M/S ESSAR OIL LTD.versusHINDUSTAN SHIPYARD LTD. & ORS.

                         [2015] 6 S.C.R. 924


A                       MIS ESSAR OIL LTD.
                                   v.
               HINDUSTAN SHIPYARD LTD. & ORS.
                   (Civil Appeal No. 3353 of 2005)
B
                            JULY 2, 2015
              [ANIL R. DAVE, VIKRAMAJIT SEN AND
                 PINAKI CHANDRA GHOSE, JJ.]

c          Arbitration and Conciliation Act, 1996 - s. 34 - Contract
    - Sub contract - Determination of person, who is liable to
    make payment to the person performing work under the sub-
    contract given to him - Appellant given sub-contract by
    respondent, in respect of a contract which was given to it by
D   the ONGC-Appellant upon doing certain work done under
    the sub-contract, receiving payments directly from ONGC -
    Non-payment by respondent to the appellant for the work
    done - Dispute arising between them - In terms of the
    arbitration agreement between the appellant and the
E   respondent, wherein ONGC was not a party, dispute referred
    to arbitral tribunal - Majority view that respondent was liable
    to make payment to the appellant - Said order upheld by
    trial court - However, High Court set aside the same - On
    appeal, held: ONGC not liable to make payment to appellant
F   but the payment would be made by respondent, who had
    given a sub-contract to appellant - There is no
    correspondence establishing contractual relationship
    between ONGC and appellant - So as to prevent a long
    procedure and to expedite payment to appellant, who was
G   actually doing the job for ONGC, instead of ONGC paying to
    appellant through respondent, ONGC was often paying
    directly to appellant - Thus, majority view of the tribunal
    upheld and that of the High Court set aside.
H        Allowing the appeals, the Court
                                 924
      M/S ESSAR OIL LTD. v. HINDUSTAN SHIPYARD LTD.          925


          HELD: 1.1 ONGC Would not be liable to make A
     payment to the appellant but the payment would be made
     by the respondent, who had given a sub-contract to the
     appellant. Majority view of the Arbitral Tribunal is
     confirmed and the view of the High Court is set aside.
     [Para 29] [937-B-C]                                    B

           1.2 So as to obviate a long procedure and to
     expedite payment to the appellant, who was actually
     doing the job for the ONGC, instead of the ONGC paying
     to the appellant through the respondent, the ONGC was c
     often paying directly to the appellant.Every time when
     payment was made by the ONGC to the appellant, the
     ONGC used to debit the account of the respondent i.e.
     the amount so paid by the ONGC to the appellant was
     treated by the ONGC as if the said payment was made D
     by the ONGC to the respondent. Simply becauge some
     payments had been made by the ONGC to the appellant,
     it would not be established that there was a privity of
     contract between the ONGC and the appeHant and only
     for that reason the ONGC cannot be saddled with a E
     liability to pay the amount payable to the appellant by
     the respondent. [Paras 14, 15, 24, 25] [931-H; 932-A,C-D;
     932-A-C]

          1.3 As the ONGC was not a party to the Arbitration F
'
,.
     Agreement, it could not have been represented before
     the Arbitral Tribunal. If the ONGC was not a party before
     the Arbitral Tribunal, the Tribunal could not have made
     any Award making the ONGC liable to make payment to
     the appellant. The majority view of the Arbitral Tribunal G
     was right to the effect that the ONGC, not being a party
     to any contract or Arbitration Agreement with the
     appellant, could not have been made liable to make any
     payment to the appellant. [Para 26] [935-D-G]
                                                               H
926        SUPREME COURT REPORTS               (2015] 6 S.C.R.


A          1.4 The High Court erred in observing that the
  appellant would have to take legal action against the
  ONGC for recovery of the amount payable to it. It is very
  clear that the respondent had given a sub-contract to
  the appellant and in the said agreement of sub-contract,
B 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, there is no correspondence
  establishing contractual relationship between the ONGC
C and the appellant. [Para 27] [936-A-C]
           1.5 The appellant failed to show any document in
      the nature of a contract entered into between the
      appellant and the ONGC whereby the ONGC had made
      itself liable to make payment to the appellant. Even when
D     the payment had been made by the ONGC, it was very
      clear that the payments were made on behalf of the
      respondent as the ONGC was debiting the account of
      the respondent by the amount paid to the appellant. It is
      important that the payment was made to the appellant
E     only upon certification of work done by the respondent.
      The ONGC had given a contract to the respondent. The
      ONGC had never entered into any contract with the
      appellant and therefore, it did not rely upon any
F     certification or any statement made by the appellant in
      relation to quantum of work done by the appellant. This
      fact also shows that the ONGC was concerned with the
      work which had been approved by the respondent and
      instead of making payment to the respondent, the ONGC
G     had made payment to the appellant on behalf of the
      respondent, though there was no legal obligation on the
      part of the ONGC to make such a payment to the
      appellant. [Para 28] [936-E-H; 937-A]

H         CIVIL APPELLATE JURISDICTION : Civil Appeal No.
      3353 of 2005.
  M/S ESSAR OIL LTD. v. HINDUSTAN SHIPYARD LTD.                  927


    From the Judgment and Order dated 29.09.2004 in A
CMA No. 255 of 2003 of the Division Bench of the High
Court of Andhra Pradesh.

                            WITH
                                                                  B
     Civil Appeal No. 3355 of 2005.

      Pa rag Tripathi, M. N. Aditya, Manasi Kumar, Vivek Jain,
E. C. Agrawala for the Appellant.

     A. Subba Rao, Annam D. N. Rao, K. L. D. S Vinober, C
Arun Pratap Shah, A. Venkatesh for the Respondents.

     The Judgment of the Court was delivered by

       ANIL R. DAVE, J. 1. Being aggrieved by a common            D
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      E
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:-
                                                                  F
         The Oil and Natural Gas Commission (hereinafter
referred to as 'the ONGC') had given a contract to Hindustan
 Shipyard Ltd. to carry out work of fabrication, skidding, sea
fastening, transportation etc. at various stations located in
the coastal areas of India. It is pertinent to note that the G
contractor, Hindustan Shipyard Ltd., who is respondent no.1
in both the appeals, had been permitted to avail services of
any other person for doing the aforestated work entrusted to
it. In other words, it was open to respondent no. 1 to engage H
928        SUPREME COURT REPORTS                  [2015] 6 S.C.R.


A     a sub-contractor for getting the work done. Other respondents
      in these appeals are the arbitrators, who are formal parties.

       3. In pursuance of the aforestated understanding arrived
  at and the contract entered into between the ONGC and
B 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
C 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
D 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.
E
        5. In the process of carrying out the contract, the
  appellant was not paid b~1 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
F 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
G 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 theArbitral Tribunal
H consisting of Respondent nos.2, 3 and 4. It is pertinent to
 M/S ESSAR OIL LTD. v. HINDUSTAN SHIPYARD LTD.             929
                [ANIL R. DAVE, J.]

note here that the ONGC, who had given a contract to the A
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 B
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
                                                          .  C

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 D
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 E
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 F
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 G
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 H
930        SUPREME COURT REPORTS                [2015] 6 S.C.R.


A     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
B 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
C and Conciliation Act, 1996.

       10. The Principal District Judge, Visakhapatnam,
  decided both the Original Petitions by orders dated 1Oth
  October, 2002 and 1st November, 2002, respectively. The
D learned Principal District Judge confirmed the award on the
  issues with which we are concerned, but he remanded the
  matter to theArbitral Tribunal on the issues regarding counter
  claim etc., with which we are not concerned in this case.

E       11. Being aggrieved by the aforestated two orders
  passed in two Original Petitions, the respondent filed Appeals
  Against Order Nos.255 and 624 of 2003 before the High
  Court of Andhra Pradesh and the High Court allowed the
  appeals by a common judgment dated 29th September, 2004,
F validity of which has been challenged before this Court in
  these appeals.

        12. The High Court came to a conclusion that there
  was a tripartite agreement among the ONGC, the appellant
G 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 theArbitral Tribunal
H but as the ONGC was not represented before the Arbitral
 M/S ESSAR OIL LTD. v. HINDUSTAN SHIPYARD LTD.               931
                [ANIL R. DAVE, J.]

Tribunal, the Award made by the Tribunal was bad in law. A
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 B
and set aside.

       13. The main issue which is involved in these appeals
is about ascertainment of a person, who is liable to make
payment to the appellant. There is no dispute with regard to C
quality or quantity of the work done by the appellant at this
stage. It is not in dispute that the appellant has not been
paid the amount payable to it. It is also not in dispute that
the appellant had been engaged by the respondent in
pursuance of a contract entered into between the respondent D
and the ONGC and it was open to the respondent to avail
services of any other person for doing the work entrusted to
it by the ONGC. In the light of the aforestated undisputed
facts, the question is only with regard to determination of
liability of the person who has to make payment to the E
appellant.

      14. The learned counsel appearing for the appellant
had vehemently submitted that the view taken by the majority
of the Arbitral Tribunal being correct, the High Court ought F
not to have interfered with the said view. So as to substantiate
his submission, the learned counsel had mainly submitted
that there was no privity of contract between the appellant
and the ONGC. The appellant had performed the work of
the ONGC in pursuance of a contract given to it by the G
respondent, which was a sub-contract in nature. In absence
of any contract between the ONGC and the appellant, the
appellant could not have made any claim before the ONGC
and as there was no contract between them, it was also not H
932        SUPREME COURT REPORTS                  [2015] 6 S.C.R.


A     possible for the appellant to make the ONGC a party before
      any Court or Authority for recovery of the amount payable to
      it in pursuance of the sub-contract given by the respondent.

         15. It had been fairly admitted by the learned counsel
B appearing for the appellant that very often payments were
  made to the appellant by the ONGC. It had further been
  submitted that the payments were made by the ONGC so
  as to facilitate the appellant and to get the work of the contract
  done smoothly. Every time when payment was made by the
C ONGC to the appellant, the ONGC used to debit the account
  of the respondent i.e. the amount so paid by the ONGC to
  the appellant was treated by the ONGC as if the said payment
  was made by the ONGC to the respondent. Thus, so as to
  obviate a long procedure and to expedite payment to the
D appellant, who was actually doing the job for the ONGC,
  instead of the ONGC paying to the appellant through the
  respondent, the ONGC was paying directly to the appellant.

        16. The learned counsel for the appellant had with great
E stress submitted that there was not a single contract between
  the appellant and the ONGC and there was no tripartite
  contract among the appellant, the respondent and the
  ONGC, whereby the ONGC was made liable to pay the
  appellant in respect of the work done by it.
F
        17. For the aforestated simple reason, it had been
  submitted by the learned counsel for the appellant that the
  majority view of the Arbitral Tribunal was correct and the
  respondent is liable to make payment to the appellant with
G whom it had entered into the contract. It had been further
  submitted by the learned counsel that in view of the
  aforestated factual and legal position, the appeals deserve
  to be allowed and the respondent should be made liable to
  make payment to the appellant.
H
 M/S ESSAR OIL LTD. v. HINDUSTAN SHIPYARD LTD.                  933
                [ANIL R. DAVE, J.]

     18. On the other hand, the learned counsel for the          A
respondent had submitted that the ONGC was liable to make
payment to the appellant and therefore, there is no liability
on the part of the respondent to make payment to the
appellant.
                                                                B
      19. It had further been submitted by the learned counsel
for the respondent that it is not necessary that in each and
every case the contract should be in writing. The contract
can be very well inferred by the act or conduct of the parties,
whereby impliedly a party undertakes to make good a liability C
to make payment to someone. According to the learned
counsel, even in the instant case, there was an implied
contract amongst the appellant, the respondent and the
ONGC and therefore, it was the liability of the ONGC to make
payment to the appellant.                                       D

      20. The learned counsel for the respondents had drawn
our attention to correspondence exchanged between the
ONGC and the respondent. He had specially referred to a
letter dated 25'h October, 1991 addressed by the respondent E
to the ONGC, wherein it was stated that the ONGC had
desired' to make payment directly to the appellant in
pursuance of meetings convened among the representatives
of the respondents and the ONGC. He had also submitted
that some of the letters written by the ONGC to the F
respondent clearly denoted that the ONGC had accepted
the liability to make payment to the appellant and therefore,
there was no liability on the part of the respondent to make
any payment to the appellant. He had further submitted
that the subsequent conduct of the ONGC of making direct G
payment to the appellant established the fact that the ONGC
had undertaken the liability to make payment to the appellant.
The aforestated letter dated 25'h October, 1991 and other
letters which had been exchanged between the respondent H
934        SUPREME COURT REPORTS                (2015] 6 S.C.R.


A     and the ONGC were placed on record to show that there
      was a contract between the ONGC and the appellant.

        21. For the aforestated reasons, it had been submitted
  by the learned counsel for the respondent that the view of
B the High Court that the ONGC was liable to make payment
  to the appellant is correct and therefore, the appellant should
  take appropriate action against the ONGC for recovery of
  the unpaid amount. The learned counsel had, therefore,
  submitted that the view taken by the High Court is absolutely
C correct and the respondent is no more liable to make any
  payment to the appellant.

            22. We have heard the learned counsel for the parties
      at length and have also considered some judgments cited
o     by them and the documents which had been placed on record
      and relied upon by them.

       23. Upon hearing the learned counsel and looking at
  the contract entered into between the appellant and the
E respondent and upon perusal of other letters, we believe
  that the view expressed by the High Court cannot be
  accepted.

        24. It is true that the ONGC had made payment to the
F appellant directly on several occasions. Upon perusal of
  th.e correspondence, we find that some understanding, but
  not amounting to any agreement or contract, was arrived at
  between the ONGC and the respondent for making direct
  payment to the appellant, possibly because the respondent
G was not in a position to make prompt payments to the
  appellant. It also appears that on account of the delay in
  making payment to the appellant, the work of the ONGC
  was likely to be adversely affected. The ONGC was
  interested in getting its work done promptly and without any
H
  MIS ESSAR OIL LTD. v. HINDUSTAN SHIPYARD LTD.               935
                 [ANIL R. DAVE, J.]

hassles. In the circumstances, upon perusal of the A
correspondence, which had taken place between the ONGC
and the respondent, it is clear that so as to facilitate the
respondent, the ONGC had made payments on behalf of
the respondent to the appellant directly.
                                                             B
      25. Simply because some payments had been made
by the ONGC to the appellant, it would not be established
that there was a privity of contract between the ONGC and
the appellant and only for that reason the ONGC cannot be
saddled with a liability to pay the amount payable to the C
appellant by the respondent.

        26. It is also pertinent to note that the Arbitration
 Agreement was only between the appellant and the
 respondent. The ONGC was not a party to the Arbitration D
 Agreement. When a dispute had arisen between the
 appellant and the respondent in relation to payment of money,
 the appellant had initiated the arbitration proceedings. As
 the ONGC was not a party to the Arbitration Agreement, it
 could not have been represented before theArbitral Tribunal. E
 If the ONGC was not a party before the Arbitral Tribunal, the
Tribunal could not have made any Award making the ONGC
liable to make payment to the appellant. In the aforestated
factual and legal position, theArbitral Tribunal could not have
made the ONGC liable in any respect and rightly, the majority F
view of the Arbitral Tribunal was to the effectthat the ONGC,
not being a party to any contract or Arbitration Agreement
with the appellant, could not have been made liable to make
any payment to the appellant.
                                                                G
       27. We are in agreement with the view expressed by
the majority of the Arbitral Tribunal. In our opinion, the High
Court had committed an error by not considering the above
facts and by observing that the appellant will have to take
                                                               H
936        SUPREME COURT REPORTS                 [2015] 6 S.C.R.


A legal action against the ONGC for recovery of the amount
  payable to it. If one looks at the relationship between the
  appellant and the respondent, 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
B 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
C 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
0
  respondent.

            28. The learned counsel appearing for the appellant
      failed to show any document in the nature of a contract
      entered into between the appellant and the ONGC whereby
 E    the ONGC had made itself liable to make payment t'J the
      appellant. Even when the payment had been made by the
      ONGC, it was very clear that the payments were made on
      behalf of the respondent as the ONGC was debiting the
 F    account of the respondent by the amount paid to the
      appellant. It is important that the payment was made to the
      appellant only upon certification of work done by the
      respondent. The ONGC had given a contract to the
      respondent. The ONGC had never entered into any contract
G     with the appellant and therefore, it did not rely upon any
      certification or any statement made by the appellant in
      relation to quantum of work done by the appellant. This fact
      also shows that the ONGC was concerned with the work
      which had been approved by the respondent and in::;t~ad of
H     making payment to the respondent, the ONGC had made
  M/S ESSAR OIL LTD. v. HINDUSTAN SHIPYARD LTD.                  937
                 [ANIL R. DAVE, J.]

payment to the appellant on behalf of the respondent, though      A
there was no legal obligation on the part of the ONGC to
make such a payment to the appellant.

      29. For the aforestated reasons, we do not agree with
the view expressed by the High Court and the impugned B
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 C
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               o
appeals are allowed with no order to costs.

Nidhi Jain                                    Appeals allowed.