IMPORTANT POINT
When parties during negotiations contemplate the execution of a formal agreement incorporating the terms of the bargain, so long as a formal agreement has not been entered into, it may be open to contend that there was no concluded contract between the parties.

Headnote:Arbitration and Reconciliation Act, 1996 — Sections 7, 11 & 16 — Appointment of an arbitrator — Existence of arbitration agreement — Dispute regarding — Parties have not signed the contract containing the detailed specifications as contemplated by letter of acceptance — However, tender submitted is accepted, its acceptance conveyed and the time for completing the work is stipulated to start from such acceptance — Work was to commence on the basis of that acceptance but no payment was to be made until a formal contract was signed — Whether it would preclude the respondent from seeking an arbitration by falling back on clause 25A of the tender conditions — Held, this is a question that must be left to be decided by the arbitrator, since in terms of Section 16 of the Act the question can be raised before the arbitrator — Present case is governed by the procedure that was available when Konkan Railway Corporation case, 2002 (2) SCC 388 held the field.
       Held : That orders already made were not to be affected by the ratio of the decision in S.B.P. & Company v. Patel Engineering Ltd. & Anr., 2005 (8) SCC 618 is clear from paragraph 46 of that decision wherein prior orders and proceedings have been saved. Therefore, the only question for decision is whether the fact that the parties have not signed the contract containing the detailed specifications as contemplated by the letter of acceptance would preclude the respondent from seeking an arbitration by falling back on clause 25A of the tender conditions quoted above. It is true that when parties during negotiations contemplate the execution of a formal agreement incorporating the terms of the bargain, so long as a formal agreement has not been entered into, it may be open to contend that there was no concluded contract between the parties. As against this, what is the position in a case where the tender submitted is accepted, its acceptance conveyed and the time for completing the work is stipulated to start from such acceptance, and the work was to commence on the basis of that acceptance but no payment was to be made until a formal contract was signed, is the first question that arises in this case. We think that in the circumstances, this is a question that must be left to be decided by the arbitrator, since in terms of Section 16 of the Act the question can be raised before the arbitrator. Considering that we are dealing with the pre S.B.P. & Company (supra) dispensation, we do not think that it is necessary or proper for us to go into that question and decide the same in these proceedings. Same is the position regarding the scope of clause 13 of the tender and the clauses relied on by counsel for the appellant in his attempt to take the present claim out of clause 25A of the tender conditions. We are, therefore, satisfied that it would be appropriate to leave this question, as also the other questions to be decided by the arbitrator rather than our trying to answer them at this stage in view of the fact that this case is not governed by the principles recognized by S.B.P. & Company (supra). . (Para 10)
       But we make it clear that the arbitrator, in the first instance, has to decide whether the existence of an arbitration agreement in terms of Section 7 of the Act is established and also to decide whether the claim now made is a claim that comes within the purview of clause 25A of the tender conditions in case it is found to be an agreement within the meaning of Section 7 of the Act. Only on deciding these two aspects can the arbitrator go into the merits of the claim made by the respondent. But we clarify that it does not mean, that he should treat these two aspects as preliminary issues and decide them first; but only that he must decide them without fail while proceeding to finally pronounce his award. (Para 11)

JUDGMENT

P.K. Balasubramanyan, J. — Leave granted.

2. In spite of service of notice and in spite of repeated conveying of information about the posting of the petition for special leave to appeal for final disposal, the respondent has not chosen to appear. We think we have waited enough for the appearance of the respondent and no further indulgence is warranted. Heard counsel for the appellant.

3. The appellant invited tenders for construction of sheds near its Swimming Pool at an estimated cost of Rs.10.70 lakhs. Respondent No. 1 submitted its tender. The tender form submitted by the respondent contained the following clause:

“Clause 25A. (1) If any dispute or difference of any kind whatsoever shall arise between the vice-Chancellor M.D.U. Rohtak, and the contractor in connection with or arising out of the contract, or the execution of the work that is (i) whether before its commencement or during the progress of the work or after its completion, (ii) and whether before or after the termination, abandonment or breach of the contract it shall in the first instance be referred to for being settled by the Executive Engineer in charge of the work at the time and he shall within a period of sixty days after being requested in writing by the contractor to do so, convey his decision to the contractor, and subject to arbitration as herein after provided, such decision in respect of every matter so referred, shall be final and binding upon the contractor. In case the work is already in progress, the contractor will proceed with the execution of the work on the receipt of the decision of the Execution Engineer-in-charge as aforesaid, with all due diligence whether he or Vice-Chancellor, M.D.U., Rohtak requires arbitration as hereinafter provided or not. If the Executive Engineer, in-charge of the work has conveyed his decision to the contractor and no claim to arbitration has been filed with him by the contractor within a period of sixty days from the receipt of letter communicating the decision, the said decision shall be final and binding upon the contractor and will not be subject matter of arbitration at all. If the Executive Engineer in-charge of the work fails to convey his decision within a period of sixty days, after being requested, as aforesaid, the contractor may, within further sixty days of the expiry of first sixty days from the date on which request has been made to the Executive Engineer in-charge request the Vice-Chancellor, that the matter in dispute be referred to arbitration, as hereinafter provided.

(2) All disputes or differences in respect of which the decision not final and conclusive shall at the request in writing of either party, made in communication sent through registered A.D. Post, be referred to the sole arbitration to Vice-Chancellor, M.D.U., Rohtak at the relevant time. It will be no objection to any such appointment that the arbitrator so appointed is a Government servant or that he had to deal with the matters to which the contract relates and that in the course of his duties as a Government servant, he had expressed his views on all or any of the matters in dispute. The arbitrator to whom the matter is originally referred being transferred or vacating his office, his successor-in-office, as such shall be entitled to proceed with the reference from the stage at which it was left by his procedure.

In case the arbitration nominated by the Vice-Chancellor, M.D.U., Rohtak is unable to act as such for any reason, whatsoever the Vice-Chancellor, M.D.U., Rohtak shall be competent to appoint and nominate and other Superintending Engineer or Chief Engineer, as the case may be as arbitrator in his place and the Arbitrator so appointed shall be entitled to proceed with the reference.

(3) It is also a term of this arbitration agreement that no person appointed by the Vice-Chancellor, M.D.U., Rohtak shall act as arbitrator and if for any reason that is not possible the matter shall not be referred to arbitration a

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2007 Supreme(SC) 573

IMPORTANT POINTWhen parties during negotiations contemplate the execution of a formal agreement incorporating the terms of the bargain, so long as a formal agreement has not been entered into, it may be open to contend that there was no concluded contract between the parties.

Cases Referred (4)

IMPORTANT POINT
When parties during negotiations contemplate the execution of a formal agreement incorporating the terms of the bargain, so long as a formal agreement has not been entered into, it may be open to contend that there was no concluded contract between the parties.