1998 Supreme(SC) 1160

1998(8) Supreme 464
Supreme Court of India
(From Delhi High Court)
Dr. A.S. Anand, CJI., K. Venkataswami, J.
M/s. Rickmers Verwaltung Gmb H -Appellant
versus
The Indian Oil Corporation Ltd. -Respondent
Civil Appeal No. 5810 of 1998
(Arising out of SLP (Civil) No. 7241 of 1997)
Decided on 19-11-1998
Counsel for the Parties :
For the Appellant : R.F. Nariman, Sr. Advocate, Mahesh Agarwal, Ms. Rina Barua, Dr. Jose Verghese. E.C. Agrawala, Advocates.
For the Respondent : V.N. Koura and Manoj Wad, Advocates.

Important Points
1. When contract itself is not concluded for want of ad idem arbitra­tion proceedings cannot be permitted invoking arbitration clause in agreement.
2. An agreement, even if not signed by the parties, can be spelt out from correspondence exchanged between the parties; but unless from the correspondence it can unequivocally and clearly emerge that the parties were ad idem to the terms, it cannot be said that an agree­ment had come into existence between them through correspondence.

Headnote:Arbitration Act, 1940-Section 33 - Indian Contract Act, 1872-Arbitra­tion agreement - Challenge to, as not existing-Charter party agreement between appellant and respondent-Document not signed by parties-To execute contract res­pondent was to establish a stand by letter of credit as per format mutually agreed upon by parties-Format and language of letter of credit not approved by appellant-Format of letter of credit issued by appellant not approved by respondent’s bankers-Stand by letter of credit and settled by parties-Respondent arranging alternative charter party-Appellant filing request for arbitration with Indian Council of Arbitration-Respondent filing petition u/s. 33 before High Court-High Court holding that no con­cluded contract - Appel­lant’s plea that contemporaneous correspondence brought into existence a binding contract-Corres­pondence showed that there was no concluded contract as there was no ad idem-High Court correct in res­training arbitration proceedings.

       Held : A bare reading of Clause 48 (supra) shows that respondent No. 1 was to open a standby irrevocable letter of credit for freight amount of each shipment for the cargo in transit. The standby letter of credit was required to be issued by the State Bank of India on the State Bank of Germany. Indeed this clause by itself does not show whether the condi­tion of establishing a standby irrevocable letter of credit or the furnishing of performance guarantee were conditions precedent to the conclusion of contract but there is enough material on the record to show that they were meant to be condition precedent. (Para 9)

       An agreement, even if not signed by the parties, can be spelt out from correspondence exchanged between the parties. The question, however, is can any agreement he spelt out from the corre­spondence between the parties in the instant case? The cardinal principle to remember is that it is the duty of the court to construe correspondence with a view to arrive at a conclusion whether there was any meeting of mind between the parties, which could create a binding contract between them but the Court is not empowered to create a contract for the parties by going outside the clear language used in the correspondence, except insofar as there are some appropriate implications of law to be drawn. Unless from the correspondence it can unequivocally and clearly emerge that the parties were ad idem to the terms, it cannot be said that an agreement had come into existence between them through correspond­ence. The Court is required to review what the parties wrote and how they acted and from that material to infer whether the intention as expressed in the correspondence was to bring into existence a mutually binding contract. The intention of the parties is to be gathered only from the expressions used in the correspondence and the meaning it conveys and in case it shows that there had been meeting of mind between the parties and they had actually reached an agreement, upon all material terms, then and then alone can it be said that a binding contract was capable of being spelt out from the correspondence. (Paras 11 & 12)

       Correspondence unmistakably shows that at no point of time, till the charter party agreement was drafted on 11th November, 1993, did the parties agree to proceed further without agreeing upon the format of the letter of credit and performance guarantee. The stand of the appellant was thus categorical that without any agreement on the terms of the letter of credit, it was not ready to nominate the vessel to carry the cargo. The appellant was, thus, for all intent and purposes treating the furnishing of the letter of credit as a condition precedent for carry­ing the cargo. At no point of time did the appellant accept the terms of the letter of credit furnished by respondent No. 1. From a careful perusal of the entire correspondence on the record, we are of the opinion that no concluded bargain had been reached between the parties as the terms of the standby letter of credit and performance guarantee were not accepted by the respective parties. In the absence of acceptance of the standby letter of credit and perform­ance guarantee by the parties, no enforceable agreement could be said to have come into existence. The correspondence exchanged between the parties shows that there is nothing expressly agreed between them and no concluded enforceable and binding agreement came into existence between them. Apart from the correspondence relied upon by the learned single Judge of the High Court, the fax messages exchanged between the parties, referred to above, go to show that the parties were only negotiating and had not arrived at any agreement. 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. The finding recorded by the learned single Judge is based on a proper appreciation of evidence on the record and a correct application of the legal principles. (Paras 9 & 10 & 13)

       (ii) Indian Contract Act, 1872-Section 10-Agreement-When become contract through correspondence-An agreement, even if not signed by parties, can be spelt out from correspondence exchanged between parties-Unless from correspondence it can unequivocally and clearly emerge that parties were ad idem to the terms it cannot be said that agreement had come into existence through corres­pondence. (Paras 11 & 12)