ZONAL GENERAL MANAGER, M/S IRCON INTERNATIONAL LTD.versusM/S VINAY HEAVY EQUIPMENTS

                             [2015] 6 S.C.R. 938


    A           ZONAL GENERAL MANAGER, M/S IRCON
                       INTERNATIONAL LTD.
                                  v.
                     M/S VINAY HEAVY EQUIPMENTS
                       (Civil Appeal No. 4211 of 2015)
    B
                                MAY06, 2015
            [VIKRAMAJIT SEN AND SHIVA KIRTI SINGH, JJ.]

               Arbitration and Conciliation Act, 1996 - s. 34 -
    c    Arbitration award - Challenge to - Main contract between
         the Company S as main contractor and the appellant as
         successful tenderer - For execution of the same appellant
         entered into sub-contracts, C1 and C2 packages with the
         respondent-sub-contractor- Completion of67% of the work
    D    by respondent but thereafter ceased to work- Non-payment
         of certain amount to respondent by appellant - Arbitration
         matters - In the First Arbitration, respondent made claims
         against appellant claiming the unpaid b~lance amount - In
         the Second Arbitration, appellant made claims against the
    E    main contractor regarding pending payments pertaining to
         C1 and C2 packages - Award passed by the arbitrator
         wherein appellant liable to make payment to respondent -
        Appellant challenged the award by filing petitions uls. 34 -
        Subsequently respondent filed applications contending that
    F
        while appellant rejected its claim initially, at the same time it
        claimed the amount against the main contractor-Appel/ant's
        case that the main contract and the sub-contracts are wholly
        of 'back to back nature and thus, liability of the appellant
    G   would be restricted to and co-extensive of that which main
        contractor acknowledges - Both the High Court dismissed
        the appellant's petition and allowed the respondent's
        applications - On appeal, held: Orders passed by the
        arbitrator and courts below do not call for interference - On
    H   facts, it cannot be said that contractor's contract with the


I                                     938
ZONAL G. M., M/S IRCON INTERNATIONAL LTD. v. M/S 939
           VINAY HEAVY EQUIPMENTS

appellant provided for "back to back" subcontracts whereby       A
main contractor would be directly answerable for the claims
raised by contractors - Subletting was provided for by the
main contract - However, it cannot be said that main
contractor contractually (in the main agreement) assumed
primary liability for the subcontractor's claims in respect of   B
agreements made with the appellant - Appellant conceded
before the Arbitrator that it would countenance an Award in
favour of the respondent as long as it was indemnified for
the payment made to the respondent by an equal offsetting
payment by way of an Award in its favour in its arbitration      C
with main contractor-Appellant was granted such an Award
- Concession could be called a conditional one, however,
the admission itself, taken alone, was not conditional -
Appellant was bound and bonded by the legal consequences         D
of the initial admission made by it before the arbitrator.

  Oil and Natural Gas Corporation Ltd. Vs. Western Geco
  International Ltd. (2014) 9 SCC 263 - referred to.

                   Case Law Reference                            E

(2014) 9 sec 263            Referred to.           Para 12

     CIVIL APPELLATE JURISDICTION: Civil Appeal No.
4211 of2015.
                                                                 F
     From the Judgment and Order dated 07 .12.2006 of
the High Court of Judicature at Madras in OSA No. 313/
2005.

                           WITH                                  G

     Civil Appeal Nos. 4213 and 4212 of 2015.

    Arun Khosla, Sudhir Kumar Gupta, Abhinav Gupta,
Manish Gupta, R. K. Gupta, Satish Kumar for the Appellant.       H
940        SUPREME COURT REPORTS                 [2015) 6 S.C.R.


A           Subramonium Prasad, AAG, C. A. Sundaram, Mohini
      Giri, Mukesh K. Giri, 8. Balaji, Rajeev Dalal, Sudarsh Menon
      for the Respondent.

           The Judgment of the Court was delivered by
8
           VIKRAMAJIT SEN, J. 1. Leave granted.

        2. The Appellant, IRCON International, is impugning
  the Judgment of the Learned Division Bench of the Madras
  High Court, which had dismissed two Original Second
C Appeals preferred by the Appellant. Recapitulating the facts
  of this litigation, the Appellant was the successful tenderer
  in respect of a contract awarded to it by SIPCOT (not a party
  to the present dispute/ Appeal), for the construction of an
D Internal Road for the Industrial Complex at lrungattukotta',
  Sriperumbpudur Taluk, Kanchipuram District, Tamil Nadu.
  The contract between these parties was made on 10. 07 .1997
  and was valued at Rs.13,06,60,587/-. In furtherance of the
  execution of this contract, the Appellant entered into two
E subcontracts (hereinafter, "the subcontracts") with the
  Respondent herein, in respect of two Packages, namely "C1"
  and "C2", for the laying of roads valued at Rs.3,20,64,752/-
  and Rs.1,67,01,821/- respectively. The cumulative value of
  both packages amounted to Rs.4,87,66,573 /-.
F
         3. The Respondent completed approximately 67 per
  cent of the work under the two subcontracts but thereafter
  ceased work on both. The Appellant cancelled the
  subcontracts, and managed the completion of the work by
G engaging other agencies. The cost of 67 per cent of the
  contractual work completed by the Respondent was
  estimated at Rs.3.23 crores, out of which the Appellant
  admittedly paid a sum of Rs.2.62 crores. The Respondent
  claimed an unpaid balance of Rs.61 lakhs as arrears due to
H it by the Appellant, and resorted to arbitration. The Appellant
ZONAL G. M., M/S IRCON INTERNATIONAL LTD. v. M/S 941
 VINAY HEAVY EQUIPMENTS [VIKRAMAJIT SEN, J.)

also took recourse to arbitration against the main contracting A
authority, SIPCOT, in respect of the pending payments
pertaining to C1 and C2 packages. The Arbitrator was thus
adjudicating the claims made by the Respondent against
the Appellant in the FirstArbitration, and the claims made in
turn by the Appellant against SIPCOT in the Second B
Arbitration. The Arbitrator passed a common Award in the
First Arbitration for both packages in favour of the
Respondent for the sum of Rs.7,87,21,820/- for C1 and
Rs. 1, 38, 78, 139/- for C2, both sums carrying with them
interest at the rate of twelve per cent from 04.03.2001 until C
the date of payment. Interest apart, the Appellant stood liable
as a result of the Award to pay the Respondent
Rs.9,25,99,959/-, including the aforementioned Rs.61 lakhs.

      4. The Appellant filed two petitions (OP Nos. 107 and D
108) under Section 34 of the Arbitration and Conciliation
Act, 1996, thereby separately challenging the Award passed
in respect of the two subcontracts. The Respondent filed
two applications in the two petitions, contending that while
the Appellant had rejected the Respondent's claims of E
payment arrears under the two subcontracts, it had, at the
same time and contradictorily, claimed in the Second
Arbitration against SIPCOT that its dues to Respondent were
in turn payable to it by SIPCOT. By a common Order, the F
Single Judge dismissed the Appellant's petitions and allowed
the Respondent's applications. The Appellants thereafter filed
two Appeals before the Division Bench of the Madras High
Court, which came to be dismissed; The Appellant's
conflicting claims and statements in both arbitrations, seen G
and puttogether, have proved determinative in the dismissal
of the Appeals by the Courts below; they shall prove similarly
so here.

     5. Detailing the arrears claim, it is seen that the H
942         SUPREME COURT REPORTS                  [2015] 6 S.C.R.


A      Respondent incurred expenditure in the execution of the
      subcontracts on two categories of items: scheduled and non-
      scheduled. The Respondent claimed Rs.61 lakhs as its due
      under both these heads. The Appellant's principle rebuttal
      in resistance to the Respondent's claim is that the main
B     contract (between the Appellant and SIPCOT) and the
      subcontracts are wholly of a "back-to-back" nature and
      therefore the liability of the Appellant would be restricted to
      and coextensive of that which SIPCOT acknowledges. In
      other words, the acceptability and tenability of any claim
C     made by the Respondent against the Appellant will depend
      first upon that claim's acceptability and tenability before
      SIPCOT in its capacity as the employer in the main contract.
      The Appellant declined to pay the Respondent for scheduled
      expenditures, claiming that the Respondent had
0
      unauthorisedly performed additional and increased quantities
      of works, also challenging the rate claimed by the
      Respondent for the same; that the Respondent could not
      claim any amount in excess of what was agreed to be paid
E     by SIPCOT in respect of each item of work covered under
      C1 and C2 subcontracts. The Appellant also rejected the
      Respondent's claimed dues under the non-scheduled head
      (which work the Appellant itself had requested to be
      performed by the Respondent), stating that SIPCOT had
F     refuted its liability towards non-scheduled expenditures.
      Indeed, the Arbitrator in his Award detected two "general
      pleas" as resonating from the Appellant: firstly, that the
      contracts C1 and C2 were on a "back to back" basis_ with
      IRCON's main contract with SIPCOT and unless SIPCOT
G     paid for the_amounts claimed by the Respondent, the
      Appellant was not legally liable for the same; and secondly,
      that back to back basis applied even to non-scheduled items.

       6. The Arbitrator found that the mention of "back-to-
H back" had been made only in the contract rider agreement
 ZONAL G. M., M/S IRCON INTERNATIONAL LTD. v. M/S 943
  VINAY HEAVY EQUIPMENTS [VIKRAMAJIT SEN, J.]

 for Package C2, and in subsequent epistles exchanged                A
 between IRCON and the Respondent from whose analysis
 two significant factors emerge. Firstly, that "back-to-back"
 only meant that the terms and conditions relating to technical
 specifications, and quality, quantum, manner and method
 of work to be done by the Appellant in the main contract,           B
 stood transposed on the subcontracts, C1 and C2; the
 primary liability of the Appellant to the Respondent, however,
 stood untouched, there having been no transference or
 transposition of this liability onto SIPCOT, either explicitly or
 implicitly. Secondly, the Appellant had in its Written Statement    C
 before the Arbitrator, reiterated the "back-to-back" nature and
 thereby agreed that the Respondent would be entitled to
 payment of dues as and when the Appellant received the
 payment for these from SIPCOT, the Respondent's claims
                                                                     0
 having been "transmitted" by the Appellant to SIPCOT for
 the latter's consideration. The Appellant has taken the stance
 that it had no objection to the Arbitrator awarding a
 reasonable amount to the Respondent, subject to the
 Appellant being awarded the same amount by the Arbitrator           E
 in its Arbitration with SIPCOT. The Appellant was agreeable
to a direction passed against it to make payment upon
 realization of the sum from SIPCOT, after a 10 per cent
 deduction on the sum as the Appellant's marginal profit. The
Arbitrator, unstirred by the Appellant's gambit at foisting the      F
 primary liability onto SIPCOT, located primary liability as
resting with the Appellant, being the 'employer' in the
subcontracts. The Arbitrator also instanced the Appellant's
reprobative and approbative conduct, observing first the
Appellants conditional willingness (supra) ~or the passage           G
of a favourable Award in the Respondent's favour, and
thereafter finding a retraction of the Appellant's position: viz.
that- "Since SIPCOT refused to pay for these claims, IRCON
has taken up a new stand that works were not done fully
and payment has been made for whatever work was done                 H
944         SUPREME COURT REPORTS                   [2015] 6 S.C.R.


A     by the claimant". Having so observed, the Arbitrator awarded
      as aforementioned.

            7 ..The Single Judge rightly upheld the Arbitrator's
      repudiation of the applicability of the "back-to-back" principle
B     to the issue of liability of payment in the facts of this case;
      affirming that the Appellant as Employer was primarily liable
      to the Respondent. Beyond this, the Single Judge adverted
      to the Award obtained by the Appellant against SIPCOT,
      wherein claims had been raised against SIPCOT on the basis
C     of the earlier Award obtained against the Appellant. The
      Single Judge accepted the Respondent's contention that "the
      very same claim, which the respondent made against the
      petitioner has been made by the petitioner against the
      SIPCOT and on that basis, an award has been passed in
D     favour of the petitioner". It is facially apparent that, on the
      one hand, the Appellant had obtained a favourable Award in
      the Arbitration with SIPCOT by substantially relying on (and
      as compensation for) the adverse Award passed in its
      arbitration with the Respondent; on the other hand, it
E     appealed before the Single Judge against the adverse Award
      which had substantially been the premiss and reason for
      the Appellant's success against SIPCOT. In addition, the
      Appellant expostulated that the Applications before the Single
F     Judge oughtto have been heard along with the Applications
      filed by SIPCOT for setting aside of the Award in Appellant's
      favour in the Second Arbitration. To not have done so would
      be to disjoin the Awards, leaving it open for the High Court
      to come to two dissonant conclusions in the two
G     interdependent arbitrations; the Appellant's expressed fear
      being that while its obligation to pay, as sealed by the Award
      in favour of the respondent in the First Arbitration, would be
      sustained, the award in its favour against SIPCOT, if heard
      separately, would possibly be set aside, leaving it
H     uncompensated and liable to pay the Respondent the
 ZONAL G. M., MIS IRCON INTERNATIONAL LTD. v. M/S 945
  VINAY HEAVY EQUIPMENTS [VIKRAMAJIT SEN, J.]

claimed amount. The Single Judge observed that no material A
had been brought on record, nor a specific plea raised or
details adduced, that SIPCOT had filed a Section 34 petition
before the same Court in a challenge against the Award in
the Respondent's favour; a mere statement from the
Appellant's counsel made across the bar was not sufficient B
materially to justify the demand for connecting and hearing
the petitions together.

      8. The Learned Division Bench wholly ratified the
reasoning of the Arbitrator and Single Judge below it, finding C
no reason to disencumber the Appellant from the obligation
to fulfill the Respondent's claim. While entirely agreeing
with the reasons given against the Appellant by the Arbitrator
and the Courts below, we also find additional reasons for
dismissing this set of Appeals.                                D

       9. While the Award in the SIPCOT arbitration is not
 immediately an appellate subject herein, yet it is still part of
 the record and therefore merits our consideration. Until an
 order to the contrary be adduced before this Court, this Award E
 must be assumed to be standing and valid. Its validity and
 legitimacy in law, insofar as it has depended on the earlier
Award qua the adjudication of claims, would only be justifiable
by the validity of the earlier Award in the Respondent's favour.
The earlier Award must, therefore, be presupposed to be F
valid, when the validity of the later Award has not been
disproved or rebutted. Seen from this dimension, the Award
in favour of the Appellant is positively valid, and its
unsettlement an uninviting prospect.
                                                                   G
       10. Insofar as the question of primary liability therein is
concerned, the law on subcontracts and employer liability is
amply clear. In the absence of covenant in the main contract
to the contrary, the rules in relation to privily of contract will
mean that the jural relationship between the employer and H
94.6      SUPREME COURT REPORTS                  [2015] 6 S.C.R.


A the main contractor on the one hand and between the sub-
  contractor and the main contractor on the other will be quite
  distinct and separate. No such clause to the contrary,
  existent in the main contract between Appellants and
  SIPCOT, has been highlighted before us by the Appellants,
B which would persuade us towards a deviation from the
  presumption of distinct and sole liability of the Appellant-
  Contractor as employer viz. a. viz. the Respondent-Sub
  Contractor.        On the contrary, much of the exercise in
  determining the existence of a "back to back clause" in the
C contracts C1 and C2 appears to be misplaced. Such an
  accommodation or transference of liability needs to be
  pinpointed in the main contract, for it is SIPCOT's acceptance
  of liability of subcontractor claims which is of the essence;
  even a clause indicating "back to back" liability in agreements
0
  C1 and C2 would not serve to novate the main contract and
  fasten payment liability on SIPCOT, prevented as it would
  be by privily, for it would b.e a matter of SIPCOT's acceptance
  of subcontractor liability in the main contract, and not a matter
E of novation by imposition upon SIPCOT by two parties in a
  separate bilateral contract. Nothing presented before us
  suggests that SIPCO T's contract with the Appellant provided
  for "back to back" subcontracts whereby SIPCOT would be
  directly answerable for the payment claims raised by
F contractors. That subletting was provided for by the main
  contract, and indeed occurred, has been found by the
  Arbitrator (in both Arbitrations) and affirmed by the Courts
  below. This however, is quite distinct from concluding that
  SIPCOT contractually (in the main agreement) assumed
G primary liability for the Subcontractor-Respondent's payment
  claims in respect of agreements made with the Appellant.
  The fact that the Respondent was represented and present
  in parleys and meetings between SIPCOT and the Appellant
  or that it was referred to in the correspondence exchanged
H between them does not lead to the conclusion that a Tripartite
 ZONAL G. M., M/S IRCON INTERNATIONAL LTD. v. M/S 947
  VINAY HEAVY EQUIPMENTS [VIKRAMAJIT SEN, J.]

contract had come into effect by evolution.                             A

      11. The Appellant conceded before the Arbitrator that
it would countenance an Award in favour of the Respondent
as long as it was indemnified for the payment made to the
Respondent by an equal offsetting payment by way of an                  B
Award in its favour in its arbitration with SIPCOT. The record,
as has been hereinbefore referenced, shows that the
Appellant was granted precisely such an Award. The legal
import of the nature of the Appellant's admission of liability
made before the Arbitrator in the First Arbitration now needs           C
deliberation. The Appellant exercised care to make this
concession by conjoining therewith its demand for adjustment
in the Second Arbitration. To that extent the concession could
be called a conditional one. At the heart of the concession
 however, the admission itself, taken alone, was not                    D
conditional. The Appellant thereby admitted an unconditional
 contractual liability on its part to pay the Respondent's
contractual claim, albeit dressing the same in the shroud of
conditionality, by the expedient of making the concession
dependent upon a consequent favourable outcome in the                   E
Second Arbitration. This was then followed by a remarkable
transition in the Appellant's legal posture, from one of
conditional agreeability, to outright denial of any and all liability
on its part to pay the Respondent, stating that SIPCOT was              F
wholly answerable for the satisfaction of all contractual claims
and payments demanded by the Respondent, due to the
"back to back" nature of the main contract with agreements
C1 and C2. The Appellant, we find, stands bound and bonded
by the legal consequences of this initial admission made by             G
it before the Arbitrator. Having concluded thus, we yet
underscore to observe that the Division Bench below
proceeded on the merits in this matter in upholding the Award,
and did not simply hold the Appellant to account for the
consequences of its admission.                                          H
948          SUPREME COURT REPORTS                (2015] 6 S.C.R.


A       12. We also find that the Appellant's case is not
  advanced by its reliance upon the three Judge Bench
  decision in Oil and Natural Gas Corporation Ltd. Vs. Western
  Geco International Ltd. (2014) 9 SCC 263. We cannot
  subscribe to the argument on behalf of the Appellant that it
B was merely a Consultant and therefore could not be fastened
  with liability or was imperious to claims preferred by the
  Respondent for work contractually carried out, or, in respect
  of claims founded on the bedrock of quantum meruit.

C           13. For the foregoing reasons, we decline to interfere
      with the judgment properly exercised by the Arbitrator and
      Courts below, and sustain the impugned order in its entirety.

            14. Interim orders stand recalled. Appeals dismissed.
o     Parties are to bear their respective costs.

      Nidhi Jain                                   Appeals dismissed.