2023 (7) TMI 1569 - HC - Indian Laws

Sub-contractor can compel payment from primary contractor through intermediate party despite main contract executed elsewhere

Union of India & Ors. Versus M/s. IMECO Ltd. & Anr.

Calcutta HC upheld its territorial jurisdiction as part of the contractual chain occurred within its jurisdiction, despite the main contract being ... Territorial jurisdiction to entertain the application - whether the sub-contractor has got sufficient locus to move the writ court to compel the first contracting party to make payment to the second contracting part?. Territorial jurisdiction to entertain the application - HELD THAT:- It is absolutely true that the entire cause of action with regard to the first contract between the appellant and BEML was outside the jurisdiction of this court. Both the appellant and BEML have their places of business well outside the territorial jurisdiction of the High Court. But, the other part of the cause of action which is certainly a large part of it, was the contract between BEML and IMECO which according to the averment in the writ petition was entered into in Calcutta within the jurisdiction of this court. This writ consists of several causes of action in a chain relating to execution of contracts and sub-contracts and their performance of the contract, payment, discharge and so on. A part of this chain is certainly located within the jurisdiction of this court. Therefore, this court had the territorial jurisdiction to entertain the writ. So, this point is also answered against the appellants. Locus of sub-contractor to move the writ court to compel the first contracting party to make payment to the second contracting part - HELD THAT:- The appellant awarded a contract to BEML for supply and the fitment of longitude middle berths in 589 “GSCN coaches and 126 ACCN coaches”. BEML ltd. had sub-contracted the work assigned to them by the contract to IMECO ltd. Mr. Chaubey, learned Advocate for the appellant showed us Clause 7 of the agreement between the parties which did not allow sub-contracting - In this particular case sub-contracting by BEML to IMECO was approved and accepted by the appellant by their conduct. Having approved or acquiesced in this act the appellants are now estopped from contending that BEML had wrongfully sub-contracted the agreement to IMECO. For whatever reason the Railways thought that there was no point going ahead with the agreement. The Railway Board by its letter dated 18th February, 2009 terminated the contract. This termination seems to have been accepted by BEML. The Railway Board by its decision on 30th March, 2009 stated that payment could be made to BEML for berths already manufactured and made ready but not fitted till the issue of the notification. BEML was asked to submit the “Rites” inspection certificate relating to the finished products manufactured prior to the cancellation of the agreement. This date was reckoned to be 24th February, 2009. The appellant should make payment of the bills of BEML within two months of communication of this letter. BEML in turn will make payment to IMECO within a further period of one month. Conclusion - i) The territorial jurisdiction of the Calcutta High Court upheld. ii) The writ court's authority to direct the appellant to release payments to BEML upheld, thereby enabling IMECO to receive its dues. Appeal dismissed. ISSUES PRESENTED and CONSIDEREDThe judgment primarily considered two significant issues:1. Whether the High Court had the territorial jurisdiction to entertain the writ application.2. Whether a writ court can compel a contracting party to make payment to another contracting party at the instance of a sub-contractor, especially when there is no privity of contract between the sub-contractor and the first contracting party.ISSUE-WISE DETAILED ANALYSIS1. Territorial Jurisdiction- Relevant Legal Framework and Precedents: The jurisdiction of a High Court to entertain a writ application is determined by the location of the cause of action, either wholly or in part, within its territorial limits.- Court's Interpretation and Reasoning: The Court noted that while the contract between the appellant and BEML was executed outside its jurisdiction, the sub-contract between BEML and IMECO was executed within the jurisdiction of the Calcutta High Court. This connection provided the Court with sufficient grounds to assert territorial jurisdiction over the matter.- Key Evidence and Findings: The sub-contract was executed at the branch office of IMECO located within the jurisdiction of the Court, as uncontroverted in the pleadings.- Application of Law to Facts: The Court determined that since a part of the cause of action, specifically the sub-contract, was located within its jurisdiction, it had the authority to entertain the writ application.- Conclusions: The Court concluded that it possessed the territorial jurisdiction to hear the case, answering this point against the appellants.2. Power of Writ Court and Privity of Contract- Relevant Legal Framework and Precedents: The general law of contract, particularly the doctrine of privity, dictates that a contract can only be enforced by and against the parties to it. A writ of mandamus can compel a state or state-like entity to perform its duty when a public law element is involved.- Court's Interpretation and Reasoning: The Court recognized that while generally, a sub-contractor like IMECO would have no claim against the appellant due to lack of privity, the involvement of a state entity (BEML) introduced a public law element. This allowed the writ court to intervene to ensure fairness and prevent arbitrariness.- Key Evidence and Findings: The appellant had acknowledged and accepted the sub-contracting arrangement between BEML and IMECO, which estopped them from contesting its validity.- Application of Law to Facts: The Court applied the principles of fairness and the obligation of the state to act justly, determining that the writ court could compel the appellant to release payments to BEML, which in turn would enable BEML to pay IMECO.- Treatment of Competing Arguments: The appellant's argument that there was no privity was countered by the Court's emphasis on the state's duty to act fairly and the necessity of ensuring that sub-contractors are paid for their work.- Conclusions: The Court affirmed the writ petition's maintainability, recognizing IMECO's locus standi to seek relief through a writ application.SIGNIFICANT HOLDINGS- Preserve Verbatim Quotes of Crucial Legal Reasoning: 'Government Authority has a duty to act fairly, reasonably, and impartially to any person or organisation whether in contractual capacity or otherwise. It has an obligation to honour the debt of a contracting party when it is due and payable unless the claim is rejected by a reasoned order upon following principles of natural justice.'- Core Principles Established: The Court established that in cases involving state entities, the writ jurisdiction can be invoked to ensure fairness and prevent arbitrary withholding of payments, even in the absence of direct contractual privity.- Final Determinations on Each Issue: The Court affirmed the territorial jurisdiction of the Calcutta High Court and upheld the writ court's authority to direct the appellant to release payments to BEML, thereby enabling IMECO to receive its dues.