M/S.Essar Oil Ltd vs Hindustan Shipyard Ltd. & Ors

1. Being aggrieved by a common judgment dated 29th September, 2004, delivered in Appeals Against Order Nos.255 and 624 of 2003 by the High Court of Andhra Pradesh at Hyderabad, these appeals have been filed by M/s Essar Oil Ltd., who had been given a sub-contract by the first respondent, Hindustan Shipyard Ltd., in respect of a contract which was given to it by the Oil and Natural Gas Commission.

2. The facts giving rise to the present litigation, in a nutshell, are as under:-

3. In pursuance of the aforestated understanding arrived at and the contract entered into between the ONGC and Hindustan Shipyard Ltd. (who has been referred to as ‘the respondent’ hereinafter), the respondent had entered into a contract with M/s Essar Oil Ltd., who is the appellant in both these appeals. Thus, the appellant was a sub- contractor in respect of the contract which the respondent had to fulfill for the ONGC.

4. It appears that for the sake of convenience and so as to obviate certain financial difficulties of the respondent, certain payments had been made to the appellant directly by the ONGC. The appellant, upon getting certain work done under the sub-contract and upon getting necessary certificates with regard to the quality and quantity of the work done from the respondent, had received some payment from the ONGC on the strength of those certificates.

5. In the process of carrying out the contract, the appellant was not paid by the respondent for the work done and therefore, a dispute had arisen between the appellant and the respondent. Let us not look at the nature of the dispute or the amount claimed or the liability with regard to making payment to the appellant at this stage, suffice it to state that there was an Arbitration Agreement between the appellant and the respondent and therefore, the dispute had been referred to the Arbitral Tribunal. Respondent nos.2, 3 and 4 are the Arbitrators, who had made the Award with regard to which we will discuss presently.

6. Thus, the dispute with regard to non-payment and some other disputes had been referred to the Arbitral Tribunal consisting of Respondent nos.2, 3 and 4. It is pertinent to note here that the ONGC, who had given a contract to the respondent, was not before the Arbitral Tribunal because the ONGC was not a party to the Arbitration Agreement entered into between the appellant and the respondent. The question which was involved in the said dispute was not only with regard to determination of the amount to be paid to the appellant, but was also with regard to determination of a person who was liable to make payment to the appellant.

7. After hearing the concerned parties, the 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. It was also held by the majority that the appellant could not even sue the ONGC for the unpaid amount. Accordingly, the Award was made. At this stage, we are not concerned with the other facts and the amount awarded by the majority of the Tribunal.

8. On the other hand, the dissenting Member, who was in minority, was of the opinion that there was a contract between the appellant and the ONGC and therefore, the ONGC was liable to make payment to the appellant, but he expressed an opinion to the effect that the respondent should be directed to make payment to the appellant only if the respondent is paid the unpaid amount by the ONGC. Thus, the minority view was that the liability to make payment to the appellant was that of the ONGC, but as the ONGC was not a party before the Tribunal, the proper course open to the appellant was to take appropriate legal action against the ONGC for recovery of the amount due and payable to the appellant.

9. The respondent was aggrieved by the Award of the Arbitral Tribunal as according to the majority view of the Tribunal, the respondent was liable to make payment to the appellant. In the circumstances, the respondent filed OP NoS.989 of 2001 and 96 of 2002 before the Principal District Judge, Visakhapatnam, under Section 34 of the Arbitration and Conciliation Act, 1996.

12. The High Court came to a conclusion that there was a tripartite agreement among the ONGC, the appellant and the respondent. The High Court had relied upon some letters written by the appellant to the ONGC and therefore, the ONGC was also treated as a party to the contract. It also held that as the ONGC was a party to the contract, it ought to have been made a party before the Arbitral Tribunal but as the ONGC was not represented before the Arbitral Tribunal, the Award made by the Tribunal was bad in law. The Award deserved to be set aside by the Principal District Judge but he did not and therefore, the orders passed in the Original Petitions filed before the learned Principal District Judge were also bad in law and accordingly the Award and the orders passed in the Original Petitions were quashed and set aside.

29. For the aforestated reasons, we do not agree with the view expressed by the High Court and the impugned judgment delivered by the High Court is set aside. 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. The respondent shall accordingly make payment to the appellant.

30. For the reasons enumerated hereinabove, the appeals are allowed with no order to costs.

…………………………………………………….J (ANIL R. DAVE) …………………………………………………….J (VIKRAMAJIT SEN) …………………………………………………….J (PINAKI CHANDRA GHOSE) NEW DELHI;

JULY 2, 2015.