2019 (10) TMI 1572 - HC - Indian Laws

Dismissal of Plaintiff's suit against NHIDC for lack of privity, directs NCLAT resolution, orders payment issue meeting.

The court dismissed the Plaintiff's suit against NHIDC due to lack of privity of contract and ongoing insolvency proceedings against ITNL. The Plaintiff ... Seeking payment of the admitted sum due towards the work executed on the Project which was to the knowledge of the Defendant - work has been executed by the Plaintiff, as part of the Project, which has been acknowledged by NHIDC, and since ITNL/SSTL are under liquidation, the Plaintiff ought to be compensated directly by NHIDC - HELD THAT:- The remedy sought by the Plaintiff in this suit, though quite creative, would not be maintainable inasmuch as the agreement between the Plaintiff and ITNL is subsisting and has not been terminated. The Plaintiff has executed the works for ITNL, even though NHIDC may have indirectly benefited from the same. The contracts may be back-to-back in nature, but the Plaintiff cannot by-pass its existing contractual relationship with ITNL. As held by the Hon'ble Supreme Court in Food Corporation of India & Ors. [2007 (11) TMI 707 - SUPREME COURT] and MAHANAGAR TELEPHONE NIGAM LTD VERSUS TATA COMMUNICATIONS LTD [2019 (2) TMI 2091 - SUPREME COURT], Section 70 falls in that Chapter of the Indian Contract Act, 1872 which deals with relationships which resemble contracts. In that sense, the provision belongs to the category of quasi contracts and restitution. Such a remedy is unusual and cannot be permitted to be invoked in the present case as the conditions for such a claim to be made, as laid down by the Hon'ble Supreme Court in State of West Bengal v. B.K. Mondal & Sons, [1961 (12) TMI 82 - SUPREME COURT], have not been satisfied. It is not disputed that the above order continues to operate and apply even qua ITNL. The primary dispute and claim for recovery being against ITNL/SSTL, in view of the order dated 15th October, 2018 of the NCLAT, the present suit would not be maintainable. The claims of the Plaintiff would lie only against the parties with whom it has privity i.e., ITNL/SSTL. No direct claims would be maintainable against NHIDC. In view of the above, the Defendant's application under Order VII Rule 11 CPC is liable to be allowed. Issues Involved:1. Privity of contract between the Plaintiff and Defendant.2. Application of Section 70 of the Indian Contract Act, 1872.3. Impact of ongoing insolvency proceedings against ITNL on the Plaintiff's claims.4. Government's memorandum on 'stuck projects' and its applicability to sub-contractors.5. Impleadment of ITNL and SSTL as necessary parties in the suit.Issue-wise Detailed Analysis:1. Privity of Contract between the Plaintiff and Defendant:The Defendant, NHIDC, argued that there was no privity of contract between it and the Plaintiff, as the Plaintiff's contract was with ITNL. The court acknowledged that the Plaintiff does not have any direct contractual relationship with NHIDC. The Plaintiff's claim was based on the assertion that NHIDC benefited from the work executed by the Plaintiff under the supervision of ITNL, but the court held that the Plaintiff cannot bypass its existing contractual relationship with ITNL to claim compensation directly from NHIDC.2. Application of Section 70 of the Indian Contract Act, 1872:The Plaintiff invoked Section 70 of the Indian Contract Act, 1872, which deals with compensation for non-gratuitous acts. The court analyzed the conditions under Section 70 and concluded that the fundamental condition—that the work should have been done or delivered directly to the Defendant—was not satisfied. The work was executed by the Plaintiff under a contract with ITNL, not NHIDC. Therefore, NHIDC could not be held liable to compensate the Plaintiff directly.3. Impact of Ongoing Insolvency Proceedings against ITNL on the Plaintiff's Claims:The court noted that ITNL, a subsidiary of IL & FS, was undergoing insolvency proceedings, and the NCLAT had imposed a stay on the initiation of any legal proceedings against IL & FS and its subsidiaries. The Plaintiff had already approached the NCLAT for relief but had to withdraw due to the moratorium. The court held that the Plaintiff's claims could not bypass the insolvency proceedings and directed the Plaintiff to approach the NCLAT for resolution.4. Government's Memorandum on 'Stuck Projects' and its Applicability to Sub-contractors:The Plaintiff relied on a government memorandum dated 9th March 2019, which aimed to resolve 'stuck projects.' However, the court noted that the memorandum specified that payments could only be made to the actual contractor or concessionaire, not to sub-contractors. The court directed a meeting between the Secretary of MORTH, the Plaintiff, and the newly impleaded Defendants to attempt a resolution of the payments to the sub-contractor.5. Impleadment of ITNL and SSTL as Necessary Parties in the Suit:The court allowed the impleadment application filed by SSTL and ITNL, recognizing them as necessary parties to the suit. The court observed that the entire project was executed by the Plaintiff under a contract with ITNL/SSTL, and hence, they were proper and necessary parties to the suit.Conclusion:The court dismissed the Plaintiff's suit, holding that the Plaintiff's claims were not maintainable against NHIDC due to the lack of privity of contract and the ongoing insolvency proceedings against ITNL. The court directed the Plaintiff to approach the NCLAT for resolution and suggested that the government consider revisiting the memorandum on 'stuck projects' to address similar disputes in the future. The court also directed a meeting to be held to attempt a resolution of the payments to the sub-contractor.