Contractor Cannot Deny Payments To Sub-Contractor Merely Because The Contract Was On Back-To-Back Basis- Delhi HC
The Delhi High Court dismissed a petition preferred under Section 34 of the A&C Act, 1996 assailing the Arbitral Award finding that the Arbitral Tribunal (AT) had reasonably evaluated the claims and that a contractor cannot deny payments to the ‘Sub-contractor’ merely on the ground that the contract was on back-to-back basis and it has not received payments from main employer.
Justice Manoj Kumar Ohri discussed the "back-to-back" nature of the Memorandum of Understanding (MOU) and the Letter of Award (LOA). He clarified that "back-to-back" obligations should only apply to the provisions explicitly incorporated by reference from the LOA to the MOU. He found that the Contractor's claim of pending certification by the PE did not justify withholding payments indefinitely when the Contractor had not disputed the correctness of the bills.
In this case, the petitioner- Contractor, and the respondent/claimant-Sub-contractor were involved in a project awarded by India Bulls Infrastructure Company Ltd. The Contractor subcontracted part of the work to the Sub-contractor. The parties entered into various agreements and the Sub-contractor initially worked on Phase II but was later asked to work on Phase I due to changes in the project. There were disputes regarding payment, and the Sub-contractor invoked the arbitration clause. The dispute was referred to a Sole Arbitrator, Justice Ajit Bharioke (Retd.). The Arbitral Award was delivered on December 23, 2022. The Sub-contractor filed an application for correction of errors under Section 33 of the Arbitration & Conciliation Act, which was rejected by the Arbitral Tribunal on February 15, 2023.
The Contractor disputed all claims, contending that they were time-barred and lacking merit.
The Arbitral Tribunal (AT) rejected most of the claims, except for Claim No 1 related to outstanding bills and retention money. The AT found that the Sub-contractor was entitled to a reduced amount within limitation. The Sub-contractor had proved certain aspects of Claim No 1, leading to the AT's conclusion that the Contractor was liable to pay the Sub-contractor. The AT considered the contractual terms, the completion period, and the Contractor's role in coordination, leading to the awarded amount along with interest.
Advocate Pooja M. Saigal appeared for the Petitioner.
The Court reiterated the scope of interference with an arbitral award under Section 34 of the Arbitration & Conciliation Act, emphasizing that the Court should not act as an appellate court, re-evaluate evidence, or disturb the arbitrator's conclusions unless they are based on no evidence or are patently illegal. The Court found no grounds under Section 34 to intervene in this case.
The Court addressed the Contractor's contentions, including the limitation argument. The Contractor's argument that the claim was premature due to the pending reconciliation process with the Principal Employer (PE) was dismissed. The Court noted that the Contractor's own actions, such as invoking arbitration against the PE for part of the claim, contradicted the limitation plea. Additionally, the Court examined the evidence and found that the Arbitral Tribunal (AT) had reasonably evaluated the claims based on the available evidence, and there was no lack of evidence to support the AT's decision.
Ultimately, the Court concluded that there was no patent illegality in the arbitral award, and the objections raised by the Contractor under Section 34 were not substantiated. The petition was dismissed.
Cause Title: Gannon Dunkerley And Co Ltd. v. M/S Zillion Infraprojects Pvt Ltd.
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