Gannon Dunkerley And Co LTD Vs Zillion Infraprojects PVT LTD (Delhi High Court)
Introduction: The case of Gannon Dunkerley vs. Zillion Infraprojects, heard in the Delhi High Court, sheds light on a complex payment dispute between a contractor and a subcontractor within the context of a thermal power project. The case involves intricate contractual relationships, claims, counterclaims, arbitration proceedings, and subsequent legal deliberations. In this analysis, we delve into the factual background of the case, explore the legal arguments presented, examine the court’s findings, and conclude by evaluating the potential implications of the judgment.
Factual Matrix: The dispute emerged from a thermal power project in which the “Contractor,” Gannon Dunkerley & Company, was awarded a contract by the principal employer, M/s India Bulls Infrastructure Company Ltd. Part of the work was subcontracted to the “Sub-contractor,” Zillion Infraprojects Pvt. Ltd., through a Memorandum of Understanding (MOU). The primary contention arose due to outstanding bills and various claims made by the Sub-contractor against the Contractor. The matter eventually escalated to arbitration, resulting in an award by the Arbitral Tribunal (AT).
Detailed Analysis: The case involved intricate issues such as limitation, validity of claims, the applicability of interest, and adherence to contractual obligations. The AT rejected a majority of the Sub-contractor’s claims but granted a reduced sum under claim No. 1, which pertained to outstanding bills. The court meticulously scrutinized the evidence presented by both parties, giving particular attention to quality certificates, tax invoices, and the stipulations outlined in the MOU.
The court’s examination also extended to the “back-to-back” arrangement, which the Contractor invoked as a defense. This arrangement essentially tied the Sub-contractor’s payments to the receipt of funds from the principal employer. However, the court elucidated that such a defense cannot be employed indefinitely, especially when the Contractor had not contested the accuracy of the invoices. The court emphasized that disputes cannot be used to indefinitely withhold payments, and pending certification alone cannot serve as a justification for non-payment.
Conclusion: The Delhi High Court’s ruling in the Gannon Dunkerley vs. Zillion Infraprojects case holds significance for the construction industry and its stakeholders. The judgment clarifies the contractual obligations and expectations between contractors and subcontractors. Moreover, it underscores the importance of presenting compelling evidence and the need for an unbiased evaluation of claims. The court’s interpretation of the “back-to-back” arrangement signifies that contractual defenses must be employed in a reasonable and fair manner. Ultimately, this judgment contributes to fostering fair practices and ensuring equitable resolution of payment disputes in construction projects. It provides valuable guidance and clarity for both contractors and subcontractors when navigating similar situations.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. The present petition has been preferred under Section 34 of the A&C Act1 assailing the Arbitral Award dated 23.12.2022 (hereafter, ‘the impugned Award’) delivered by the Arbitral Tribunal comprising of a Sole Arbitrator.
FACTUAL MATRIX
2. For the ease of reference, petitioner herein shall be referred to as “Contractor” and the respondent/claimant as “Sub-contractor”.
3. The Contractor was awarded BTG Civil and Structural Work in 1350 MW thermal power project at Sinner, Nasik, Maharashtra by M/s India Bulls Infrastructure Company Ltd. (Principal Employer)2, vide a letter of award dated 05.05.2011. The contract value of the works awarded was Rs. 201.51 crores.
4. Part of the works-pertaining to steel fabrication and erection- was sub-contracted by the Contractor to the Sub-contractor under an MOU dated 02.07.2011 executed by them. One of the conditions of the MOU was that the terms and conditions of the contract between the PE and the Contractor would be applicable to the Sub-contractor in respect of portion of works sub-contracted to it.
5. Pursuant to the MOU, a letter of award dated 26.07.2011 was issued by the Contractor in favour of the Sub-contractor.
6. The PE, Contractor and the Sub-contractor also entered into a tripartite agreement dated 06.08.2011, defining the scope of work, role of each party and the relationship between them.
7. In accordance with the Clause 13 of the MoU and Clause 1 of the tripartite agreement, the Sub-Contractor, furnished an advance Bank Guarantee in favour of the PE equivalent to 5% of the contract value amounting to Rs.3,81,78,000/- from the State Bank of India, Jawahar Vyapar Bhawan, 1, Tolstoy Marg, New Delhi, in favour of the PE, for and on behalf of the Contractor.
8. The Sub-contractor undertook the works of structural steel fabrication and erection for Mill & Bunker Bay at Unit 6-10, Phase-II, Sinner TPP, Nasik between August, 2011 to November, 2011, when it was verbally asked by the Contractor to stop the work.
9. In the meeting held on 17.11.2011 between the Contractor and Sub-contractor, the former officially informed the latter, about the foreclosure of the work at Phase II, and in its place, assigned the work of structural steel fabrication and erection for Mill & Bunker Bay at Unit 45, Phase I, Sinner TPP, Nasik.
10. As the Sub-contractor had to mobilise the equipment and manpower from Phase II to Phase I, the parties agreed that the additional cost incurred by the Sub-contractor, which was not part of the earlier cost estimate, would be borne by the PE on actual basis.
11. On 05.12.2011, a fresh work order relating to Phase I work was executed by the Contractor in favour of Sub-contractor. The work at Phase I commenced in December, 2011 and was carried on till June, 2012, when the Contractor again orally informed the Sub-contractor to stop the work.
12. The Sub-contractor complained that even though the Contractor had received the payments from the PE for the work carried out by it at both the sites, however, the Sub-contractor’s running bills remained unpaid by the Contractor.
13. Disputes between the parties remaining unresolved, the Subcontractor invoked the Arbitration clause. Resultantly, vide order dated 27.03.2019 passed in ARB. P. 64/2019, this Court referred the parties to the AT3 comprising of Justice Ajit Bharioke (Retd.) as the Sole Arbitrator.
14. Upon hearing the parties, the AT delivered the impugned Award on 23.12.2022. The Sub-contractor filed an application under Section 33 of the A&C Act seeking correction of errors. The application was opposed by the Contractor and was eventually rejected by the AT vide order dated 15.02.2023.
DISPUTES BEFORE THE AT
15. The Sub-contractor filed its SOC4 raising the following claims against the Contractor:-
