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High Court Of Delhi
UNION OF INDIA - Appellant
Versus
UTTAM SINGH DUGAL AND COMPANY LIMITED - Respondent
Suit 505 of 1967
Decided On : 07/29/1971
ARBITRATION - Existence of valid and binding contract - Arbitration agreement - Whether concluded contract between parties - Whether arbitration agreement valid and binding - Interpretation of letter of acceptance - Whether execution of formal agreement condition precedent - Whether arbitration clause independent agreement - Whether arbitration agreement signed by parties.
Fact of the Case:
Petitioner, Union of India, filed a petition under Section 31 of the Arbitration Act for a declaration that there was a valid, concluded binding contract between the parties and that the reference to the appointed Arbitrator was valid and binding. Respondent, a contractor, submitted a tender for the construction of a bridge over the river Jamuna. After prolonged negotiations, the petitioner issued a letter of acceptance on 11th May 1961, which the petitioner claimed concluded the contract. The site was handed over to the respondent on 12th July 1961, but due to floods, boring work could only begin on 23rd October 1961. The final alignment of the bridge was fixed on 4th January 1962, and the land was handed over to the respondent on 9th February 1962. The respondent did not submit the provisional and revised design within time and expressed its willingness to execute the work only on payment of an extra amount. The petitioner forfeited the earnest money and claimed the balance of the security to be paid, which the respondent refused to pay. The petitioner appointed an Arbitrator, but the respondent disputed the existence of a contract and the validity of the reference. The Arbitrator declined to enter upon the reference unless the question of the existence of a valid contract had been determined by a competent court.
Finding of the Court:
1. The petition under Section 31 of the Arbitration Act is maintainable, as the court has inherent power to entertain applications made by parties affirming the existence of arbitration agreements. 2. The letter of acceptance dated 11th May 1961 was only a counter-offer and not an acceptance of an offer. It required absolute and unqualified acceptance on the part of the respondent, which was not given. 3. The execution of a formal agreement was an essential term and condition precedent to the contract, which was not fulfilled. 4. The arbitration clause was not an independent agreement but was said to be contained in the contract in dispute. Since there was no concluded contract, the arbitration clause would automatically fall. 5. The corrected arbitration clause contained in the correction slip did not bear the signatures or stamp of the respondent-contractor or the petitioner. 6. There was no written arbitration agreement between the parties, and the letter of acceptance did not contain any arbitration clause.
Issues: 1. Whether the application has been filed by a duly authorised person? 2. Whether the petition under S. 31 of the Arbitration Act is not competent? 3. Whether there is any arbitration agreement between the parties? 4. Relief.
Ratio Decidendi: 1. A counter-offer requires absolute and unqualified acceptance on the part of the offeree. 2. The execution of a formal agreement may be a condition precedent to the formation of a contract, depending on the facts and circumstances of the case. 3. An arbitration clause that is not an independent agreement but is contained in a contract that is not concluded is not valid and binding. 4. A written arbitration agreement must be signed by both parties to be valid and binding.
Final Decision: The petition is dismissed with costs.
( 1 ) THIS petition had been filed on 15th March, 1965 by the Union of India petitioner under Section 31 of the Arbitration Act for reliefs that it be declared that there is a valid, concluded binding contract between the parties and that the reference to the appointed Arbitrator is valid and binding. The petitioner has come to the Court on the allegations that a second road bridge was to be constructed over the river Jamuna behind Hamayun s Tomb Delhi, and the petitioner on 4th September. 1959 invited tender for the said construction from approved contractors, in pursuance of which the respondent submitted its tender on 1st December. 1959 for a sum of Rs. 48,73,800 according to its own design accompanying the tender and thereafter there were prolonged negotiations and finally a letter of acceptance dated 11th May, 1961 (Exhibit R. 20) was issued by the petitioner to the respondent which, according to the petitioner, concluded the formation of the contract. It is further alleged in the petition that the site of the work was handed over to the respondent on 12th July. 1961 and owing to the floods in the river, boring work could begin only on 23rd October, 1961 and then on account of the drift in the river course towards the east the final alignment of the bridge was altered and finally fixed and communicated to the respondent on 4th January, 1962 and the land with the changed alignment having been taken from the Delhi Development Authority on 7th February, 1962. was handed over to the respondent on 9th February, 1962 but the respondent, in breach of condition No. 7 of the alleged acceptance of tender did not submit the provisional and revised design within time and it is finally alleged to have resiled from the contract and expressed its willingness to execute the work only on payment of an extra amount of Rs. 56,06. 704. 00 by its letter dated 13th March. 1963 and the respondent also did not furnish the security amount. The petitioner thereafter claiming that breach of contract had been committed by the respondent, forfeited the earnest money and claimed the balance of the security to be paid, which the respondent refused to pay which resulted in the disputes that have been referred to the arbitration of Shri P. S. Rao, Superintending Engineer, Ministry of Works and Housing, who was appointed the sole arbitrator by the petitioner by letter dated 12th August. 1964. The respondent on 14th August, 1964 disputed the existence of a contract and the validity of the reference. The Arbitrator, by letter dated 15th November, 1964, declined to enter upon the reference unless the question of the existence of a valid contract had been determined by a competent court. Hence the petitioner has alleged existence of a concluded and binding contract containing the arbitration agreement and has sought the reliefs mentioned above. The petition is signed and verified by Shri N. Veerabadhu, Executive Engineer.
( 2 ) THE respondent in its reply has raised a number of preliminary objections and it has urged that the petition is not properly signed and verified by a duly authorised person and that it is not maintainable under Section 31 of the Arbitration Act. that there was no unqualified and absolute acceptance of offer and the parties were never ad idem and so no legal or binding contract resulted between the parties and at all events, the letter of acceptance contravened Art. 299 of the Constitution and was invalid in law. On the merits, the respondent has given a detailed reply to show that no valid and binding contract had been arrived at between the parties, although a number of discussions and negotiations had taken place between them. The respondent has denied the claim of the petitioner to forfeit the earnest money or the security demanded by it and has challenged the appointment of the Arbitrator and the reference to arbitration and has prayed that the petition be dismissed. The petitioners have filed a replication to the reply
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