Full Judgment Text
‘ REPORTABLE’
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 6168 OF 2019
(Arising out of SLP (C) No. 32010 of 2018)
M/s. NATIONAL HIGHWAYS AND INFRASTRUCTURE
DEVELOPMENT CORPORATION LTD. Appellant(s)
VERSUS
M/s. BSCPL INFRASTRUCTURE LTD. Respondent(s)
J U D G M E N T
R. F. NARIMAN, J.
Leave granted.
The present case involves the question as to whether
an arbitration clause would spring into being at the stage
of Letter of Award (referred to as ‘LOA’ for brevity)
acceptance, or whether it would be necessary to sign the
ultimate agreement which would then bring in the arbitration
clause contained therein.
The skeletal facts necessary to appreciate the
controversy in the present case is that a Request for
Proposal (referred to as ‘RFP’ for brevity) was sent out by
the appellant for road construction in the State of
Signature Not Verified
Digitally signed by R
NATARAJAN
Date: 2019.08.19
11:20:12 IST
Reason:
Meghalaya. The LOA so far as the RFP is concerned, is by a
letter dated 31.10.2014, in which the Government of India
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referred to the bid document and requested for return of a
signed copy of duplicate LOA as its acknowledgment within
seven days of the receipt of the LOA. It was clearly stated
therein that “Thereafter, you are required to execute the
Contract Agreement within 15 days from the date of issue of
LOA as per clause 1.3 of the RFP……….”
In answer to this letter, on 05.11.2014, the
respondent accepted the bid proposal and enclosed a copy of
the LOA received by fax duly signed with an acknowledgment.
By a further communication dated 08.11.2014, the respondent
then wished to sign the contract agreement for the above
work on 13.11.2014. Nothing happened until August, 2016,
except that the guarantees that were required under the RFP
were kept alive by the respondent. Finally, on 04.08.2016,
the appellant decided to withdraw the LOA due to non-
availability of No Objection Certificate from the Khasi Hill
Autonomous District Council, which was a sine qua non for
the land for the project. It is in this factual scenario
that the controversy has arisen in this case, which is, as
to whether the LOA is a binding contract, and further that,
if it is found to be a binding contract, whether the
arbitration clause of the draft agreement between the
parties would kick in.
The Delhi High Court, by its judgment dated
26.10.2018, went through various clauses of the draft
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agreement which is part of the RFP, and after referring to
this Court’s judgment in Inox Wind Ltd. v. Thermocables Ltd.
(2018) 2 SCC 519 found that, contained in the standard form
of the draft agreement, is an arbitration clause, and that a
general reference to it is good enough, so that an
arbitrator could be appointed. The Court then went on to
appoint Justice Shiavax Jal Vazifdar, former Chief Justice,
Punjab and Haryana High Court, after which two other
arbitrators would then be appointed by the International
Centre for Alternate Dispute Resolution.
According to Shri Debal Banerjee, learned senior
counsel, events have overtaken the respondent. This Court’s
judgment in PSA Mumbai Investments PTE. Limited v. Board of
Trustees of the Jawaharlal Nehru Port Trust and Another
(2018) 10 SCC 525 would squarely cover this case. He
prepared for our perusal a chart in which he pointed out the
similarity of this case with the facts in PSA Mumbai
Investments PTE. Limited’ s case - the disclaimer clause
referred to by us in the said judgment; the schedule of
bidding process; the signing of the LOA; and most
importantly the fact that the entire bidding process shall
be governed by and construed in accordance with the laws of
India and that the Courts at Mumbai shall have exclusive
jurisdiction over all disputes arising under, pursuant to or
in connection with the bidding process; and the fact that
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the authority may, in its own discretion, cancel the bidding
process at any stage prior to entering into the ultimate
contract agreement.
According to him, the minor difference between the PSA
Mumbai Investments PTE. Limited’ judgment containing a
reference to the formation of a Special Purpose Vehicle,
which is absent in the facts of this case, would be entirely
immaterial for the purpose of discovery as to whether an
agreement exists in this case and whether an arbitration
clause contained in a standard form would, therefore, govern
the parties.
Ms. Kiran Suri, learned senior counsel appearing on
behalf of the respondent, has taken us through the impugned
judgment as well as our judgment, and has pointed out
various differences which according to her should conclude
the matter in her favour. Most importantly, according to
her, what is important is contained in clause 2.1.14, which
makes it clear that in the facts of the present case, the
moment the stage of LOA of the agreement is reached, the
agreement between the parties “shall be liable to be
terminated...” thereby indicating that at the stage of the
LOA, an agreement has, in fact, been reached between the
parties.
She also relied upon clause 2.6.3 and clause 2.20.7 to
indicate that, on the facts of the present case, since an
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agreement had been entered into at the stage of acceptance
of the LOA, the arbitration clause contained in the standard
form would definitely kick in.
Having heard learned counsel for the both the parties,
it is important to set out some of the important clauses
contained in the RFP in the present case. These clauses are
as follows:
‘Disclaimer
This RFP is not an Agreement and is neither an offer
nor invitation by the Authority to the prospective
Bidders or any other person. The purpose of this
RFP is to provide interested parties with
information that may be useful to them in making
their financial offers (BIDs) pursuant to this RFP.
This RFP includes statements which reflect various
assumptions and assessments arrived at by the
Authority in relation to the project.
...The issue of this RFP does not imply that the
Authority is bound to select a Bidder or to appoint
the Selected Bidder JV or Contractor, as the case
may be, for the Project and the Authority reserves
the right to reject all or any of the Bidders or
Bids without assigning any reason whatsoever.
Clause 1.3:
Schedule of Bidding Process
The Authority shall endeavour to adhere to the
following schedule:
Event Description:
1. Last date of receiving queries: 09.06.2014
2. Pre-bid meeting: 16.06.2014
3. Authority response to queries latest by:
04.07.2014
4. Last date of sale of BID document: 25.07.2014
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5. Bid Due Date: 28.07.2014 up to 1100 Hrs.
6. Opening of Bids: 28.07.2014 upto 1100 Hrs
7. Letter of Award (LOA) : Within 30 days of Bid Due
Date
8. Validity of Bids: 120 Days of Bid Due Date
9. Signing of Concession Agreement: Within 15 days
of award of LOA.
Clause 3.3.5
After selection, a Letter of Award (the ‘LOA’) shall
be issued, in duplicate, by the Authority to the
Selected Bidder and the Selected Bidder shall,
within 7 (seven) days of the receipt of the LOA,
sign and return the duplicate copy of the LOA in
acknowledgement thereof. In the event the duplicate
copy of the LOA duly signed by the Selected Bidder
is not received by the stipulated date, the
Authority may, unless it consents to extension of
time for submission thereof, appropriate the BID
Security of such Bidder as Damages on account of
failure of the Selected Bidder to acknowledge the
LOA, and the NOI inconformity with 3.3.3.
Clause 3.3.6
After acknowledgement of the LOA as aforesaid by the
Selected Bidder, it shall cause the bidder to
execute the Agreement within the period prescribed
in Clause 1.3. The Selected Bidder shall not be
entitled to seek any deviation, modification or
amendment in the Agreement.
Clause 2.20.5
The Selected Bidder’s BID Security will be returned,
without any interest upon the bidder signing the
Contract Agreement and furnishing the Performance
Security in accordance with the provisions thereof.
The Authority may, at the Selected Bidder’s option,
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adjust the amount of BID Security in the amount of
Performance Security to be provided by him in
accordance with the provisions of Agreement.
Clause 6.1
The Bidding Process shall be governed by, and
construed in accordance with, the laws of India and
the Courts at Delhi shall have exclusive
jurisdiction over all disputes arising under,
purusant to and/or in connection with the Bidding
Process.
Clause 6.2(a)
The Authority, in its sole discretion and without
incurring any obligation or liability, reserves the
right, at any time, to;
(a) suspend and/or cancel the Bidding Process and/or
amend and/or supplement the bidding Process or
modify the dates or other terms and conditions
relating thereto;...”
Even a cursory look at the aforesaid clauses will show
that barring one or two small differences, these clauses are
virtually identical with the clauses contained in the PSA
Mumbai Investments PTE. Limited case .
After setting out some of these clauses, this Court in
its judgment in PSA Mumbai Investments PTE. Ltd.’ s case,
held:
12) On a conjoint reading of the aforesaid clauses, a
few things become clear -
(i) first and foremost a Disclaimer at the forefront of
the RFP makes it clear that there is only a bid process
that is going on between the parties and that there is
no concluded contract between the same,
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(ii) it is equally clear that such bid process would
subsume a Letter of Award to be issued by the Respondent
No.1 with two further steps under the schedule to be
gone into before the draft Concession Agreement finally
becomes an agreement between Respondent No.1 and the
Special Purpose Vehicle that is constituted by the
Consortium for this purpose,
(iii) that through out the stage of the bid process, the
forum for dispute resolution is exclusively with the
Courts at Mumbai, and
(iv) that right uptil the stage of the entering into the
Concession Agreement, the bid process may be annulled
without giving any reason whatsoever by the Respondent
No.1.
14) Under Section 7 of the Indian Contract Act, 1872 in
order to convert a proposal into a promise, the
acceptance must be absolute and unqualified. It is clear
on the facts of this case that there is no absolute and
unqualified acceptance by the Letter of Award – two or
three very important steps have to be undergone before
there could be said to be an agreement which would be
enforceable in law as a contract between the parties.
19) Mr. Dave also strongly relied upon the judgment in
INOX Wind Limited v. Thermocables Limited , (2018) 2 SCC
519. This judgment in paras 17-19 thereafter made it
clear that an exception to the general rule laid down in
M.R. Engineers and Contractors Private Limited (2009) 7
SCC 696 as to standard forms of practice containing
arbitration clauses would be extended also to standard
forms between individual persons and not merely standard
forms of professional assessments.
20) We may hasten to add that this judgment in INOX
Wind Ltd. case would have no manner of application on
the facts of this case for the reason that it has been
found by us that there is no agreement between the
parties at all in the facts of the present case, making
it clear, therefore, that the arbitration clause
contained in the draft Concession Agreement would not
apply.
However, learned senior counsel for the respondent
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relied heavily upon clause 2.1.14, which reads as follows:
“2.1.14 A Bidder shall be liable for
disqualification and forfeiture of BID Security, if
any legal, financial or technical adviser of the
Authority in relation to the Project is engaged by the
Bidder, its Member or any Associate thereof, as the
case may be, in any manner for matters related to or
incidental to such Project during the Bidding Process
or subsequent to the (I) issue of the LOA or (ii)
execution of the Agreement. In the event any such
adviser is engaged by the selected Bidder or
Contractor, as the case may be, after issue of the LOA
or execution of the Agreement for matters related or
incidental to the project, then notwithstanding
anything to the contrary contained therein or in the
LOA or the Agreement and without Prejudice to any
other right or remedy or the Authority, including the
forfeiture and appropriation of the BID Security or
Performance Security, as the case may be, which the
Authority may have there under or otherwise, the LOA
or the Agreement, as the case may be, shall be liable
to be terminated without the Authority being liable in
any manner whatsoever to the Selected Bidder or
Contractor for the same. For the avoidance or doubt,
this disqualification shall not apply where such
adviser was engaged by the Bidder, its member or
Associate in the past but its assignment expired or
was terminated 6 (six) months prior to the date of
issue of this RFQ. Nor will this disqualification
apply where such adviser is engaged after a period of
3 (three) years from the date of commercial operation
of the Project.”
She also relied upon clauses 2.6.3 and 2.20.7:
“2.6.3 In case it is found during the evaluation
or at any time before signing of the Agreement or
after its execution and during the period of defect
liability, subsistence thereof, that one or more of
the pre-qualification conditions have not been met by
the Bidder, or the Bidder has made material
misrepresentation or has given any materially
incorrect or false information, the Bidder shall be
disqualified forthwith if not yet appointed as the
contractor either by issue of the LOA or entering into
of the Agreement, and if the Selected Bidder has
already been issued the LOA or has entered into the
Agreement, as the case may be, the same shall,
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notwithstanding anything to the contrary contained
therein or in this RFP, be liable to be terminated,
by a communication in writing by the Authority to the
selected Bidder or the Contractor, as the case may be,
without the Authority being liable in any manner
whatsoever to the Selected Bidder or the Contractor.
In such an event, the Authority shall be entitled to
forfeit and appropriate the BID Security or
Performance Security, as the case may be, as Damages,
without prejudice to any other right or remedy that
may be available to the Authority under the Bidding
Documents and/or the Agreement, or otherwise.”
2.20.7 The BID Security shall be forfeited and
appropriated by the Authority as damages payable to
the Authority for, inter-alia, time cost and effort of
the Authority without prejudice to any other right or
remedy that may be available to the Authority under
the bidding documents and / or under the Agreement, or
otherwise, under the following conditions:
(a) If a Bidder submits a non-responsive BID as
defined in 3.2.
(b) If a Bidder engages in a corrupt practice,
fraudulent practice, coercive practice,
undesirable practice or restrictive practice as
specified in Section 4 of this RFP;
(c) If a Bidder withdraws its BID during the period of
Bid validity as specified in this RFP and as
extended by mutual consent of the respective
Bidder(s) and the Authority;
(d) In the case of Selected Bidder, if it fails within
the specified time limit -
(i) to sign and return the duplicate copy of
LOA;
(ii) to sign the Agreement; or
(iii) to furnish the Performance Security within
the period prescribed therefor in the
Agreement; or
(e) In case the Selected Bidder, having signed the
Agreement, commits any breach thereof prior to
furnishing the Performance Security.
A perusal of the aforesaid clauses would only show
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that a bidder is liable for disqualification and forfeiture
of bidding security at all stages of the agreement,
notwithstanding that there may not be execution of the
agreement between the parties.
The expression “shall be liable to be terminated...”
in clause 2.1.14 is only in this context, thereby making it
clear that even after the LOA may have been accepted, such
disqualification and forfeiture of bid security, if the
other conditions exist, can be done by the appellant. The
same interpretation goes for clauses 2.6.3 and clause
2.20.7.
What really puts paid to this agreement is the
schedule of bidding process which is identical to the
schedule of bidding process in the PSA Mumbai Investments
PTE. Ltd.’ s case.
This schedule of bidding process begins with the last
date for receiving queries and ends with the signing of
concession agreement, LOA being Item No. 7 and part and
parcel of this bidding process. The moment this is so, then
what is clear is that under clause 6.1, dispute resolution
can only take place by the Courts of Delhi.
It is not possible to say that a standard form
arbitration clause contained in a draft agreement would then
oust clause 6.1 and disturb the entire scheme of the
schedule of bidding process. This being the case, it is
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clear that even at the stage of acceptance of LOA, if
disputes arise between the parties, they can only be
resolved by the Courts of Delhi and not by arbitration.
This being the case, it is clear that the PSA Mumbai
Investments PTE. Ltd.’ s judgment is, in fact, on all fours
and would govern the facts of the present case.
In this view of the matter, we set aside the impugned
judgment dated 26.10.2018 and allow the appeal.
…………………………………………………………………., J.
[ R. F. NARIMAN ]
…………………………………………………………………., J.
[ SURYA KANT ]
New Delhi;
August 7, 2019.
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