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REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.3353 OF 2005

M/S ESSAR OIL LTD.     ... APPELLANT VERSUS

HINDUSTAN SHIPYARD LTD. & ORS.   ... RESPONDENTS

WITH CIVIL APPEAL NO.3355 OF 2005

J U D G M E N T

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

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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.

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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.

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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

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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

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respondent.  It was also held by the majority that

the appellant could not even sue the ONGC 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 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 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 the appellant was to take appropriate

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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 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

and Conciliation Act, 1996.

10. The  Principal  District  Judge,  Visakhapatnam,

decided both the Original Petitions by orders dated

10th October,  2002  and  1st November,  2002,

respectively. The learned Principal District Judge

confirmed the award on the issues with which we are

concerned,  but  he  remanded  the  matter  to  the

Arbitral Tribunal on the issues regarding counter

claim etc., with which we are not concerned in this

case.  

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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,  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 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 the Arbitral Tribunal but

as the ONGC was not represented before the Arbitral

Tribunal, the Award made by the Tribunal was bad in

law.  The Award deserved to be set aside by the

Principal  District  Judge  but  he  did  not  and

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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 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 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 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

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determination of liability of the person who has to

make payment to the 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 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 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  possible  for  the

appellant to make the ONGC a party before any Court

or Authority for recovery of the amount payable to

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it in pursuance of the sub-contract given by the

respondent.   

15. It  had  been  fairly  admitted  by  the  learned

counsel 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 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 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.  

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16. The learned counsel for the appellant had with

great 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.

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 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.   

18. On the other hand, the learned counsel for the

respondent had submitted that the ONGC was liable to

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make payment to the appellant and therefore, there

is no liability on the part of the respondent to

make payment to the appellant.  

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 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.   

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 25th October,

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1991  addressed  by  the  respondent  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

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

payment to the appellant established the fact that

the  ONGC  had  undertaken  the  liability  to  make

payment to the appellant.  The aforestated letter

dated 25th October, 1991 and other letters which had

been exchanged between the respondent and the ONGC

were  placed  on  record  to  show  that  there  was  a

contract between the ONGC and the appellant.

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21. For  the  aforestated  reasons,  it  had  been

submitted by the learned counsel for the respondent

that the view of 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  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 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 respondent and upon perusal of other letters, we

believe that the view expressed by the High Court

cannot be accepted.

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24. It is true that the ONGC had made payment to

the appellant directly on several occasions.  Upon

perusal  of  the  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 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  hassles.   In  the

circumstances, upon perusal of the 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.

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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 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 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 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

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appellant.   In  the  aforestated  factual  and  legal

position, the Arbitral Tribunal could not have made

the  ONGC  liable  in  any  respect  and  rightly,  the

majority view of the Arbitral Tribunal was 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.   

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 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 party and there was no liability

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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 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

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 the ONGC had made itself liable to make

payment to 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

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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

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  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 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.  

29. For the aforestated reasons, we do not agree

with the view expressed by the High Court and the

impugned judgment delivered by the High Court is set

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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 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

appeals are allowed with no order to costs.  

     …………………………………………………….J

                       (ANIL R. DAVE)

…………………………………………………….J              (VIKRAMAJIT SEN)

…………………………………………………….J        (PINAKI CHANDRA GHOSE)

NEW DELHI;  JULY 2, 2015.