2015 (7) TMI 373 - SC - Indian Laws

Supreme Court Rules No Privity of Contract Between ONGC and Appellant

M/s. Essar Oil Ltd. Versus Hindustan Shipyard Ltd. & Others

The Supreme Court set aside the High Court's judgment, confirming the majority view of the Arbitral Tribunal that there was no privity of contract between ... Arbitration Agreement - Whether ONGC is part of arbitration agreement or not - 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. - High court reversed the decision of Arbitral Tribunal Held that:- 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. 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. - Decided in favor of appellant. Issues Involved:1. Determination of the liability to make payment to the appellant.2. Validity of the Arbitral Tribunal's Award.3. Existence of a tripartite agreement among ONGC, the appellant, and the respondent.4. The High Court's interpretation of the contractual relationships and its decision.Detailed Analysis:1. Determination of the Liability to Make Payment to the Appellant:The primary issue in these appeals is the ascertainment of the person liable to make payment to the appellant. The appellant, M/s Essar Oil Ltd., had been subcontracted by Hindustan Shipyard Ltd. (the respondent) for work originally contracted by the Oil and Natural Gas Commission (ONGC) to the respondent. The appellant performed the work and received some payments directly from ONGC based on certifications from the respondent. However, disputes arose when the appellant was not paid for the completed work, leading to arbitration.2. Validity of the Arbitral Tribunal's Award:The Arbitral Tribunal, consisting of three members, issued an Award with a majority view that there was no privity of contract between the appellant and ONGC. Consequently, ONGC was not liable to make payments to the appellant; the liability rested with the respondent. The dissenting member, however, opined that ONGC was liable but suggested that the appellant should seek legal action against ONGC for recovery.3. Existence of a Tripartite Agreement Among ONGC, the Appellant, and the Respondent:The High Court concluded that there was a tripartite agreement among ONGC, the appellant, and the respondent, based on certain letters exchanged between the parties. It held that ONGC should have been a party before the Arbitral Tribunal, and its absence rendered the Award invalid. This interpretation was challenged by the appellant, who argued that no such tripartite agreement existed and that the payments made by ONGC were merely to facilitate the work without creating any contractual obligation.4. The High Court's Interpretation of the Contractual Relationships and Its Decision:The High Court's judgment was based on the assumption that ONGC was a party to the contract and thus should have been included in the arbitration. The Supreme Court, however, found that the High Court erred in its interpretation. The Supreme Court agreed with the majority view of the Arbitral Tribunal, stating that there was no privity of contract between ONGC and the appellant. The payments made by ONGC were on behalf of the respondent and did not establish any direct contractual relationship or liability.Conclusion:The Supreme Court set aside the High Court's judgment, confirming the majority view of the Arbitral Tribunal. It held that ONGC was not liable to make payments to the appellant, and the responsibility lay with the respondent, who had subcontracted the work. The appeals were allowed, and the respondent was directed to make the necessary payments to the appellant. The Supreme Court emphasized that the absence of a direct contract between ONGC and the appellant precluded any liability on ONGC's part, and the arbitration agreement was strictly between the appellant and the respondent.