RAMACAST LIMITED v. UNION OF INDIA — 1986 DIGILAW 13 (DEL)

M. K. Chawla ( 1 ) SECTION 33 of the Arbitration Act contemplates an application for three purposes, namely, (i) when it is desired to challenge the existence of an arbitration agreement, (ii) when it is desired to challenge its validity and (iii) when it is desired to have its effect determined. Where a party applying under Section 33 desires to have the effect of the arbitration agreement determined, Court is entitled to consider, whether the particular dispute is within the scope of the arbitration agreement. If the Court finds that it is, the arbitrator is the sole Judge of it; but if it does not fall within the scope of the arbitration agreement the Court is entitled to decline the effect of the arbitration agreement and incidentally the validity of the contract. Admittedly, the questions whether the arbitration agreement was operative and effective or not, whether it should be enforced or not, or whether it was frustrated or not, or whether it fall along with other clauses of the contract or not, are all questions regarding the effect of the arbitration agreement which can only be determined by means of an application under this provision. ( 2 ) IN order to dispose of the present petition under Section 33 of the Arbitration Act, few facts have to be kept in mind. The petitioner in this case is a Public Limited Company incorporated under the Companies Act 1956 and at all material times, inter alia, carried on the business of manufacture of Railway Castings at its works at Motihari Champaharan District, Champaran, East Bihar. As per the averments, sometime in the year 1977 respondent No. 1. The Joint Director/track, Ministry/of Railways, Rail Bhawan, New Delhi, floated a tender for supply and manufacture of 55,000 tonnes of Cast Iron Sleeper Plates, being 33,000 tonnes of CST 9 BG Plates and 22,000 tonnes of CST 9 MG Plates. In pursuance of the said tender enquiry the petitioner submitted its offer from Calcutta vide their letter dated 16-6-77 for supply of 20,000 tonnes of Slipper Plates subject to the Railway s Board standard conditions to the contract. Along with the tender the petitioner also deposited a sum of Rs. 5,000. 00 towards earnest money. In pursuance of the said tender enquiry the petitioner submitted its offer from Calcutta vide their letter dated 16-6-77 for supply of 20,000 tonnes of Slipper Plates subject to the Railway s Board standard conditions to the contract. Along with the tender the petitioner also deposited a sum of Rs. 5,000. 00 towards earnest money. Respondent No. 1 vide their letter dated 15-9-77 intimated the petitioner that as the rates quoted by them against the said tender were too high, the same were not acceptable to them. In the same letter, respondent No. 1 made a counter offer, offering reduced rates to the petitioner. The petitioner, however, expressed their inability to accept the counter offer vide their letter dated 21-9-77. On 13-1-78 the petitioner submitted another revised offer for the manufacture and supply of Cast Iron Sleeper Plates of a total quantity of 20,000 M. T. Respondent No. 1 by their letter dated 31-1-78 purported to accept the revised offer of the petitioner and placed an order for only 5,000 M. T. of Meter Gauge Cast Iron Sleeper. In this letter it was also stated that the parties should enter into a formal agreement. The petitioner, however, by their letter dated 3-3-84 refused to accept this counter offer nor did they execute any formal agreement/contract. ( 3 ) SUBSEQUENTLY, however, respondent No. 1 vide their letter dated 12-5-78 illegally purported to cancel the alleged order and further alleged that the petitioner was liable to pay loss/damages on account of the alleged breach in not depositing the security deposit. Later on, respondent No. 1 claimed damages to the tune of Rs. 9 lakhs vide their letter dated 1-6-79. Respondent No. 1 of their own referred the matter to the sole arbitration of respondent No. 2 Sh. K. M. Sharan, who entered upon the reference and proceeded in the matter. The learned arbitrator directed the petitioner to file the counter statement of facts. The petitioner objected to the reference and for about 2 years the arbitrator did not move into the matter. Penally, on 15-6-84 the learned arbitrator required the parties to appear before him and file their statement of claims. This action of the learned arbitrator, as per the averments, is illegal, without jurisdiction. The petitioner objected to the reference and for about 2 years the arbitrator did not move into the matter. Penally, on 15-6-84 the learned arbitrator required the parties to appear before him and file their statement of claims. This action of the learned arbitrator, as per the averments, is illegal, without jurisdiction. Hence the present petition praying for a declaration that there is no concluded contract between the petitioner and respondent No. 1, nor there is any valid arbitration agreement existing between the parties and for setting aside the purported reference to arbitration. ( 4 ) THE respondent No. 1 in reply took up the stand that after considering revised rates quoted by the petitioner an order for the manufacture of 5,000 tonnes of Meter Gauge Cast Iron Slipper Plates was placed which has resulted into a concluded contract between the parties. The petitioner was required to deposit a further sum of Rs. 45,000. 00 within 14 days of the issue of the letter of acceptance i. e. 31-1-78. The petitioner sought time to comply with this condition but ultimately failed to deposit the security amount or enter into a proper agreement. As nothing was heard from the petitioner, the contract for the entire quantity was cancelled in terms of clause 0502 of the Indian Railways Standard Conditions of contract at the contractor s risk and account vide their letter dated 12-5-78. The respondent No. 1 also claimed general damages at Rs. 9 lakhs and the petitioner was directed to deposit the said amount by 30-6-79 failing which the respondent No. 1 would be compelled to take such further action as per the terms and conditions of the contract or under the law. The respondent No. 1 denied that the contract was illegally cancelled by them. The execution of the formal agreement was only a mere formality and the contract having become final, the petitioner cannot escape the liability to the claim of the respondent No. 1 for the payment of general damages. ( 5 ) I have beard the learned counsel for the parties and with their help gone through the pleadings and the documents placed on record. ( 5 ) I have beard the learned counsel for the parties and with their help gone through the pleadings and the documents placed on record. ( 6 ) THE only question that requires going into in this petition is as to whether the alleged acceptance letter of respondent No. 1 dated 31-1-78 placing an order for manufacture of 5,000 tonnes of Meter Gauge Cast Iron Slipper Plates out of the total quantity of 20,000 M. T. of both Board Gauge and Meter Gauge, offered to be manufactured by the petitioner, as per their revised offer dated 13-1-78, can be said to conclude the contract between the parties. The answer to this querry will determinethe fate of the present petition. The admitted documents in this case will settle the controversy. ( 7 ) THE theory of offer and acceptance has received statutory recognition in India, so that every transaction to be recognised as a contract must, in its ultimate analysis, resulting itself into a proposal/and its absolute and unqualified acceptance. Until there is absolute acceptance of a proposal, the parties can be said to be still in the stage of negotiations, with no legal obligations attached to them. It is a settled proposition that an acceptance which does not extend to all the terms of a contract cannot make a binding contract. An acceptance which is qualified by certain conditions cannot amount to an absolute and unqualified acceptance which is capable of resulting in a completed contract. ( 8 ) IT is no doubt true that the petitioner in response to a tender floated by respondent No. 1, submitted an offer for the supply of 20,000 tonnes of B. G. /m. G. Cast Iron Slipper Plates on certain rates incorporated in their letter dated l6-6-77. This offer was not accepted by the respondent No. 1, in whose opinion the rates quoted were too high. In their letter dated 15-9-77 the respondent No. 1 required the petitioner to reduce their price of the plates. The petitioner regretted their inability to accept the rates, terms and conditions offered by the respondent No. 1 as the same were not workable vide their letter dated 21-9-77. In their letter dated 15-9-77 the respondent No. 1 required the petitioner to reduce their price of the plates. The petitioner regretted their inability to accept the rates, terms and conditions offered by the respondent No. 1 as the same were not workable vide their letter dated 21-9-77. On the insistance of the respondent No. 1, the petitioner agreed to revise their rates for the supply of slipper plates for 20,000 M/t. The respondent accepted the offer and placed an order for the supply of 5,000 M/t of slipper plates. Vide letter dated 31-1-78, the respondent No. 1 required the petitioner to deposit the balance surity amount of Rs. 45,000. 00 and to furnish a bank guarantee of Rs. 50,000. 00 along with the valid Income Tax Clearance Certificate. The formal contract documents, as per this letter, were also to be executed after the receipt of the security deposit, the bank guarantee and the filing of the Income Tax Clearance Certificate. Immediately on the receipt of this letter, the petitioner vide their letter dated 3-3-78 communicated their inability to accept the offer for the manufacture and supply of 5,000 tonnes of Slipper Plates. ( 9 ) IT is the admitted case of the parties that till today the petitioner have neither deposited the balance security amount of Rs. 45,000. 00 nor they have furnished any bank guarantee. The petitioner have also failed to furnish the valid Income Tax Clearance Certificate. So far, the petitioner have not entered into or executed the formal contract. ( 10 ) EVEN otherwise, the bare perusal of the respondent No. 1 s letter dated 31-1-78, in my opinion, it is a sort of counter offer which the petitioner refused to accept. In the revised offer the petitioner no doubt lowered the rates for the supply of slipper plates but it was on the clear understanding that the quantity would be 20,000 M/t. The petitioner must have anticipated their profit in case they were required to supply the material of 20,000 M/t. The counter offer for the supply of 5,000 M/t of the material, it appears, was not to their advantage which ultimately resulted in their refusal. It may be that subsequently the petitioner changed their mind and sought time to deposit the security amount vide their letter dated 10-3-78 but unfortunately they failed to fulfill their promises. It may be that subsequently the petitioner changed their mind and sought time to deposit the security amount vide their letter dated 10-3-78 but unfortunately they failed to fulfill their promises. That letter by itself will not result into a concluded contract. In such like cases the offeree must unreservedly assent to the exact terms of the offer, in order to bring about a concluded contract. If while purporting to accept the offer as a whole he introduces a new term, he is, in fact, merely making a counter offer. The effect of such a counter offer, in the eyes of law is to destroy the original offer. Such an offer once refused is dead and cannot be accepted unless renewed. In this case, the terms of the counter offer was intended to be the part of the contract and the same having been not agreed to or complied with, there is no question of the contract having become concluded between the parties. ( 11 ) THIS question can also be looked into from another angle. The respondent No. 1 vide his letter dated 3-3-80 appointed respondent No. 2 Sh. K. M. Sharan, Additional Director/civil Engineer, Railway Board as the sole arbitrator with a direction to enter upon the reference and decide the claims and disputes between the parties. The learned arbitrator vide his letter dated 17-1-82 required the petitioner to file the counter statement of facts. The petitioner took objections to the arbitration proceedings by writing the letter dated 14-10-82. For reasons best known to the learned arbitrator he slept over the matter for about 2 years and on 15-6-84 all of a sudden he again entered upon the reference and fixed the next date 4-7-84 for the presence of the parties. By that time, the time for filing the award has since expired and the parties have not consented to the extension. The provision of Section 28 of the Arbitration Act are mandatory. A party cannot extend the time without reference to Court which alone has the power to do so. Even this power has to be exercised with judicial discretion which under the circumstances of this case the Court is not inclined to extend. The provision of Section 28 of the Arbitration Act are mandatory. A party cannot extend the time without reference to Court which alone has the power to do so. Even this power has to be exercised with judicial discretion which under the circumstances of this case the Court is not inclined to extend. ( 12 ) AS a result of the above discussion, I accept the petition and hold that there is no concluded contract between the petitioner and respondent No. 1 and the alleged disputes cannot be gone into by the arbitrator.