IMPORTANT POINTS
If the main contract does not specifically provide for back-to-back arrangement for financial liability also the contractor cannot deny its liability towards paying the sub-contractor.
Making and receiving claims from main employer on the basis of sub-contractor’s claims and then denying the same and not paying the sub-contractor is not permissible.

Headnote:(a) Interpretation of contract – Appellant claiming back-to-back nature of its main contract with SIPCOT and sub-contracts with the respondent – Meaning thereby that liability of appellant towards respondent would be restricted to and coextensive of that which SIPCOT acknowledges – Contract not showing any back-to-back arrangement as to financial liability of appellant towards the respondent – Appellant as Employer, held, primarily liable to the Respondent. (Para 5, 6, 7, 10)
       (b) Administration of Justice – Approbation and reprobation – Appellant admitting to respondent’s claim and on that basis obtaining favourable award in second arbitration – If validity of award in first arbitration is challenged, award in second arbitration becomes vulnerable – It cannot reprobate and deny its liability towards respondent. (Para 8, 9, 11)
       (2014) 9 SCC 263 – Distinguished
       Facts of the case:
       Having bagged a contract from SIPCOT, the Appellant entered into two 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 /-.
       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 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 it by the Appellant, and resorted to arbitration.
       The Appellant also took recourse to arbitration against the main contracting 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 First Arbitration, and the claims made in turn by the Appellant against SIPCOT in the Second 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 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.
       The Appellant filed two petitions 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 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 Single Judge dismissed the Appellant’s petitions and allowed the Respondent’s applications.
       The Appellants thereafter filed two Appeals which were dismissed.
       Finding of the Court:
       There is no error in the impugned judgment.
       Result: Appeal dismissed.

JUDGMENT

VIKRAMAJIT SEN, J.

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 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 Internal Road for the Industrial Complex at Irungattukottal, 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 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 /-.

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 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 it by the Appellant, and resorted to arbitration. The Appellant also took recourse to arbitration against the main contracting 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 First Arbitration, and the claims made in turn by the Appellant against SIPCOT in the Second 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 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 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 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 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 and put together, 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 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 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 made by the

Click Here to Read the rest of this document

2015 Supreme(SC) 414

Cases Referred (1)