IMPORTANT POINT
When the principal is not a party to any contract or arbitration agreement between the contractor and the sub-contractor, it cannot be saddled with liability to pay the sub-contractor.

JUDGMENT

ANIL R. DAVE, J.

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:-

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 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 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 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 un