Keeping the nature of contracts distinct

When work is sub-contracted to firms back to back, each agreement would stand alone. The benefits of the main contract flowing to the first subcontract need not automatically reach the second one in the chain, the Supreme Court ruled in the judgment, Sharma Associates vs Progressive Constructions Ltd. In this case, National Hydro Electric Power Corpn floated a tender for a project in Nainital, in which Hindustan Steel Works Construction Ltd (HSCL) emerged successful. HSCL subcontracted the work to Progressive Construction (PCL), which further sub-contracted part of the work to Sharma Associates. Disputes arose over payment between the last two and the arbitrator gave an award in favour of Sharma Associates, ruling that the revision of rates by the power corporation must be given to the last sub-contractor. The high court (HC) set aside the award. On appeal, the Supreme Court upheld the HC view. It said the agreement to revise rates between the main parties cannot benefit the firm in the last chain. There was no agreement to pass on the revised rates to Sharma Associates. The arbitrator should have stuck to the terms of the contract and not order what he thinks is reasonable.