VIVEKANANDA INSTITUTE OF

PROFESSIONAL STUDIES

VIVEKANANDA SCHOOL OF LAW AND LEGAL

STUDIES

K.P.M. BUILDERS PVT. LTD. v. NATIONAL

HIGHWAY AUTHORITY OF INDIA AND ANOTHER

SUBMITTED BY: SUBMITTED TO:

SHAILJA SINGH MS. INSHA GOEL VATS

1-C
10416
ABOUT THE CASE

 The first respondent – National Highways Authority of India (NHAI)

entrusted the second respondent (M/s You One Maharia- JV) herein
called ‘the contractor’ with the execution of a project on NH-1.
 Under the contract, NHAI gave Rs. 14 crores to the contractor for all the
expenses. The said amount was secured in unconditional bank guarantee
by the contractor.
 The NHAI learnt that the guarantee produced by the contractor was
forged. As a consequence, NHAI terminated the contract and by
exercising its rights under Clause 61 of General Conditions of Contract, it
claimed all the movables at site as its property.
 Now, the appellant i.e. K.P.M. Builders claimed that all the machinery
was provided to the contractor by them on hire basis which the contractor
would take every day from appellant’s camp which was near the site.
 The appellant alleged that NHAI terminated the contract and took over all
the movables and seized them and prevented them to remove the
machinery from their own camp office, by placing their security guards
around it. It was denied by NHAI.
 The appellant filed a writ petition before the Delhi High Court seeking
removal of the guards and release of illegally seized machinery. The
appellant confirmed that it only wanted relief in regard to the machinery
lying on their premises and not the one at the site as the clause 61 can
only empower NHAI to take possession of machinery at the site. A
single judge of the high court allowed the writ.
 NHAI felt aggrieved and filed a letters patent appeal. Later, a list was
ordered to make by an appointed commissioner which tells the machinery
lying at the work site and outside the work site. In that it was clarified
that the equipment at the site will remain with the appellant and outside
ones will go to the first respondent and the second respondent (the
contractor) must also return the equipment by depositing its cost, if
needed.
 NHAI was also ordered to remove their guards and the first respondent is
free to claim any compensation from the second respondent in terms of
any other agreement between them or hire purchase.
 The company again filed a review petition which was dismissed later,
contending that it is entitled to take all its machineries wherever they are.
They claimed that some of the equipments are not at the work site but on
 the way to the work site and the NHAI are claiming them falsely and
refusing to give them back. To which NHAI clearly denied.

ISSUE RAISED
Whether a third party who is getting benefits from a certain contract and who is
also a stranger to the contract can sue or file a suit on the contract when they are
denied of getting promised benefits?

ARGUMENTS RAISED
By Appellant:
The appellant claimed that the illegally seized machineries (which are not at the
work site) should be released and security guards should also be removed as due
to them, they are not able to access their own materials. Later, they appealed
that they should get all the machineries no matter where they are and the NHAI
is also claiming those equipments which are on the way of the work site which
is not legal.

By respondent:
National Highway Authority of India claimed that they should be handed over
all the machineries as they are in no way obligated to K.P.M Builders and the
contractor has to give all the machineries under clause 61 of their contract. They
also wanted proper division of all the machineries for which the filed a letters
patent appeal. At the end, they got all the machineries by the working of privity
of contract.

JUDGEMENT OF THE CASE

o The bench dismissed the appeal because there was no privity of contract
between NHAI and the appellant as firstly, the appellant did not inform
NHAI about the agreement between them and the contractor and that it is
them who is the actual owner of all the machineries despite knowing the
 contract between NHAI and the contractor and its terms. Secondly, the
appellant also did not produce the alleged contract between them and the
contractor saying that the equipments are to be returned at the end of each
days’ work. It was held that NHAI had not entered into any contract or
arrangement with the appellant, nor given any assurance to it in regard to
the machineries, nor owed any duty or obligation towards the appellant.
Nor can NHAI's action in taking over the machineries at site in pursuance
of a specific contractual term with the contractor can give rise to any
public law remedy to the third party.

o The appellant is open to enforce their rights on the contractor but as far as
NHAI is concerned, it has no obligation or duty towards the third party.

PROVISIONS USED IN THE CASE

1. PRIVITY OF CONTRACT- Only a person who is a party to a

contract can sue on it’ or’ a stranger to a contract cannot sue’ is an
axiomatic principle of law of contract emanating from such conceptions.
This principle is known as ‘privity of contract’, signifying that a contract
binds only those that are privy to it or that there must be contractual
privity for the enforcement of contractual rights and obligations.

2. CLAUSE 61 OF GENERAL CONDITIONS OF CONTRACT-

Clause 61 of the General Conditions of Contract provides that all material
on the site, Plant, Equipment, (apart from Temporary Works and Works)
are deemed to be the property of the Employer, if the Contract is
terminated because of a Contractor's default.

SIGNIFICANCE OR ANALYSIS OF THE CASE

As per my view, the judgement at the end was following the concept of
PRIVITY OF CONTRACT but initial judgements given either by the high court
or the earlier division bench did not follow this concept of privity of contract
which claims that the third party who are beneficiaries to the contract cannot
take action or enforce the contract even if they are denied the promised benefit.
Also, in this case we can see that the privity of contract does not restrict the
aggrieved third party and allows them to enable their rights by giving them the
opportunity to freely take action against the party due to which they were
denied the promised benefit, as long as it goes along with the boundaries of law.