M/S Senbo Engineering Ltd v. Delhi Metro Rail Corporation Ltd

ORDER

29.05.2012

¶1This is a petition under Section 9 of the Arbitration and Conciliation Act, L996 ('Act') filed by Senbo Engineering Ltd. ('Senbo') against the Delhi Metro Rail Corporation Ltd. ('DMRC') seeking certain interim reliefs in the context of the dispute between the parties arising out of a contract (BC-23) for the design and construction of underground station inclucling stabling line at Central Secretariat and Tunnel towalds Khan Nlarket and cover method on Central Secretariat, Badarpur Corridor for which a Letter of Acceptance dated 6'h August 2007 was issued by'the DMRC for a contract value of Rs. 97 -33 crorcs.

¶2In relation to all the sub-contractors, Claltse C11.1 and Clause 4.5 of O.M.P. No. 4 of 2012 Poge I of 12 v the General Conditions of the contract provided as under:- "Cl1 - Sub-contracts Clause I 1.1 - the terms and conditions of subcontractors and payments that have to be made to the subcontractors shall be the sole responsibility of the contractor. Clause 4.5 The contractors shall be responsible for observance at all subcontractors of all the provisions of the contract. The contractor shall be responsible for the acts or defaults of the subcontractor, his representatives or employees, as fully as if they were the act or defaults of the contractor, his representatives or employees and nothing contained in clause

(a) of clause 4.5 shall constitute a waiver of the contractor's obligations under this contract. The contractor shall provide to the engineers of all the subcontracts including terms, conditions and pricing. The contractor shall and were to resolve all matters and payments amicably and speedy with the subcontractors."

¶3For the purposes of the present dispute the facts required to be noticed are that by letter dated 14th October 2009, Senbo requested DMRC for extra funds to cope up with the negative cash flow. It was stated in the said letter that if DMRC was able to provide Senbo with an advance of Rs. 5 crores against existing available balance bank guarantee amount for mobilization and plant and machinery advances with interest @I0oA, the money would be utilized for paying vendors' dues to ensure regular supply of materials by vendors ancl thus enhancing the work \:-- l/ ln progress. The terms and conditions suggested by Senbo in the said letter l) inter alia included the following:- "(1) We request DMRC to pay advance of Rs.5 crores against the available bank guarantee of Rs.6.65 crores at l\Yo rate of interest and installments can be adjusted with R.A. bills from December 2009, onwards.

(2) To postpone the interest free advance recovery of Rs.S crores without interest till December 2009 and this can be recovered against our pending dues which are to be assessed and released by DMRC in due course.

(3) DMRC may pay to our vendors/sub-contractors directly on our certification for fresh procurement of materials/other resources. XXXX

(6) DMRC to make direct payments to our suppliers/vendors and sub-contractors on IWs. Senbo.'s certification as per their work order with us, out of our R.A. bills.

(7) Paymer-rts made by DMRC for BC-23 to vendors, suppliers and sub-contractors shall deemed to be as paid to IWs. Senbo and we will have no disputes on the same.

(8) A11 our old as well as any fuither liabilities will be dealt by us directly with vendors, suppliers and sub-contractors."

¶4By its letter dated 24th October 2009, DMRC agreed to the above conditions and in particular the following: "(2) DMRC rnay start paying to the contractor's vendors directly on contractor's certification for the fresh Prye 3 of 12 IY procurement of materials/other resources for completing the balance portion of works. XXXXX

(5) This process may be continued till the completion of wor\. At the end in the cumulative due of the contractor will be negative (outstanding balance to be recovered) which may be recovered from bank guarantees available with DMRC. XXXXX

(7) A11 the old as well as any further liabilities will be dealt by the contractor directly with vendors, supplies and sub-contractors.

(8) \zVs. Senbo will indemniff DMRC against any claims or legal actions arising out of making direct payments to vendors, suppliers and sub-contractors."

¶5An indernnity bond was also furnished by Senbo to DMRC on 26th October 2009. According to Senbo, the above arrangement continued for some time. Senbo states that the entire loan amount of Rs. 5 crores was fully recovered with abcrued interest by DMRC from Senbo, and therefore the said letter dated 14th October 2009 had worked itself out. Further, Senbo had by its letters dated 2nd November 2009 and 16th January 2010 notified DMRC about the practical difficulties arising out of the said direct payments for the purposes of statutory 'deductions. According to Senbo, it had requested DMRC by its letter dated 18'h January 2010 to discontinue the arrangement whereby DMRC was lt requested to issue cheques in favour of Senbo's vendors/sub-contractors. By a letter dated 28t' January 2010, Senbo notified DMRC about the details/particulars of its vendors/sub-contractors whose outstanding payments had been settled by Senbo.

¶6Senbo states that one Mr. Rabindra Nandi, Site In-charge and Team Leader at New Delhi, played a fraud upon Senbo by colluding with the sub-contractors. It is claimed that Mr. Nandi discontinued affending the office from October 2010. Senbo claims that it was surprised to learn of three letters dated 15th November 2010,2nd December }OLO and 27.th December 2010 purportedly written by Mr. Nandi to DMRC to make payments to the labour contractorS. This apparently came to light when on 28th December 2010, DMRC wrote to Senbo as under:- "Dear Sir, Name of Work: Contract BC-23: Design & Construction of underground station including stabling line at Central Secretariat & Tunnel towards I(han Market by Cut & Cover method on CTST-BP corridor of Delhi MRTS Project. Sub: Payment io Labour Contractors and Vendors. Ref: Your office letter Nos:

i) Letter No.Nil dated 15.11 .2010

ii) Letter No.Nil dated 2.12.2010

iii) Letter No.Nil dated 27 .12.2010 Your attention above (copies is invited to your office letters referred to enclosed) related to recommendation for r-[ release of payments as per list (of payments due to Labour Contractors & Vendors) by lWs. Senbo which is amounting to Rs.4,7 9,23,092. You are requested to confirm that these payments are related to BC-23 project and are to be made by DMRC. Confirmation in this regard may be communicated by 5tn of January 2011 failing which it will be presumed that list is correct and further necessary appropriate action shall be initiated by this offrce."

¶7Senbo did not reply immediately but on 27'h January 2011, it wrote a detailed letter to DMRC in which it stated that the aforementioned letters purportedly written by Mt.Nandi were "false, untrue and fabricated" and that "the initiative was taken by him with ulterior motive having no bearings of reference and dispatch numbers etc. of the company". Senbo denied having delegated any power to X/ft. R. Nandi to write the aforementioned letters. In particular, it was stated as under: ,,Many of the suppliers/vendors/labour contractors whose names appear in enclosed lists allegedly submitted by Mr. Nandi along with his three letters as stated above have categorically denied having requested/pressed him for payment of their dues. During the course of verification of the bills it was found that many of the bills checked and approved for payment by \zlr. Nandi were found to be false and fabricated having no relation with the actual work done at BC-23 site. O.M.P. No. 4 of 2012 We hereby fully disown the letters fraudulently written by N4r. R. Nandi (without any reference number and entry of dispatch nutnber in outgoing register of the Company) to you for direct payment to the vendors, sub-contractors and labour contractor. We, therefore, request you not to act upon the contents and the direction of the letters."

¶8The imrnediate provocation for the present petition is a letter dated 19th December 2011 from DMRC to Senbo where it was inter alia stated that "no documentary evidence of settlement/payment to the vendors/sub-contractors has been forwarded till now." DMRC stated that by letters dated 1 5th October 201 I and 3 Oth October 201 1 , Senbo was asked to settle the outstanding payment of the vendors but this had not been done till then. This was followed bv another letter dated 24th December 20II in which DMRC complained the Senbo as under:- "Your vendors/sub-contractors are regularly visiting this office and also our head office for release of their outstanding payments causing embarrassment to DMRC management. Even some of vendors and employe'es have gone to various Courts where DMRC is made party, is also a matter of concern and DMRC will have to make all such recoveries of legal expenses. In view of the above you are hereby given seven days time form the date of issue of this letter to settle all outstanding payments with your vendors/sub-contractors as indicated above and a confinnation with proof of payment and dues LI O.M.P. No. 4 of 2012 Ptge 7 of 12 t8 settlement may please be provided from each vendors/sub-contractors to settle the entire issue failing which the amount of Rs.4.38 as certified will be released to such vendors/sub-contractors and adjusted accordingly at your risk and cost." g. Thereafter, the present petition was filed by Senbo on 2nd January 2012. When it came up for hearing on the following day i.e. 3'd January 2012, this Court passed the following order:- "1. Mr. Rajiv Nayar learned senior counsel for the Petitioner Senbo Engineering Ltd. ('Senbo') points out that the Respondent Delhi Metro Rail Corporation Ltd. ('DMRC)' has no locus to direct Senbo to release monies to its vendors/sub-contractors towards purported outstanding dues. Nor can it be as is sought to be done by DMRC's letters dated 19th and 24th December 2011, withhold monies due to Senbo to the extent of Rs. 4.38 crores for satisSring the purported claims of the vendors/sub-contractors of Senbo. He points out that in any event, as noticed in DMRC's letter dated 24th December 2011, some of the vendors/sub-contractors have instituted proceedings in various courts in relation to such claims and those proceedings are pending.

¶2Notice, returnable on 13th April,2012. Dasti in addition.

¶3Till the next date of hearing the DMRC is from proceeding to act on its impugned letters and24th December.2011 addressed to Senbo." O.M.P. No.4 of 2012. restrained dated 19th Poge I of 12 i,1 n

¶10While DMRC filed its reply to the petition, on 10th April 2012, some of the vendors filed Interlocutory Applications seeking impleadment. IA No. 5668 of 2012 has been filed by IWs ABC Builders seeking that the order dated 3'd January 201,2 should be modified to permit payments to be released to them by DMRC. IA No. 5927 of 2012 has been filed by IWs New Era Enterprises and iWs New Era Projects and IA No. 10537 of 2012 has been filed by \zlls SSA Constructions and Labour Suppliers seeking similar relief.

¶11The specific averments about IW. Nandi's letters being fabricated and fraudulent and about Senbo having filed an FIR against him are contained in paras 27,28 and 29 of the petition. In response thereto DMRC has in para29 of its reply stated as under:- "29. Mr. R. Nandi was deputed as Site-In-Charge and team leader by x#s senbo Engineering for completion of the project vide letter no. SELIDMRCIL-6|BC-2311505 dated

28.5.2010 and further was given Power of Attorney vide Ietter no. SEL/DMRC lL-6lBC-2311551 dated 10th June 2010. The POA was invoked vide their letter No. SELIDMRC IBC-231201 1/060 dated 25.1 .2011. As such any action/correspondence made by Mr. R. Nandi on behalf of IWs Senbo during the. period shall stand valid so far as BC-23 project is concemed. For any dereliction of responsibilities etc., it is IWs Senbo's internal matter and has nothing to do with DMRC." Poge 9 of 12

¶12In other words, DMRC is unable to inform this Court what action it took after receiving the letter dated 27'h January 2011 from Senbo which categorically stated that letters written by Mr. Nandi were fabricated and could not be acted upon. Once, DMRC itself had a doubt about the payments required to be made to vendors and Senbo clarified by its letter dated 27th Jaruary 2011 that DMRC should not act on the letters of Mr. Nandi, there was no justification in DMRC insisting on Senbo making payments to sub-contractors. DMRC also could not have continued to make payments thereafter directly to the sub-contractors/vendors. Prima facie, there appears to be no subsisting agreement between Senbo and DMRC whereby DMRC could make payments directly to the vendors/sub-contractors. Even while the said arrangement continued, the making of such payments was conditional upon certification by Senbo. No cerlification of payments to vendors/sub-contractors has been shown to have been issued by Senbo subsequent to 28th December 2010. With DMRC itself having a doubt whether it should act on Mr. Nandi's aforementioned three letters, and with Senbo unambiguously terming those letters as 'fabricated'. DMRC cannot insist on continuation of such arrangement.

¶13As far as the parties seeking impleadment are concerned, Mr. Anil Sapra, learned Senior counsel appearing on their behalf submits that the orders of the Court dated 3'd January 2012 were adversely affecting the O.M.P. No. 4 of 2012 sub-contractors/vendors and therefore, they should be impleaded in the present petition and heard in the matter. He relied upol the decision of the Single Judge of this Court in CREF Finsnce Limited Vs. Puri Construction Ltd. 2000 (3) Arb. L.R 331 (Delhi).

¶14fhe facts in the aforementioned decision are clearly distinguishable. As far as the present case is concerned, the sub-contractors/vendors are not parties to the arbitration agreement between Senbo and DMRC. There is no case made out by them for getting impleaded in the petition under Section 9 of the Act. While this Court does not propose to make any order as regards payments already released to these Applicants, if any, by DMRC, it cannot in the present proceedings grant the prayer by these Applicants for a direction to DMRC to continue to make payments to them under the earlier anangement brought about by the letters dated 14th and. 24th October 2OOg, which affangement prima facie appears not to have clntinued. The Applicants in I.A. Nos. 5668, 5927 and 1053 7 of 2012 are at liberty to file substantive suits to recover the moneys claimed by them in accordance with law. It is clarified that the order passed by this Court on 3'd January 2OI2 or this order will not "orn" in the way of these Applicants pursuing their remedies in accordance with law.

¶15For the aforementioned reasons. the order dated 3'd Januarv 2012 is J continued till such tirne the Arbitral Tribunal disposes of any application O.y.r. No. 4 of 2012 A \./ ctV that rnay be filed under Section 17 of the Act in accordance with law. This t/ is however conditional upon Senbo initiating steps to seek the appointment of an Arbitral Tribunal within four weeks from today, failing which the said order dated 3'd January 2OI2 would cease to operate at the expiry of four weeks from today.

¶16The petition and applications are disposed of in the above terms with no order as to costs. \ IrY, <_? S. MURALIDHAR, J MAY 29,20L2 sd Poge 12 of I2

.t? ,t + TN THE HIGH COURT OF DELHI AT O.M.P. No. 4 of 2012 IWS SENBO ENGINEERING LIMITED. NEw DELHI 1 |tl .... Petitioner o/o Through: Mr. Mukul Rohtagi and Mr. Suhail Dutt, Sr. Advocates with Mr. Viplav Sharma and Ms. Nilanjan Banerjee, Advocates Versus DELHI METRO RAIL CORPORATION LTD. ..... Respondent 'fhrough: Mr. Satyavan Kudalwal, Adv. for DMRC/ResP. No.1 N/k. Anil Sapra, Sr. Advocate with Mr. Rakesh Malhotra, Adv. for the Applicant/Interveners CORAM: JTISTICE S. MURALIDHAR