2002 (7) TMI 727 - HC - Companies Law

Court dismisses arbitration application due to lack of privity and valid contract assignment.

Sethi Construction Co. Versus Chairman & Managing Director, NTPC

The court dismissed the application under sections 8 and 11 of the Arbitration and Conciliation Act, 1996, as there was no privity of contract between the ... Application under sections 8 and 11 of the Arbitration and Conciliation Act, 1996 - Prayer for appointment of an arbitrator - Works contract for the construction - Privity of contract between the applicant and the NTPC - Existence of contract - doctrine of 'assignment' - HELD THAT:- A bare reading of the documents leaves little room for doubt that the applicant was dealing with the NTPC for and on behalf of GEL as their general power of attorney holder. On the strength of the afore-extracted minutes, heavily relied upon by learned counsel for the applicant, it is difficult to hold that the applicant was accepted by the NTPC as a sub-contractor in terms of clause 37 of the general conditions of contract, which, though provides for appointment of a sub-contractor by the contractor but such an appointment has to be with the prior written approval of the accepting authority i.e., NTPC. Further, the said clause also stipulates that employment of piece rate workers shall not be deemed as sub-contracting. It is not in dispute that GEL had employed the applicant as a piece rate worker (PRW). In my view, the NTPC is not at all concerned with the underlying contract/agreement, which the applicant had entered into with GEL on 31st August, 1999. In my considered opinion there is no privity of contract between the applicant on the one hand and the NTPC on the other and, therefore, the present application under sections 8 and 11 of the Act by the applicant is misconceived. Applicant’s remedy may lie elsewhere. Thus, the application fails and is accordingly dismissed. Issues Involved:1. Privity of contract between the applicant and NTPC.2. Existence of an arbitration agreement between the applicant and NTPC.3. Validity of the assignment of the contract from GEL to the applicant.Issue-wise Detailed Analysis:1. Privity of Contract between the Applicant and NTPC:The primary issue was whether there was any privity of contract between the applicant and NTPC. The applicant argued that the works contract dated 1st July, 1998, was assigned to them by GEL and that NTPC had accepted the applicant as a sub-contractor. The NTPC, however, contended that there was no privity of contract between them and the applicant, asserting that GEL remained the contractor and the applicant was merely a piece rate worker (PRW) for GEL. The court examined various documents, including minutes from NTPC files and agreements between GEL and the applicant, and concluded that the applicant was dealing with NTPC on behalf of GEL as a general power of attorney holder. The court found that NTPC had not accepted the applicant as a sub-contractor in terms of clause 37 of the general conditions of contract, which requires prior written approval from NTPC for sub-contracting. Therefore, the court held that there was no privity of contract between the applicant and NTPC.2. Existence of an Arbitration Agreement between the Applicant and NTPC:The applicant sought the appointment of an arbitrator under sections 8 and 11 of the Arbitration and Conciliation Act, 1996, based on clause 56 of the General Conditions of Contract governing the contract between GEL and NTPC. This clause provided for arbitration of disputes by the General Manager, NTPC, or another person appointed by the Chairman and Managing Director of NTPC. However, NTPC argued that there was no arbitration agreement between them and the applicant. The court noted that the existence of an arbitration agreement is a prerequisite for invoking jurisdiction under sections 8 and 11 of the Act. Since the court found no privity of contract between the applicant and NTPC, it concluded that there was no arbitration agreement between them, rendering the application under sections 8 and 11 of the Act misconceived.3. Validity of the Assignment of the Contract from GEL to the Applicant:The applicant claimed that GEL had assigned the contract to them, thereby transferring all rights and obligations under the contract to the applicant. The court examined the concept of 'assignment' as defined in Black's Law Dictionary and the Indian Contract Act, 1872, noting that obligations under a contract cannot be assigned without the consent of the promisee, and such consent results in novation. The court scrutinized the documents, including an agreement dated 31st August, 1999, between GEL and the applicant, and a General Power of Attorney, concluding that these documents did not indicate an assignment or transfer of the contract from GEL to the applicant. Instead, the documents showed that the applicant was authorized to act on behalf of GEL. Therefore, the court held that there was no valid assignment of the contract from GEL to the applicant.Conclusion:The court dismissed the application under sections 8 and 11 of the Arbitration and Conciliation Act, 1996, holding that there was no privity of contract between the applicant and NTPC, and consequently, no arbitration agreement existed between them. The court also found that there was no valid assignment of the contract from GEL to the applicant. The applicant's remedy was deemed to lie elsewhere.