Back
2003 Supreme(Cal) 245
High Court Of Calcutta
Ashim Kumar Banerjee
UNION OF INDIA (UOI) - Appellant
Versus
PIONEER CONSTRUCTION - Respondent
A. P. O. 238 Of 2002
Decided On : 05/15/2003
ARUNA DUTT, Hiranmoy Dutt, S.S.Sarkar, SAMIR SEN GUPTA
An arbitration clause is not valid and enforceable unless it is part of a valid and binding contract.
Headnote:
ARBITRATION - CONTRACT - ARBITRABILITY - TENDER ACCEPTANCE CONDITIONAL UPON EXECUTION OF FORMAL AGREEMENT - NO EXECUTION OF FORMAL AGREEMENT - NO CONCLUDED CONTRACT - ARBITRATION CLAUSE IN PROPOSED CONTRACT NOT INVOKABLE.
Fact of the Case:
The petitioner invited tenders for certain works and the respondent's offer was accepted subject to the execution of a formal agreement. The petitioner issued a letter of acceptance along with a copy of the proposed agreement containing an arbitration clause. However, the formal agreement was never executed and the respondent did not commence work. Despite repeated requests, the respondent neither commenced work nor executed the formal agreement. The respondent raised disputes and demanded arbitration, which was referred to a sole arbitrator.
Finding of the Court:
The court held that since the formal agreement was never executed, there was no concluded contract between the parties. Therefore, the arbitration clause embodied in the proposed contract could not be invoked. The court also held that the petitioner's conduct in appointing an arbitrator and allowing the respondent to invoke the arbitration agreement did not amount to a waiver of the petitioner's right to challenge the arbitrability of the dispute.
Issues: 1. Whether there was a concluded contract between the parties. 2. Whether the arbitration clause in the proposed contract was valid and enforceable. 3. Whether the petitioner's conduct amounted to a waiver of its right to challenge the arbitrability of the dispute.
Ratio Decidendi: 1. A contract is concluded when the parties have reached an agreement on all essential terms and have expressed their assent to be bound by it. 2. An arbitration clause is valid and enforceable only if it is part of a valid and binding contract. 3. A party cannot waive its right to challenge the arbitrability of a dispute by participating in arbitration proceedings.
Final Decision: The court set aside the arbitral award on the ground that the arbitrator had no jurisdiction to decide the dispute.
( 1 ) BY a memo dated April 7, 1999 the petitioner accepted the tender submitted by the respondent for certain works of renovation at the Central Store Building Survey of India at 15, Wood Street, Calcutta. Clauses 5 and 7 of the letter of acceptance of Tender being relevant herein are quoted below :". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5) You are requested to attend this office to complete the formal agreement within 7 (seven) days of the receipt of this letter. (7) You are also requested to please obtain a valid licence under the Labour (Randa) Act, 1970 and the Contract Labour (Regulation and Abolition) Central Rules, 1971 before the commencement of the work and continue to have a valid licence till the completion of the work. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . "
( 2 ) DESPITE repeated requests and reminders the respondent neither commenced work nor executed the formal agreement in terms of Clause 5 of the said memo of acceptance of tender. Under the proposed contract any dispute between the parties under the contract was to be referred to Arbitration under Clause 25 thereof. The respondent raised disputes and demanded Arbitration. The petitioner accordingly referred the matter to the Sole Arbitrator, Shri A. K. Bhatnagar.
( 3 ) BEFORE the Arbitrator, the petitioner contended that since agreement was not signed contract was not concluded between the parties and as such there could not have been any dispute which could be referred to Arbitration. The Arbitrator relying on a decision of Delhi High Court, negated the argument of the petitioner and proceeded with the reference on merits. The Arbitrator ultimately published his Award for a sum of Rs. 1,14,566 in favour of the respondent. Hence, this application for setting aside.
( 4 ) THE decision of the Arbitrator on the question of maintainability"the respondents have taken the plea that since the agreement was not signed, no contract was concluded and hence the disputes were not arbitrable. The claimants on the other hand have contended that in terms of Section 4 of the Indian Contract Act, the contract stood concluded as soon as the letter of acceptance wsa despatched by the respondents and the disputes were, therefore, arbitrable. The claimants have also relied on Case Law 2001 (1) Arb. LR 269 (Del. ). I find myself unable to agree with the contention of the respondents. It is held that the disputes are arbitrable as a valid contract existed between the parties, which included Clause 25 as Arbitration agreement, even though the formal agreement was not signed. In arriving at this conclusion I also rely on the case of Progressive Constructions Ltd. v. Bharat Hydro Power Corporation Ltd. "
( 5 ) POINTS urged before me by the petitioner mr. Samir Sengupta, learned counsel for the petitioner, urged the following issues : (i) The respondent submitted tender which was accepted by the petitioner conditional upon the execution of the formal agreement. Since no formal agreement was executed there was no concluded contract. (ii) Since there was no concluded contract the Arbitration clause embodied in the proposed contract could not be invoked. (iii) Even from the facts of the case it would appear that the parties did not arrive at a concluded contract even by conduct which could give rise to a cause of action f
