ONGC not liable to pay sub-contractors

A weekly selection of key court orders

When a corporation grants a contract to a construction firm, the sub-contractors cannot sue the corporation for its dues. The sub-contractors have no privity of contract with the corporation. Stating so, the Supreme Court exempted Oil and Natural Gas Corporation (ONGC) from paying the amount in the arbitral award to a sub-contractor in the case, Essar Oil vs Hindustan Shipyard Ltd. In this case, ONGC granted a contract to Hindustan Shipyard to carry out work of fabrication, skidding, sea fastening, transportation at various stations in the coastal areas. Hindustan Shipyard gave a sub-contract to Essar Oil. While the work was in progress, Essar was given some amounts by ONGC as it wanted the project to be completed faster. Later disputes arose between Essar and Hindustan Shipyard. The issues were referred to arbitration. By majority, the tribunal decided that Essar Oil's demand should be met by Hindustan Shipyard. Against this, the latter moved the Andhra Pradesh High Court. It ruled that all the three had contractual obligations and therefore Essar could get its dues from ONGC. Thus the high court quashed the award. Essar therefore moved the Supreme Court. It set aside the high court order and upheld the majority view of the tribunal. The judgment noted that ONGC, in its anxiety to complete the project, had paid Essar amounts several times and there was correspondence in this regard. However, "only for that reason ONGC cannot be saddled with a liability to pay the amount payable to Essar," the judgment said and added that Hindustan Shipyard will make the payment to its sub-contractor.

Rejection of insurance claim justified
The Supreme Court last week dismissed the appeal of M/s BHS Industries against the ruling of the National Consumer Commission, which had stated that the Export Credit Guarantee Corporation was justified in rejecting the claim of the exporter of handicrafts. The small-scale industry exported goods to a US firm. Its exports exceeded the insurance cover and though it had asked for increased cover, additional credit was not approved by the corporation. Moreover, certain consignments were rejected by the buyer, leading to the dispute. The firm moved the state consumer commission at Chandigarh, which rejected its complaint against the corporation. The National Commission as well as the Supreme Court rejected the appeals.

ESI court cannot grant exemptions

The court dealing with disputes between employers and employees under the Employees State Insurance (ESI) Act can adjudicate issues between them, but it cannot grant exemption to an establishment from the rules. That is the function of the government, the Supreme Court emphasised in the case, Zuari Cement Ltd vs ESI Corporation. The ESI court had granted exemption from liabilities under the Act to the company. The corporation appealed to the Andhra Pradesh High Court. It ruled that the ESI court had no power of exemption. Upholding that view, the Supreme Court said: "As per the scheme of the Act, the appropriate government alone could grant or refuse exemption. When the statute prescribed the procedure for grant or refusal of exemption from the operation of the Act, it is to be done in that manner and not in any other manner."

Arbitrator must follow terms of contract
An arbitrator is bound by the terms of the contract so far as award of interest from the date of cause of action to date of the award is concerned. Therefore, where the parties agree that no interest shall be payable, the arbitral tribunal cannot award interest. Supreme Court stated so while quashing the judgment of the Bombay High Court in the case, Union of India vs Bright Power Projects. In this case, the government and the firm entered into a contract to erect certain structures. Disputes arose between them and they were referred to arbitration. The award was granted in favour of the firm, and it even included interest on the amount awarded. The government moved the high court arguing that interest was excluded in the contract. However, the high court dismissed the contention invoking Section 37 (7) of the Arbitration and Conciliation Act dealing with payment of interest. Supreme Court allowed the appeal of the government accepting its contention that the contract had specifically excluded interest. According to Section 37, if the terms of the agreement exclude interest, the arbitrator cannot impose it on the party which is ordered to pay. However, if there is no mention of payment of interest in the contract, the arbitrator can impose interest.

Liquor firms in trade mark battle
The Delhi High Court last week dismissed two appeals involving the trade mark and copyright of popular whisky brands and confirmed the injunctions against them. Allied Blenders & Distillers produces and markets whisky with the trade mark 'Officers Choice'. It objected to two rival companies using similar words for their whisky. Sentini Bio Products used 'Officers Special', while the other company, Shree Nath Heritage Liquour Ltd used 'Collectors Choice'. Allied argued that the choice of words is likely to confuse the consumers, especially when the products are sold through the same vendors. The rivals argued that the words employed are common dictionary words on which there could be no copyright. Rejecting their argument, the high court confirmed the injunction against them. The judgment noted that there was stark similarities in the colour and design of the products. The whole attire was likely to confuse the buyers who may not be discriminating "especially when it is likely that he consumes one subsequent to the other and after some time, he or she may even confuse the experience associated with them," the judgment said.

Govt told to disclose gas policy
The Delhi High Court last week directed the Centre to disclose its "comprehensive policy for allocation of natural gas in public domain within a period of six weeks and ensure that it is implemented uniformly." The order was passed in a petition moved by Deepak Fertilisers & Petrochemicals Corporation challenging the decision of W P (C) 2973/2014 page 1 of 32 the Department of Fertilisers discontinuing the supply of gas to the corporation, manufacturing fertilisers, and diverting it to urea manufacturing units facing shortfall of natural gas. The high court stated that the order was discriminatory. The government was directed to resume the supply of gas to the corporation till the time the government is in a position to implement its policy to discontinue supply of gas by other units as well. "It is necessary that the policy for allocation of gas is clearly indicated and is implemented in a transparent manner," the judgment underlined.