M/S. Sharma & Associates Contractors (P) Ltd. v. Progressive Constructions Ltd.
Background
NHPC awarded a hydro-electric project construction contract to HSCL, which sub-contracted the work to the respondent (PCL), which in turn further sub-contracted part of it to the appellant (SAPL), even though such further sub-contracting was not actually permitted under the PCL-HSCL contract. A dispute arose over payments, which went to arbitration; the appellant claimed it was entitled to the benefit of an enhanced-rate "escalation" clause that NHPC had given HSCL (and which flowed down to PCL), but the contract between the appellant and the respondent did not itself contain such an escalation-sharing clause.
Decision Breakdown
The Supreme Court held that an arbitrator (and the courts reviewing an award) must adjudicate strictly within the four corners of the specific contract between the parties before it, and cannot import terms or benefits from a different, upstream contract merely because it seems equitable to do so. Since the appellant's own contract with the respondent did not provide for passing through the NHPC-to-HSCL rate enhancement, the appellant could not claim that benefit, however commercially unfair the outcome might appear. The Court found no merit in the appeal and dismissed it, affirming that the respondent was entitled to retain the enhanced-rate benefit it had separately negotiated with HSCL.
Lesson Learnt
In a chain of sub-contracts, each contract stands on its own terms: a party cannot claim a benefit that exists in someone else's contract further up or down the chain unless its own contract specifically provides for it.