The Delhi High Court has rejected a petition filed under Section 34 of the A&C Act, 1996, challenging an Arbitral Award. The court upheld the Arbitral Tribunal's (AT) decision, noting that the AT had adequately assessed the claims.
High Court emphasized that a contractor cannot withhold payments from a subcontractor solely based on the contract's back-to-back nature and the contractor's non-receipt of payments from the main employer.
Brief Facts:
The case centered on a project awarded by India Bulls Infrastructure Company Ltd., involving various project phases and subcontracts.
The subcontractor, dissatisfied with the contractor's payment practices, invoked the arbitration clause. As a result, Justice Ajit Bharioke (Retd.) was appointed as the Sole Arbitrator, and the Arbitral Award was issued on December 23, 2022.
Contentions of the Parties:
The core issue concerned the contractor's attempt to deny payments to the subcontractor due to alleged non-payment from the main employer. The contractor contended that the back-to-back payment arrangement allowed it to withhold payments until it received compensation from the main employer. However, the subcontractor argued that the contractor's non-payment was unjustified and that the back-to-back mechanism should not serve as a means to indefinitely withhold payments.
Observations by the Court:
The court's foremost observation addressed the essence of the back-to-back payment arrangement. While acknowledging that this mechanism typically ties the subcontractor's payment to the contractor's receipt of compensation from the main employer, the court clarified that this arrangement should not be abused to indefinitely defer payments during disputes. The court emphasized that the back-to-back approach is valid during the term of the contract but cannot be misused to withhold payments indefinitely, especially when the accuracy of the bills is not being questioned.
Another significant observation highlighted the arbitrator's prerogative to assess evidence presented during arbitration proceedings. The court emphasized that the arbitrator holds the discretion to evaluate the quality and quantity of the evidence without being strictly confined by the stringent rules of evidence established in the Indian Evidence Act. This discretion allows for a flexible approach to evidence evaluation, enabling a balanced consideration of the arguments.
The court's scrutiny extended to the scope of interference with arbitral awards under Section 34 of the Arbitration & Conciliation Act. Justice Ohri reiterated that the judiciary should not function as an appellate body that re-evaluates evidence or questions an arbitrator's conclusions unless they are unsupported by evidence or blatantly illegal.
In addressing the contractor's inconsistent stance on limitation, the court observed the contradictory nature of the contractor's arguments. While the contractor claimed that the claims were premature due to pending payments from the main employer, it simultaneously raised the issue of limitation. The court noted that the contractor's actions, including making claims against the main employer for the same issue, contradicted its plea of limitation.
The court also delved into the evidentiary support for the respondent's claims, acknowledging the arbitrator's decision to reject claims that lacked substantial evidence. The court cited specific instances where the arbitrator relied on documents such as quality certificates and invoices, underscoring the importance of substantiated claims in arbitration proceedings.
Lastly, the court underscored the necessity for contractors to fulfill their payment obligations to subcontractors. It emphasized the importance of transparent and prompt payment practices in maintaining equitable relationships between contractors and subcontractors, discouraging the misuse of payment mechanisms as leverage in disputes.
Decision of the Court:
The Court dismissed the petition.
Case Name: Gannon Dunkerley and Co Ltd v. Zillion Infraprojects Pvt Ltd
Coram: HON'BLE MR. JUSTICE MANOJ KUMAR OHRI
Case No.: OMP(COMM) 234 of 2023
Advocates of the Petitioners: Mrs. Pooja M. Saigal, Mr. Simrat Singh Pasay and Mr. Nipun Gupta, Advocates.
Advocatess of the Respondent: Nemo
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