the
Appellant against SIPCOT in the Second Arbitration. The Arbitrator passed a
common Award in the First Arbitration for both packages in favour of the
Respondent for the sum of Rs.7,87,21,820/- for C1 and Rs.1,38,78,139/- for
C2, both sums carrying with them interest at the rate of twelve per cent
from 04.03.2001 until the date of payment. Interest apart, the Appellant
stood liable as a result of the Award to pay the Respondent Rs.9,25,99,959/-
, including the aforementioned Rs.61 lakhs.
4 The Appellant filed two petitions (OP Nos. 107 and 108) under Section
34 of the Arbitration and Conciliation Act, 1996, thereby separately
challenging the Award passed in respect of the two subcontracts. The
Respondent filed two applications in the two petitions, contending that
while the Appellant had rejected the Respondent’s claims of payment arrears
under the two subcontracts, it had, at the same time and contradictorily,
claimed in the Second Arbitration against SIPCOT that its dues to
Respondent were in turn payable to it by SIPCOT. By a common Order, the
Single Judge dismissed the Appellant’s petitions and allowed the
Respondent’s applications. The Appellants thereafter filed two Appeals
before the Division Bench of the Madras High Court, which came to be
dismissed. The Appellant’s conflicting claims and statements in both
arbitrations, seen and put together, have proved determinative in the
dismissal of the Appeals by the Courts below; they shall prove similarly so
here.
5 Detailing the arrears claim, it is seen that the Respondent incurred
expenditure in the execution of the subcontracts on two categories of
items: scheduled and non-scheduled. The Respondent claimed Rs.61 lakhs as
its due under both these heads. The Appellant’s principle rebuttal in
resistance to the Respondent’s claim is that the main contract (between the
Appellant and SIPCOT) and the subcontracts are wholly of a “back-to-back”
nature and therefore the liability of the Appellant would be restricted to
and coextensive of that which SIPCOT acknowledges. In other words, the
acceptability and tenability of any claim made by the Respondent against
the Appellant will depend first upon that claim’s acceptability and
tenability before SIPCOT in its capacity as the employer in the main
contract. The Appellant declined to pay the Respondent for scheduled
expenditures, claiming that the Respondent had unauthorisedly performed
additional and increased quantities of works, also challenging the rate
claimed by the Respondent for the same; that the Respondent could not claim
any amount in excess of what was agreed to be paid by SIPCOT in respect of
each item of work covered under C1 and C2 subcontracts. The Appellant also
rejected the Respondent’s claimed dues under the non-scheduled head (which
work the Appellant itself had requested to be performed by the Respondent),
stating that SIPCOT had refuted its liability towards non-scheduled
expenditures. Indeed, the Arbitrator in his Award detected two “general
pleas” as resonating from the Appellant: firstly, that the contracts C1
and C2 were on a “back to back” basis with IRCON’s main contract with
SIPCOT and unless SIPCOT paid for the amounts claimed by the Respondent,
the Appellant was not legally liable for the same; and secondly, that back
to back basis applied even to non-scheduled items.
6 The Arbitrator found that the mention of “back-to-back” had been made
only in the contract rider agreement for Package C2, and in subsequent
epistles exchanged between IRCON and the Respondent from whose analysis two
significant factors emerge. Firstly, that “back-to-back” only meant that
the terms and conditions relating to technical specifications, and quality,
quantum, manner and method of work to be done by the Appellant in the main
contract, stood transposed on the subcontracts, C1 and C2; the primary
liability of the Appellant to the Respondent, however, stood untouched,
there having been no transference or transposition of this liability onto
SIPCOT, either explicitly or implicitly. Secondly, the Appellant had in
its Written Statement before the Arbitrator, reiterated the “back-to-back”
nature and thereby agreed that the Respondent would be entitled to payment
of dues as and when the Appellant received the payment for these from
SIPCOT, the Respondent’s claims having been “transmitted” by the Appellant
to SIPCOT for the latter’s consideration. The Appellant has taken the
stance that it had no objection to the Arbitrator awarding a reasonable
amount to the Respondent, subject to the Appellant being awarded the same
amount by the Arbitrator in its Arbitration with SIPCOT. The Appellant was
agreeable to a direction passed against it to make payment upon realization
of the sum from SIPCOT, after a 10 per cent deduction on the sum as the
Appellant’s marginal profit. The Arbitrator, unstirred by the Appellant’s
gambit at foisting the primary liability onto SIPCOT, located primary
liability as resting with the Appellant, being the ‘employer’ in the
subcontracts. The Arbitrator also instanced the Appellant’s reprobative and
approbative conduct, observing first the Appellants conditional willingness
(supra) for the passage of a favourable Award in the Respondent’s favour,
and thereafter finding a retraction of the Appellant’s position: viz. that
- “Since SIPCOT refused to pay for these claims, IRCON has taken up a new
stand that works were not done fully and payment has been made for whatever
work was done by the claimant”. Having so observed, the Arbitrator
awarded as aforementioned.
7 The Single Judge rightly upheld the Arbitrator’s repudiation of the
applicability of the “back-to-back” principle to the issue of liability of
payment in the facts of this case; affirming that the Appellant as Employer
was primarily liable to the Respondent. Beyond this, the Single Judge
adverted to the Award obtained by the Appellant against SIPCOT, wherein
claims had been raised against SIPCOT on the basis of the earlier Award
obtained against the Appellant. The Single Judge accepted the Respondent’s
contention that “the very same claim, which the respondent made against the
petitioner has been made by the petitioner against the SIPCOT and on that
basis, an award has been passed in favour of the petitioner”. It is
facially apparent that, on the one hand, the Appellant had obtained a
favourable Award in the Arbitration with SIPCOT by substantially relying on
(and as compensation for) the adverse Award passed in its arbitration with
the Respondent; on the other hand, it appealed before the Single Judge
against the adverse Award which had substantially been the premiss and
reason for the Appellant’s success against SIPCOT. In addition, the
Appellant expostulated that the Applications before the Single Judge ought
to have been heard along with the Applications filed by SIPCOT for setting
aside of the Award in Appellant’s favour in the Second Arbitration. To not
have done so would be to disjoin the Awards, leaving it open for the High
Court to come to two dissonant conclusions in the two interdependent
arbitrations; the Appellant’s expressed fear being that while its
obligation to pay, as sealed by the Award in favour of the respondent in
the First Arbitration, would be sustained, the award in its favour against
SIPCOT, if heard separately, would possibly be set aside, leaving it
uncompensated and liable to pay the Respondent the claimed amount. The
Single Judge observed that no material had been brought on record, nor a
specific plea raised or details adduced, that SIPCOT had filed a Section 34
petition before the same Court in a challenge against the Award in the
Respondent’s favour; a mere statement from the Appellant’s counsel made
across the bar was not sufficient materially to justify the demand for
connecting and hearing the petitions together.
8 The Learned Division Bench wholly ratified the reasoning of the
Arbitrator and Single Judge below it, finding no reason to disencumber the
Appellant from the obligation to fulfill the Respondent’s claim. While
entirely agreeing with the reasons given against the Appellant by the
Arbitrator and the Courts below, we also find additional reasons for
dismissing this set of Appeals.
9 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. Seen from this dimension, the
Award in favour of the Appellant is positively valid, and its unsettlement
an uninviting prospect.
10 Insofar as the question of primary liability therein is concerned,
the law on subcontracts and employer liability is amply clear. 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. On the contrary,
much of the exercise in determining the existence of a “back to back
clause” in the contracts C1 and C2 appears to be misplaced. Such an
accommodation or transference of liability needs to be pinpointed in the
main contract, for it is SIPCOT’s acceptance of liability of subcontractor
claims which is of the essence; even a clause indicating “back to back”
liability in agreements C1 and C2 would not serve to novate the main
contract and fasten payment liability on SIPCOT, prevented as it would be
by privity, for it would be a matter of SIPCOT’s acceptance of
subcontractor liability in the main contract, and not a matter of novation
by imposition upon SIPCOT by two parties in a separate bilateral contract.
Nothing presented before us suggests that SIPCOT’s contract with the
Appellant provided for “back to back” subcontracts whereby SIPCOT would be
directly answerable for the payment claims raised by contractors. That
subletting was provided for by the main contract, and indeed occurred, has
been found by the Arbitrator (in both Arbitrations) and affirmed by the
Courts below. This however, is quite distinct from concluding that SIPCOT
contractually (in the main agreement) assumed primary liability for the
Subcontractor-Respondent’s payment claims in respect of agreements made
with the Appellant. The fact that the Respondent was represented and
present in parleys and meetings between SIPCOT and the Appellant or that it
was referred to in the correspondence exchanged between them does not lead
to the conclusion that a Tripartite contract had come into effect by
evolution.
11 The Appellant conceded before the Arbitrator that it would
countenance an Award in favour of the Respondent as long as it was
indemnified for the payment made to the Respondent by an equal offsetting
payment by way of an Award in its favour in its arbitration with SIPCOT.
The record, as has been hereinbefore referenced, shows that the Appellant
was granted precisely such an Award. The legal import of the nature of the
Appellant’s admission of liability made before the Arbitrator in the First
Arbitration now needs deliberation. 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. This was then
followed by a remarkable transition in the Appellant’s legal posture, from
one of conditional agreeability, to outright denial of any and all
liability on its part to pay the Respondent, stating that SIPCOT was wholly
answerable for the satisfaction of all contractual claims and payments
demanded by the Respondent, due to the “back to back” nature of the main
contract with agreements C1 and C2. The Appellant, we find, stands bound
and bonded by the legal consequences of this initial admission made by it
before the Arbitrator. Having concluded thus, we yet underscore to observe
that the Division Bench below proceeded on the merits in this matter in
upholding the Award, and did not simply hold the Appellant to account for
the consequences of its admission.
12 We also find that the Appellant’s case is not advanced by its
reliance upon the three Judge Bench decision in Oil and Natural Gas
Corporation Ltd. Vs. Western Geco International Ltd. (2014) 9 SCC 263. 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.
13 For the foregoing reasons, we decline to interfere with the judgment
properly exercised by the Arbitrator and Courts below, and sustain the
impugned order in its entirety.
14 Interim orders stand recalled. Appeals dismissed. Parties are to bear
their respective costs.
…..…………………………….J.
[VIKRAMAJIT SEN]
.....................J
[SHIVA KIRTI SINGH]
New Delhi,
May 6, 2015.
For the Latest Updates
Join Now