IMPORTANT POINT
These was no concluded contract between the parties through correspondence containing arbitration clause nor there was any written agreement for reference to the arbitrations. Accordingly there existed no arbitration agreement and thus the reference to the arbitration is clearly illegal. High Court was wrong in holding that there is a concluding contract by correspondence. The same is set aside.

Headnote:(i) Arbitration Act, 1940-Sections 2(a) and 33-Contract Act, 1872-Section 32-Agreement through correspondence-Draft agreement sent by appellant to respondent-Respondent made material changes-No reply-Appellant submitting tenders unilaterally to Board-Whether amounts to acceptance of counter-proposal of respondent? (No) (Para 8)-Result-No concluded contract-Clause (14) containing arbitration clause-Not enforceable-There is thus no valid arbitration agreement.
       Held : Since the tenders-the source of the contract between the parties-had not transformed into a contract, even if the proposal and counter-proposal are assumed to be constituting an agreement, it is a contingent contract and by operation of Section 32 of the Contract Act, the counter-proposal of the respondent cannot be enforced since the event of entering into the contract with the Board had not taken place. (Para 15)
       (ii) Arbitration Act, 1940-Section 2(a)-Arbitration agreement-No signed agreement by a duly Competent Officer on behalf of Appellant, Govt. Corporation-Is there any valid arbitration agreement ? (No) (Para 17 & 18)
       (iii) Arbitration Act, 1940-Section 33-Petition under to court-Whether any valid arbitration agreement is existing between parties-Only court can decide-Appellant is not estopped by agreeing to refer the dispute to arbitration.
       Held : The appellant is claiming adjudication under Section 33 which the Court alone has jurisdiction and power to decide whether any valid agreement is existing between the parties. Mere acceptance or acquiescing to the jurisdiction of the arbitrators for adjudication of the disputes as to the existence of the arbitration agreement or arbitrability of the dispute does not disentitle the appellant to have the remedy under Section 33 through the Court. In our considered view the remedy under Section 33 is the only right royal way for deciding the controversy. (Para 14)
       (iv) Arbitration Act, 1940-Section 33-Application by appellant murder-High Court holding that an agreement had emerged between the parties, from the correspondence and from Appellant s unilateral conduct from submission of tenders to the Board-Whether correct ? (No) (Para 18)-Appeal allowed (Constitution of India-Article 136)-Effect-Arbitrators cannot proceed further to arbiter the dispute, if any.

JUDGMENT

K. Ramaswamy, J.-Leave granted.

2. This appeal by special leave arises from the judgment and order passed on April 10, 1992 by the Delhi High Court in O.M.P. No. 62 of 1992.

3. The appellant filed an application under Section 33 of the Arbitration Act, 1940 (for short, "the Act") for declaration that there exist no agreement between the appellant and the first respondent-Indure Pvt. Ltd. on the basis of which a dispute for a claim of Rs. 1,68,73,628/- could be referred for arbitration as the agreement set up by the respondent was non est and alternatively the dispute was not arbitrable under the agreement. Accordingly it sought declaration to set aside the said agreement. The learned single Judge of the High Court in the impugned order held that the draft agreement dated June 22, 1984 contains provision for arbitration under clause (14) and the appellant is bound thereby; consequently, the arbitrators are entitled to arbiter the dispute.

4. The dispute arose in the backdrop of the facts that the U.P. State Electricity Board had floated tenders for construction, supply and erection of mechanical equipment and construction work including consultancy services. Last date for submission of the tender was June 30, 1984. The appellant-Nigam, an Undertaking of State of U.P. had purchased tender documents from the Board on February 6, 1984. The respondent approached the appellant for their joint participation to submit the tenders to the Board. In furtherance thereof, negotiations were set on foot and they decided to enter into an agreement in that behalf and ultimately draft agreement dated June 22, 1984 was sent to the respondent for signature. The appellant did not sign the draft agreement. On June 27, 1984, the respondent sent a counter-proposal deleting clause (10) of the agreement suggested by the appellant and materially altering clause (12) therein after signing the same. The tenders were submitted on June 30, 1984, i.e., the last date for submission of tenders ; but before negotiating with the Board on February 23, 1985 the appellant had withdrawn the tenders. On February 25, 1985, the respondent had offered in its letter to the Board agreeing to undertake the entire contract by itself and offered to complete the formalities with the Board. Simultaneously, on March 3, 1985, the respondent sent a notice through its counsel claiming damages stating therein that there was no arbitration agreement between the parties. On January 21, 1986, the respondent had further sent a notice nominating an arbitrator on its part and called upon the appellant to nominate its arbitrator. The respondent purported to have exercised that right under clause (14) of the draft agreement proposed by the appellant on June 22, 1984 alleging that they had accepted the same by letter dated June 27, 1984. The appellant by letter dated February 28, 1986 disputed the existence of the arbitration agreement and also asserted that no concluded contract existed between the parties. It was further stated therein that deletion of material clause (10) of the draft agreement and material alteration of clause (12) constituted substantial modification of the draff agreement and consequently it did not accept the counter-proposal of the respondent and that, therefore, no valid agreement came into existence which was admitted by the respondent in their letter dated March 5, 1985. The question of appointing an arbitrator on their behalf did not arise. However, without prejudice to their right to claim that no valid agreement, much less arbitration agreement, was in existence, they nominated an arbitrator on their behalf to arbiter on the question "whether there existed any valid or subsisting agreement between the parties and whether there existed any valid and binding arbitration clause between the parties ?" Since the arbitrator moninated by them expired, the respondent was called upon the appellant to nominate another arbitrator. At that stage the appellant filed a

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1996 Supreme(SC) 332

Cases Referred (1)