The T.O.I. dated 11-1-1991 constituted a binding contract with a valid arbitration clause, and the appellant unconditionally accepted it by commencing the project work.

Headnote:
Arbitration Clause - Contract - Arbitration Act, 1940 - Section 7, Indian Contract Act, 1872 - T.O.I. 11-1-1991, Purchase Orders 8-2-1991, 8-3-1991 - The T.O.I. dated 11-1-1991 constituted a binding contract with an arbitration clause, and the purchase orders contained the mode and manner of arbitration. The appellant unconditionally accepted the T.O.I. and commenced the project work, indicating a concluded contract with a valid arbitration clause.
Fact of the Case:

The appellant, in response to a tender, offered to execute a project work. The T.O.I. dated 11-1-1991 was treated as a firm commitment, and the appellant commenced the project work. Disputes arose, and the contract was terminated on 16-11-1992. The appellant challenged the damages awarded by the arbitrator and the single judge.
Finding of the Court:

The court found that the T.O.I. dated 11-1-1991 constituted a binding contract with a valid arbitration clause, and the appellant unconditionally accepted it by commencing the project work. The court dismissed the appeal, upholding the damages awarded.
Issues: The issues involved the existence of a concluded contract with a valid arbitration clause and the quantification of damages without determining the date of breach or market price at the time of breach.
Ratio Decidendi: The T.O.I. dated 11-1-1991 constituted a binding contract with a valid arbitration clause, and the appellant unconditionally accepted it by commencing the project work. Damages were quantified based on the market price determined by the appellant.
Final Decision: The appeal was dismissed, and there was no order as to costs.

JUDGMENT - DEVADHAR J.P., J.: - By an award dated 27th June, 1994 made under the provisions of the Arbitration Act, 1940 the learned arbitrator held that on account of breach of contract the appellant is a liable to pay to the respondent a sum of Rs. 1,26,67,529.10 together with costs quantified at Rs. 75,600/-. The appellant challenged the said award by filing an Arbitration Petition No. 177 of 1994. The learned Single Judge while upholding the award reduced the quantum from Rs. 1,26,67,529.10 to Rs. 71,31,954.40 and passed a decree in favour of the respondent and against the appellant in terms of the modified award. Challenging the said decree, the appellant has filed the present appeal.

2. The facts relevant for this appeal are that pursuant to a tender enquiry floated by the respondent on 7-11-1989 for design, fabrication and commissioning of Propane-de Asphalting heater (PDA heater), at Mahul, Mumbai, the appellant in association with Engineering India Ltd. (E.I.L.), New Delhi submitted its price bid offer on 6-2-1990. Thereafter, several meetings were held between the appellant and the respondent pursuant to which, the appellant agreed to revise the bid price and also extend the validity of the offer. At the request of the respondent, the appellant by a letter dated 21-9-1990 gave break-up of supply, erection and C.I.F. value of the imported items. On 11-1-1991 further discussions were held between the parties and the terms arrived there at were recorded in the form of a memorandum of discussion (M.O.D.). On the same day i.e. on 11-1-1991 itself the respondent sent a Telex of Intent (T.O.I.) to the respondent stating therein that in the light of the discussion held and the M.O.D. arrived at the between the parties, the offer of the appellant has been accepted. It was further stated that the said T.O.I. should be treated as a firm commitment and that the purchase order for the turnkey job would soon be issued by the respondent. The said T.O.I. dated 11-1-1991 reads as under :-

"Hindustan Petroleum Corporation

Refinery Division.

Telex of Intent January 11, 1991.

T.L.X. 1011-71499

Mikio-IN

Mukund Ltd.,

Bombay.

KIND ATTN : MR. UTTAMANI.

DEAR SIR

RE. YR.QTN. E.O.D. : P-255-098 OF 6 FEB. 1990 AND ALL OTHER CORRESPONDENCE DISCUSSIONS UPTO AND UNTIL M.O.D. OF 11-1-1991 AGST OUR ENQ. FM.-BS-1317 PDA FOR PDA HEATER (.)

PLSD TO INFORM THAT YR OFFER IS ACCEPTED AND A.D.O. FOR TURNKEY JOB FOR DESIGN, FABRICATION AND ERECTION OF A HEATER FOR A TOTAL BASIC COST OF RS. 2.17 CRORES WILL BE ISSUED TO YOUR SHORTLY (.)

DELIVERY : WITHIN 16 MONTHS OF T.O.I. (.)

ALL PAYMENTS WILL BE MADE BY CHEQUE ALL ADVANCES AGST B/G (.) SIMILARLY L/C FOR 65% SHOULD BE COVERED BY A B/G FOR EQUIVALENT AMT (.) THIRD PARTY INSPECTION CHARGES EXTRA FOR INDIGENOUS ITEMS(.)

PRICE ESCALATION FOR CHANGE IN EXCHANGE RATE CUSTOMS DUTY ON VALUE OF IMPORTED COMPONENTS WILL BE APPLICABLE (.).

OTHER TERMS SUCH AS L.D. ARBITRATION CLAUSE AS PER OUR TENDER WILL BE APPLICABLE (.)

PLEASE TREAT THIS AS A FIRM COMMITMENT (.) DETAILED ORDER FOLLOWS (.)

I S P SARMA

CH.MATERIALS MANAGER

PROJECTS"

3. It is an admitted fact that neither the tender terms nor the offer made by the appellant contained any clause for arbitration but the T.O.I. dated 11-1-1991 contained an arbitration clause.

4. No objection was raised by the appellant to the T.O.I dated 11-1-1991 and in fact, the appellant vide letter dated 23-1-1991 forwarded a bank guarantee for Rs. 21.70 lakhs to the respondent with a view to obtain mobilisation advance for carrying out the project work. As per the T.O.I, the respondent issued two purchase orders, one on 8th February, 1991 for supply of materials and another on 8th March, 1991 for erection and commissioning of work. It is the case of the appellant that both the above delivery orders were actually, delivered to the appellant belatedly in March, 1991. In any event, after the issuance of the delivery orders, mobilisation advance of Rs. 19

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