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2009 DIGILAW 223 (DEL)

UNIFLEX CABLES LTD. v. MTNL

2009-02-20

REVA KHETRAPAL

body2009
REVA KHETRAPAL, J. 1. This is an application under sub-section (6) of Section 11 read with Sections 14 and 15 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act). 2. The brief facts leading to the filing of the application are as follows. 3. The applicant is a public limited company having its registered office at Chandra Mahal, 241 Shamaldas Gandhi Marg, Mumbai and is engaged, inter alia, in the production and supply of PIJF Telecom cables. The respondent floated a tender dated 12.05.2004 for supply of Solid Polythene Insulated, Fully Filled, Polythene Sheathed U/G Telecom Cables vide a tender document, which is enclosed with the application as Annexure A-1. The petitioner submitted its bid for the aforementioned tender enquiry, which was opened on 07.10.2003. Along with the said bid, the petitioner also submitted three bank guarantees as bid security issued by the Union Bank of India, Mumbai of Rs.5,39,000/- Rs.10,59,000/-and Rs.16,64,000/-respectively. The petitioner emerged as one of the successful bidders and the lowest offeror for three tendered items, i.e., 50/0.5 MMA, 800/0.5 (UA) and 800/0.5 MMA. The respondent, vide letter dated 07.08.2004, counter offered lower rates than those offered by the petitioner and other bidders and sought the petitioners acceptance in response to such lower rates (Annexure A-3). The petitioner vide letter dated 11.08.2004 accepted the lower rates and accordingly became eligible to have the contract finalised in its favour for the three sizes of cables aforesaid (Annexure A-4). The respondent, however, did not place the contract and subsequently again gave a counter offer to the petitioner by a letter dated 17.08.2004 purporting to be in the form of a Purchase Order. According to the petitioner, the said Purchase Order dated 17.08.2004 was a counter offer because it placed order for only two of the three items for which acceptance had been given by the petitioner. A copy of the same is enclosed with the petition as Annexure A-5. The petitioner, vide letter dated 19.08.2004, which is enclosed with the petition as Annexure A-6, wrote to the respondent as follows:-‘.......................................However you have placed order on us vide your above referred letter of 17.8.2004 for size 50/0.5 (A) for Mumbai and 800/0.5 V/A for Delhi Unit and the order for size 800/0.5 A for Delhi has not been placed although we are lowest bidder in this size. We have further come to know that some bidder who is not the lowest has offered some additional discount over and above your counter offer rates and therefore our order of 800/0.5 (A) for Delhi unit has not been issued alongwith other Z sizes. In this connection we would like to bring to your kind notice that as per the contract Act (9 of 1872) once an offer is given by the buyer and accepted by the vendor, a concluded contract comes into being. It is well settled law that the offer cannot be revoked once the same has been accepted. We are enclosing herewith following judgements in this regard for your kind reference. 1. AIR 1987 Calcutta 92 ‘ By Omesh Vs. Nani Gopal. 2. AIR 1996 Calcutta 424 ‘ D. Wren Int. Ltd. Vs. EIL 3. AIR 1994 Calcutta 232 ‘ Niranjan Pipalia Vs. H.S.W.C. Ltd. 4. (1962) 3 SCR AIR 1962 SC-378 ‘ J.L. Barman Vs. VOI. Therefore after going through the above Judgments your goodself will see that by accepting your offered rates of 800/0.5 (A) for Delhi Unit, a contract has been concluded between us and MTNL as we being the lowest in the tender and entitled for the quantity of lowest bidder which is very clearly confirmed in your counter offer letter of 7.8.2004 We therefore request you to kindly release our order of 800/0.5 (A) Cable for Delhi Unit.’ 4. By another communication dated 25th August, 2004 enclosed with the petition as Annexure A-7, the petitioner apprised the respondent that they had committed breach of tender by not honouring the petitioners acceptance of the three sizes of cable for which the petitioner had accepted the lower rates proposed by the respondent and again making a fresh offer for only two sizes of cable and, therefore, the petitioner was constrained to refuse acceptance of the Purchase Order dated 17th August, 2004 The petitioner in its aforesaid communication termed the Purchase Order as a ‘counter offer’ since it did not conclude the contract for all three sizes of cables for which the petitioner had accepted the lower rates proposed by the respondent vide its letter dated 07.08.2004 The petitioner at the same time emphasised that they would remain bound by their original bid as submitted to the respondent in respect of the tender enquiry. 5. 5. On receiving the petitioners letter dated 25th August, 2004, the respondent vide its letter dated 27th August, 2004 communicated its authorisation to place formal Purchase Order on the petitioner firm in respect of the third size of cable wire as well and requested the petitioner to submit a Performance Bank Guarantee for an amount equal to 5% of the value of the order within seven days from the date of the issue of the letter, specifying that the PO (Purchase Order) shall be operative after receipt of the Performance Bank Guarantee of the requisite value (Annexure A-8). The respondent thereafter, vide another letter dated 30th August, 2004 through its Mumbai office (Annexure A-9), clarified that as per tender terms and conditions, each size of cables for Delhi and Mumbai was a separate contract and, therefore, the contention of the petitioner regarding withholding of 800/0.5 (A) for Delhi was of no consequences once the petitioner had already accepted the counter offered rates for all the three sizes of cable. The respondent further intimated in the said letter that authorisation for 800/0.5 (A) for 43 km for MTNL, Delhi had already been issued to MTNL, Delhi to place Purchase Order as per the counter offer rates accepted by the petitioner. .6. According to the petitioner, it was only when the petitioner withdrew its acceptance of the lower rates proposed by the respondent, which was given on the understanding that they would receive contracts for all three items, .that the respondent, as an afterthought, placed the order for the third item of cable on the petitioner. The petitioner, therefore, refused to furnish the performance security. Thereupon, the respondent invoked the three bank guarantees given by way of bid security totalling Rs.32,62,000/-, according to the petitioner, fraudulently and without any justifiable cause and without even mentioning in the letter of invocation dated 04.09.2004 (Annexure A10) as to whether the conditions stipulated in the bank guarantees had arisen. 7. The petitioner in the aforesaid circumstances filed a petition under Section 9 of the Act, being OMP No.301/2004 The said petition was, however, subsequently withdrawn by the petitioner in view of the fact that the respondent had received the payment under the said bank guarantees in dispute. 7. The petitioner in the aforesaid circumstances filed a petition under Section 9 of the Act, being OMP No.301/2004 The said petition was, however, subsequently withdrawn by the petitioner in view of the fact that the respondent had received the payment under the said bank guarantees in dispute. Thereafter, the petitioner, vide letter dated 26.10.2005, requested the respondent No.2, as the named Arbitrator/nominating authority under the arbitration clause (clause 20) to enter into and adjudicate the disputes and differences arising between the parties. A copy of the petitioners letter dated 26.10.2005 is annexed with the petitioner as Annexure A-11. The respondent No.2 as the named Arbitrator having failed to act and the respondents vide their letter dated 30th December, 2005 (Annexure A-12) having apprised the petitioner that its request for appointment of an Arbitrator could not be acceded to, the present petition was filed for the appointment of a substitute Arbitrator. 8. Notice of the petition was issued to the respondent, who entered appearance through its counsel and filed a reply contesting the appointment of an Arbitrator on the ground that no contract had come into existence between the parties and the existence of the contract being a pre-condition for the operation of the arbitration agreement, the respondent had rightly rejected the request of the petitioner for the appointment of an Arbitrator. The respondent prayed for the dismissal of the petition. .9. I have heard the learned counsel for the petitioner Mr. Sakya Singha Chaudhuri, Advocate and the learned counsel for the respondents No.1 and 2 Mr. Dinesh Agnani, Advocate and perused the documents on record. The sole question which arises for decision in the present petition is whether a concluded agreement between the parties had come into existence in turn leading to a valid and subsisting arbitration clause. The learned counsel for the petitioner asserts that the coming into existence of a contract between the parties is by no means a pre-condition for the operation of the arbitration agreement between the parties, which is a separate agreement. The petitioner .had duly accepted in writing all the terms and conditions of the tender issued by the respondent including the arbitration agreement contained therein at the time of submission of the bid by the petitioner. The petitioner .had duly accepted in writing all the terms and conditions of the tender issued by the respondent including the arbitration agreement contained therein at the time of submission of the bid by the petitioner. Accordingly, it is submitted that the parties were at ad item and the arbitration agreement stood concluded when the petitioner accepted the said agreement contained in the tender and submitted its bid. 10. Per contra, the learned counsel for the respondent submitted that in terms of the Notice Inviting Tender (NIT), the petitioner was required to give bid security in the form of bank guarantee. The said bid was to be discharged upon the bidders acceptance of the advance Purchase Order satisfactorily in accordance with the terms of the NIT. The respondent had a right to forfeit the bid security in terms of the Clause 12.7 of the said NIT in case the bidder withdrew his bid during the period of bid validity specified by the bidder in the bid form or in case of a successful bidder, which the petitioner was in the present case, if the bidder failed to (i) sign the contract in accordance with clause 28 or (ii) failed to furnish the Performance Bank Guarantee in terms of clause 27. Admittedly, the learned counsel contended, after the petitioner was declared a successful bidder, he had failed to sign the contract in accordance with clause 28 of the NIT and to furnish the Performance Bank Guarantee in terms of clause 27 thereof and the MTNL, therefore, proceeded to encash the bank guarantee. Since no agreement was entered into between the parties, therefore, no arbitration clause came into existence as alleged or at all. The respondent had specifically denied that the Purchase Order dated 17.08.2004 on the petitioner for a total value of Rs.3,50,33,671.70 was a counter offer as sought to be made out by the petitioner. According to the respondent, the petitioner after giving his consent to the terms of the counter offer of the respondent as set out in the respondents letter dated 07.08.2004 and after the placing of the Purchase Order upon the petitioner wanted to wriggle out of the same and was raising false and frivolous please for that reason. 11. Alook now at the tender document annexed with the petition as Annexure A-1. 11. Alook now at the tender document annexed with the petition as Annexure A-1. Clauses 12.1, 12.2 and 12.7, which are relied upon by the respondent for the invocation of the bank guarantees, read as follows:- ‘12. BID SECURITY 12.1 Pursuant to clause 7, the bidder shall furnish, as part of his bid, a bid security in the form of Bank Guarantee for Rs.1.3429 Crores (Rupees one crore thirty four lakhs twenty nine thousand only) OR for an amount as specified against each size of cable in the Schedule of Requirement in Section ‘ V of tender Document whichever is lower. The bidders (small scale units) who are registered with National Small Scale Industries Corporation UNDER SINGLE POINT REGISTRATION SCHEME are exempted from payment of bid security up to the amount equal to their monetary limit. In case of bidders having monetary limit as ‘NO LIMIT’, the exemption will be limited to Rs.50,00,000/- (Rupees Fifty Lakhs) only as per existing policy of MTNL. A proof regarding current registration with NSIC for the TENDERED ITEMS will have to be attached along with the bid. 12.2 The bid security is required to protect the purchaser against the risk of bidders conduct, which would warrant the forfeiture of bid security pursuant to para 12.7. 12.7 The bid security may be forfeited: (a) If the bidder withdraws his bid during the period of bid validity specified by the bidder in the Bid form or (b) In the case of successful bidder, if the bidder fails: (i) to sign the contract in accordance with clause 28 or (ii) to furnish performance security in accordance with clause 27. (c) .................................................................’ The next clause, viz., clause 13.1 of the tender stipulates that the bid shall remain valid for 150 days from the date of the opening of bids. 12. The learned counsel for the respondent vehemently contended by virtue of Clause 12.7 (b) that the petitioner, being a successful bidder, having failed to sign the contract in accordance with clause 28 or to furnish performance security in accordance with clause 27, the bid security was liable to be forfeited and was accordingly forfeited. He further contended that the petitioner (bidder in the instant case who was finding ways and means to wriggle out of the contract) having withdrawn its bid, the respondent could not be faulted for forfeiting the bid security. He further contended that the petitioner (bidder in the instant case who was finding ways and means to wriggle out of the contract) having withdrawn its bid, the respondent could not be faulted for forfeiting the bid security. He submitted that there was no obligation on the respondent to place all the three orders upon the petitioner at one at the same time and that as a matter of fact, all three orders were in fact placed upon the petitioner though at different points of time. There was , therefore, no justification for the petitioners refusal to furnish performance security as desired by the respondent and to sign the contract. .13. My attention was also drawn by the learned counsel for the respondent to Part F of the tender document and, in particular, to the following clauses:- ‘F AWARD OF CONTRACT 24. PLACEMENT OF ORDER The Purchaser shall consider placement of orders for commercial supplies only on those eligible bidders whose offers have been found technically, commercially and financially acceptable and whose goods have been type approved/validated by the purchaser. The Purchaser reserves the right to counter offer price(s) against price(s) quoted by any bidder. 27. ISSUE OF ADVANCE .PURCHASE ORDER 27.1 The issue of an Advance Purchase Order shall constitute the intention of the Purchaser to enter into contract with the bidder. 27.2 The bidder shall within 14 days of issue of the advance purchase order, give his acceptance along with performance security in conformity with section IX provided with the bid document. 28. SIGNING OF CONTRACT 28.1 The issue of Purchase order shall constitute the award of contract on the bidder. 28.2 Upon the successful bidder furnishing performance security pursuant to clause 27, the Purchaser shall discharge the bid security in pursuant to clause 12. 29. ANNULMENT OF AWARD Failure of the successful bidder to comply with the requirement of clause 28 shall constitute sufficient ground for the annulment of the award and the forfeiture of the bid security in which event the Purchaser may make the award to any other bidder at the discretion of the purchaser or call for new bids.’ 14. In my considered opinion, a conjoint reading of the relevant clauses of the Tender make it abundantly clear that there was no concluded contract between the parties. In my considered opinion, a conjoint reading of the relevant clauses of the Tender make it abundantly clear that there was no concluded contract between the parties. This is also borne out by the entire scheme of the Tender, which is divided into XI Sections. In the instant case, we are concerned with the first three sections alone. Section I which is captioned NOTICE INVITING TENDER deals with and reproduces the tender number, due date of receipt, due date of opening and the terms and conditions of the tender. Section II is captioned ‘INSTRUCTIONS TO BIDDERS’. This section is, in turn, sub-divided into five parts as follows:-Part A is the INTRODUCTION which deals with definitions. Part B is captioned ‘THE BID DOCUMENTS’. Part C is captioned ‘PREPARATION OF BIDS’. Clauses 12 and 13, which pertain to bid security, figure in Part C of the aforesaid Section. Part D is captioned ‘SUBMISSION OF BIDS’. Part E is captioned ‘BID OPENING AND EVALUATION’ and Part F as ‘AWARD OF CONTRACT’. In Part F, clause 24 deals with placement of order, clause 27 with the issue of advance purchase order, clause 28 with the signing of contract and clause 29 with the annulment of award, as reproduced above. The third Section, viz., Section III deals with the ‘GENERAL (COMMERCIAL) CONDITIONS OF CONTRACT’. Clause 4 thereof provides for the furnishing of performance security equal to 5% of the value of Purchase Order within 14 days from the date of issue of Advance Purchase Order by the purchaser. It is Section III which contains the arbitration clause, viz., clause 20. 15. Thus, the entire scheme of the Tender Document shows that the arbitration clause (clause 20 which figures in Section III) could not have come into existence before the award of contract and before the furnishing of the performance security. Section II precedes Section III and it is Section II, Part F, as stated hereinabove, which deals with the award of contract. Section II precedes Section III and it is Section II, Part F, as stated hereinabove, which deals with the award of contract. Clause 24 of Part F deals with the placement of order, clause 27 with the issue of Advance Purchase Order, clause 28 with the signing of the contract and clause 29 with the annulment of the award and forfeiture of the security in case the successful bidder fails to comply with clause 28.2 where under the successful bidder is required to furnish performance security pursuant to clause 27 whereupon the purchase shall discharge the bid security in pursuance to clause 12. 16. Significantly also, a distinction is drawn in the Tender Document between an Advance Purchase Order and a Purchase Order. An Advance Purchase Order is defined to mean ‘the intention of the Purchaser to place the Purchase Order on the bidder’, while the definition of Purchase Order is given as follows:- ‘The Purchase Order means the order placed by the purchaser on the Supplier signed by the Purchaser including all attachments and appendices thereto and all documents incorporated by reference therein. The purchase order shall be deemed as ‘Contract’ appearing in the document.’ .17. This is further clarified by the provisions of clause 27. At the risk of repetition, it deserves to be mentioned that clause 27.1 states that the issue of an Advance Purchase Order shall constitute the intention of the purchaser to enter into contract with the bidder. The second part of the aforesaid clause, viz., clause 27.2 states that the bidder shall within 14 days of the issue of the Advance Purchase Order, give his acceptance along with the performance security in conformity with Section IX provided with the bid document. It is not in dispute that the petitioiner’bidder has failed to comply with the provisions of clause 27.2 inasmuch as it has neither given its acceptance nor furnished the performance security in conformity with Section IX. Accordingly, purporting to act under clause 29, the respondent forfeited the bid security furnished by way of the three bank guarantees. Thus, by no stretch of imagination can a concluded contract be stated to have come into existence. In my considered view, therefore, there appears to be substance in the contentions of the respondent. Accordingly, purporting to act under clause 29, the respondent forfeited the bid security furnished by way of the three bank guarantees. Thus, by no stretch of imagination can a concluded contract be stated to have come into existence. In my considered view, therefore, there appears to be substance in the contentions of the respondent. It is the admitted case of the parties that the petitioner by his communication dated 19.08.2004 asked for the release of the order of 800/0.5 (A) cable for Delhi unit of the value of .Rs.4,19,46,147.40 and the respondents by their communication dated 27th August, 2004 complied with the said request of the petitioner and requested him to submit a Performance Bank Guarantee for an amount equal to 5% of the value of the order within seven days. The petitioner, in spite of receiving all the three Purchase Orders dated 17th August, 2004, failed to furnish the Performance Bank Guarantee. Accordingly, the respondent vide communication dated 30.08.2004 once again requested the petitioner to furnish the Performance Bank Guarantee failing which appropriate action will be taken. The petitioner having failed to supply the cables and to furnish the Performance Bank Guarantee, the respondents by their communication dated 4th September, 2004 invoked the bank guarantees furnished to them on account of breach of tender terms and conditions. 18. Reference may be made in the above context to the judgment of the Allahabad High Court in the case of M/s. Ganesh Shanker Pandey and Co. vs. Union of India and Ors. reported in AIR 2004 ALLAHABAD 26. The relevant part of the judgment, which is at page 27, reads as under:- ‘8. We have perused the counter affidavit. In Paragraph 2(b) of the same it is stated that a successful bidder was required to furnish a performance guarantee equivalent to 5% of bare construction cost inclusive of interest during the period of construction. This performance guarantee was to be furnished within 15 days of the issuance of the provisional letter of acceptance and failure to furnish it amounts to disqualification. Thus the deposit of performance guarantee was a condition precedent before the final letter of acceptance and award of work to the bidder. The petitioner never furnished performance guarantee much less within 15 days and hence there was no final acceptance of petitioners bid or concluded agreement between the parties. 9. ................................................................................ .. 10. Thus the deposit of performance guarantee was a condition precedent before the final letter of acceptance and award of work to the bidder. The petitioner never furnished performance guarantee much less within 15 days and hence there was no final acceptance of petitioners bid or concluded agreement between the parties. 9. ................................................................................ .. 10. On the facts of the case we find no merit in this petition. We are fully in agreement with the impugned order of the learned Single Judge that there was no concluded contract as the petitioner did not submit bank and performance guarantee. Moreover even otherwise this is not a fit case for interference under Article 226 of the Constitution. Writ jurisdiction is discretionary jurisdiction and we are not inclined to exercise our discretion in favour of a party who has not complied with the bid condition/deposit of performance guarantee. The petition is therefore dismissed.’ .19. The Honble Supreme Court in the case of Dresser Rand S.A. vs. M/s. Bindal Agro Chem Ltd. and Anr., reported in AIR 2006 SC 871 , has held that whether the letter of intent is merely an expression of intention to place .an order in future or whether is a final acceptance of the offer thereby leading to a contract, is a matter that has to be decided with reference to the terms of the letter. It further held that the provisions in the letter of intent in the said case clearly indicated that the letters of intent were only a step leading to purchase orders and were not, by themselves, purchase orders. Therefore, issue of the letters of intent did not mean that the general conditions of purchase which contain the provision for arbitration became a part of the letters of intent or became enforceable. It further held that the letters of intent were only a prelude to contract. A prelude to a contract should not be confused with the contract itself. 20. In the Dresser Rands case, the Supreme Court placed reliance upon two of its earlier judgments, the first of which is locus-classicus, Chatturbhuj Vithaldas Jasani vs. Moreshwar Parashram ( AIR 1954 SC 236 ), and in particular on the following observations made therein:- ‘There is a vast difference between negotiating a bargain and entering into a binding contract. 20. In the Dresser Rands case, the Supreme Court placed reliance upon two of its earlier judgments, the first of which is locus-classicus, Chatturbhuj Vithaldas Jasani vs. Moreshwar Parashram ( AIR 1954 SC 236 ), and in particular on the following observations made therein:- ‘There is a vast difference between negotiating a bargain and entering into a binding contract. After negotiation of bargain in the present case, the stage never reached when the negotiations were completed giving rise to a binding contract. The learned single Judge of the High Court was, therefore, perfectly justified in holding that Clause 53 of the Charter Party relating to Arbitration had no existence in the eye of law, because no concluded and binding contract ever came into existence between the parties.’ 21. The second judgment was rendered in the case of Rajasthan Cooperative Dairy Federation Ltd. vs. Maha Laxmi Mingrate Marketing Service Pvt. Ltd [ 1996 (10) SCC 405 ], wherein on the facts it was held as follows: ‘... The Letter of Intent merely expressed an intention to enter into a contract. There was no binding legal relationship between the appellant and Respondent 1 at this stage and the appellant was entitled to look at the totality of circumstances in deciding whether to enter into a binding contract with Respondent 1 or not.’ .22. Toconclude, in the instant case, it is evident from the provisions of the tender document that what was sent to the petitioner were advance Purchase Order, which the petitioner himself terms as counter offers. This being so, no binding legal relationship between the petitioner and the respondent came into existence. In such circumstances, for the petitioner to contend that it was open to it to invoke the arbitration clause appears to me to be wholly untenable. The petitioner himself is the defaulting party having failed to comply with the requirement of clause 28 by not furnishing performance security along with its acceptance. The petitioner not having done so, no concluded contract came into existence and the arbitration clause could not have been invoked. As noticed above, the arbitration agreement figures in Section III. Section III: GENERAL (Commercial) CONDITIONS OF CONTRACT, Clause I titled APPLICATION stipulates that the general conditions ‘shall apply in contracts made by the purchaser for the procurement of goods’ . 23. As noticed above, the arbitration agreement figures in Section III. Section III: GENERAL (Commercial) CONDITIONS OF CONTRACT, Clause I titled APPLICATION stipulates that the general conditions ‘shall apply in contracts made by the purchaser for the procurement of goods’ . 23. In view of the aforesaid, the applicant is not entitled to the relief prayed for by him. The application is accordingly dismissed, leaving the parties to bear their own costs.