M/S Rsa Infra Project Pvt Ltd vs Npcc Limited & Anr.
- Court
- Delhi High Court
$~J
* IN THE HIGH COURT OF DELHI AT NEW DELHI
%
Judgment pronounced on: 31.08.2026
# CNR No.DLHC010163772026
ARB.P. 708/2026
+
M/S RSA INFRA PROJECT PVT LTD .....Petitioner
Through: Mr. Rakesh Kumar, Ms. Preeti
Kashyap, Mr. Ankit Sharma, Mr.
Sahil and Mr. Pulkit Mehrotra, Advs.
versus
NPCC LIMITED & ANR. .....Respondents
Through: Mr. Tushar Sannu, Ms. Ankita
Bhadouriya, Mr. Hardik Saxena and
Ms. Diksha Punia, Advs. for NPCC.
Ms. Radhika Bishwajit Dubey,
CGSC, Mr. Vanshul Pali, GP, Ms.
Gurleen Kaur Waraich, Mr. Kritarth
Upadhyay, Mr. Amulya Dev Mishra,
Mr. Saksham Sharma, Mr. Kartik
Khullar, Ms. Ayushika Mishra and
Ms. Riya Garg, Advs. for R-2
(through v/c).
CORAM:
HON'BLE MR. JUSTICE SACHIN DATTA
JUDGMENT
1. The present petition has been filed by the petitioner under Section 11
(6) of the Arbitration and Conciliation Act, 1996 (hereinafter “the A&C
Act” ) seeking appointment of a Sole Arbitrator to adjudicate the disputes
and differences that have arisen between the parties herein.
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FACTUAL MATRIX
2. The disputes between the parties arise out of a contract relating to the
“Construction of a Limited Height Subway (LHS) in lieu of Level Crossing
No. 284 and a Railway Overbridge in lieu of Level Crossing No. 283 on the
Bilaspur-Jharsuguda Sections under SEC Railway, Bilaspur Division”
(hereinafter, “the Work” ).
3. The Work was the subject matter of a Notice Inviting Tender dated
23.01.2024 (hereinafter, “the NIT” ) issued by respondent no.1. The
petitioner participated in the tender process and was declared the lowest
bidder. Pursuant thereto, respondent no.1 issued a Letter of Intent bearing
No. 731003/SECR/2024-25/Wks/LC283-284/246 dated 12.06.2024
(hereinafter, “the LOI” ) in favour of the petitioner for execution of the
Work at a contract value of Rs.36,82,47,053.44/-. The said LOI reads as
under:
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4. In terms of the LOI, the petitioner furnished a Performance Guarantee
equivalent to 5% of the awarded contract value, amounting to
Rs.1,84,12,354/-, through Punjab National Bank. It is the case of the
petitioner that, thereafter, it mobilised its resources at the site and
commenced execution of the Work.
5. The petitioner contends that, during the course of execution of the
Work, it encountered various site hindrances which impeded its progress. In
this regard, a joint meeting was held on 11.12.2024, wherein the petitioner
raised the issue of removal of the site hindrances. The petitioner states that,
instead of addressing the aforesaid issues, the respondent no.1 proceeded to
issue show-cause notices dated 29.05.2025 and 30.05.2025 (hereinafter, “the
SCNs” ) against the petitioner herein.
6. By the first SCN dated 29.05.2025, the petitioner was called upon to
show cause in respect of the alleged poor performance. By the second SCN
dated 30.05.2025, respondent no.1 alleged non-compliance with the terms of
the LOI, particularly the requirement of execution of the formal contract
agreement in terms of Clause 85 of the General Conditions of Contract
(hereinafter “GCC” ). The SCN dated 30.05.2025 which has been filed as
‘Document – 6’ to the present petition, reads as under:
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7. The petitioner relies upon the minutes dated 12.12.2024 of the joint
meeting, which, inter alia
, record that piling work in respect of A2 had been
completed, while the remaining work in respect of A1 was pending on
account of the S&T cable clearance. The minutes further record that a
tendering process was underway for shifting of the said cables. The relevant
minutes read as under:
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8. It is not in dispute that the formal contract agreement contemplated
under the tender documents was never executed between the parties.
Thereafter, vide letter dated 20.06.2025, respondent no.1 terminated the
LOI. The said termination letter reads as under:
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9. The aforesaid termination letter further provided that the remaining
unexecuted portion of the Work would be carried out at the risk and cost of
the petitioner. Thereafter, the respondent no.1 also directed Punjab National
Bank to encash the Performance Guarantee, which had been furnished by
the petitioner.
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10. Subsequently, vide letter dated 25.08.2025, respondent no.1 informed
the petitioner that the balance Work would be taken up at the risk and cost of
the petitioner. Thereafter, the petitioner, vide its letter dated 08.09.2025,
objected to the aforesaid action and, inter alia , contended that the post-
termination joint measurement bill remained unpaid and that the validity of
the termination itself was in dispute. The letter dated 25.08.2025 reads as
under:
11. Thereafter, in terms of Clause 76(ii) of the GCC, pre-institution
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Mediation was initiated by the petitioner before the Delhi High Court Legal
Service Committee vide application dated 07.10.2025. The same is filed as
‘Document -11’ to the present petition.
12. The aforesaid exercise of pre-institution Mediation turned out to be a
non-starter, inasmuch as the respondent no.2 failed to appear, and the
respondent no.1 vide its email dated 27.11.2025, conveyed its unwillingness
to participate in the Mediation, stating as under:
“To,
The Hon’ble Secretary,
DHCLSC,
Ground Floor, Ancillary Block,
Delhi High Court, New Delhi.
Sub.: Notice in the matter of M/s RSA Infraprojects Pvt. Ltd. & Anr.
“N.D.O.H. 27.11.2025”
Sir,
I, Vivek Gupta, ( Emp. No.- 204407) Zonal Manager, Chhattisgarh Zone,
NPCC Ltd. , ( Opposite Party No. -1) appear in person at the venue
(mentioned in the email and addressed as above) on today, i.e. 27.11.2025 at
11:00 AM, in compliance to the Notice dated 30.10.2025, received from
DHCLSC vide email dated October 30,2025.
In this context, it is to submit that M/s NPCC Limited is not willing to
participate in the said Pre-Institution mediation proceedings and accordingly
conveys NPCC’s decision regarding REFUSAL to participate in the
mediation process initiated by the applicant i.e. M/s RSA Infraprojects Pvt.
Ltd. in the subject matter.
This is for your kind information and records, please.
Thanking you.
Your’s faithfully
Vivek Gupta,
Zonal Manager,
Chhattisgarh Zone,
NPCC Ltd.
Place: Ancillary Block, Delhi High Court campus.
Date: 27.11.2025. ”
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13. Thereafter, by way of an invocation notice dated 29.01.2026, issued
under Section 21 of the A&C Act, the petitioner invoked arbitration and
proposed the name of a Sole Arbitrator who could be appointed to
adjudicate the disputes between the parties. The same was not responded to
by the respondents and consequently, the present petition has been filed.
RELEVANT CONTRACTUAL PROVISIONS:
14. Clause 5.3 of the “Pre-Qualification and Instructions to the Bidders”,
forming the part of the Tender Document, provides as under:
15. Clause 84 of the GCC reads as under:
16. Clause 85 of the GCC reads as under:
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17. Clause 76 i.e. the dispute resolution Clause of the GCC reads as
under:
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SUBMISSIONS OF THE PARTIES:
18. Learned counsel for the petitioner submits that the existence of an
arbitration agreement between the parties is borne out from a conjoint
reading of the tender documents and the LOI. In support of the said
submission, it is contended as follows:
(i) Clause 5.3(b) of the “Pre-Qualification and Instructions to the
Bidders” provides that the notification of award itself constitutes
formation of the contract, subject only to furnishing of the
performance security. The said condition stood satisfied upon the
petitioner furnishing the requisite performance security on
27.06.2024.
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(ii) Clause 85(i) of the GCC contains an express deeming provision
whereby, until execution of the formal contract, the LOI read with the
bidding documents constitutes a binding contract between the parties.
(iii) Clause 8 of the LOI specifically provides that all the terms and
conditions contained in the tender documents shall form part of the
LOI.
(iv) Clause 9 of the LOI required the petitioner to commence the
work immediately in accordance with the tender conditions. The
petitioner accordingly commenced the work and also furnished the
requisite performance security.
(v) The respondent no.1’s own conduct viz . issuance of Show
Cause Notice(s), termination of the LOI in accordance with GCC
Clauses 72.2, 72.4, 84.0 and 85.0, and the appropriation of
performance bank guarantee thereafter, itself implicitly proceeds on a
footing that a binding contract subsisted between the parties.
19. The petitioner relies upon the judgment rendered by the Supreme
Court in UNISSI (India) (P) Ltd. v. Post Graduate Institute of Medical
Education and Research , (2009) 1 SCC 107.
20. It is the case of the petitioner that, having regard to the peculiar nature
of the arbitration clause, respondent no. 2 is liable to be joined as a party to
the arbitral proceedings. It is contended that the question as to whether
respondent no. 2, being a non-signatory to the arbitration agreement, is
bound by the same, is required to be determined by the Arbitral Tribunal, in
terms of the judgment of the Constitution Bench of the Supreme Court in
Cox and Kings Limited v. SAP India Private Limited and Another , (2024)
4 SCC 1.
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SUBMISSIONS ON BEHALF OF THE RESPONDENTS
21. Learned counsel for respondent no. 1, on the other hand, vehemently
submits that no concluded contract came into existence between the parties
and, consequently, no arbitration agreement could have arisen therefrom. It
is contended that the acceptance contemplated under Clause 1 of the LOI
was expressly conditional, and therefore, the petitioner cannot claim any
contractual rights on the basis thereof.
22. It is further submitted that the formal agreement contemplated under
Clauses 84 and 85 of the GCC was never executed between the parties.
Strong reliance is placed on the judgment in Maharashtra State Electricity
Distribution Company Limited (MSEDCL) & Ors vs R Z Malpani , 2026
SCC OnLine SC 553, to contend that the LOI and the terms of the tender did
not fructify into a formal contract and that the LOI was, at best, a precursor
thereto, in the nature of a “promise to make a promise and not a promise
. It is, therefore, contended that no concluded agreement came into
itself”
existence between the parties.
23. Learned counsel for respondent no. 2 raised a distinct objection. It
was submitted that respondent no. 2 has no independent contractual
relationship with the petitioner and that its relationship with respondent no.
1 is separate and is governed by a Memorandum of Understanding dated
11.03.2021.
24. Reliance is placed on Clauses 2.1 and 2.2 of the aforesaid
Memorandum of Understanding, which read as under:
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25. Reliance is further placed on Clause 6.1 of the aforesaid
Memorandum of Understanding, which reads as under:
26. On the basis of the aforesaid clauses, it is urged that no dispute can be
said to exist between the petitioner and respondent no. 2. It is further
contended that, in any event, if the disputes are found to be referable to
arbitration, the arbitration would necessarily be bilateral and respondent no.
2 cannot be made a party thereto.
ANALYSIS AND CONCLUSION
Scope of Scrutiny under Section 11 of the A&C Act:
27. The scope of scrutiny under Section 11 of the A&C Act is confined to
prima facie , an arbitration agreement exists between the
examining whether,
parties. This has been authoritatively laid down by the Supreme Court in
SBI General Insurance Co. Ltd. v. Krish Spinning , (2024) 12 SCC 1; and
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In Re Interplay between Arbitration Agreements under the Arbitration
and Conciliation Act 1996 and the Indian Stamp Act 1899 , (2024)6 SCC 1.
28. It is noticed that, in Malpani
(supra), upon which reliance has been
placed by the respondent no.1, the Supreme Court observed as under:
“21. As such, the pronouncement of this Court in SBI General Insurance
Co. Ltd. (Supra) lays down a clear and comprehensive explanation about
the scope of examination at the stage of Section 11 proceedings: it is
limited to finding a prima facie existence of arbitration agreement and
nothing beyond it. Questions of ‘accord and satisfaction’, limitation,
dishonesty and frivolity, arbitrability of the subject-matter are to be left
to the adjudication by the arbitral tribunal under Section 16 of the 1996
Act which is a reflection of the doctrine of ‘KompetenzKompetenz’ or
‘compétence de la compétence’. It is therefore incumbent upon us to only
examine the prima facie existence of an arbitration agreement.
XXX XXX XXX
41. Similar is the case of the judgement in UNISSI (India) (P) Ltd.
(Supra) relied upon by the Appellant where the tender documents
contained an arbitration clause and the tender offer of the Appellant
therein was accepted and the Appellant therein acted upon the said
acceptance and made supply of oxymeters required under the tender even
though no formal contract was signed between the parties. In such
context, the Court held that the arbitration agreement contained in the
tender was applicable and dispute between the parties ought to be
referred to an arbitrator. In the facts of the present case, the terms of the
tender itself have never been worked upon by the Respondent. The Work
Order was never issued by the Appellant and the sites were never handed
over by the Appellant. The Respondent has submitted bank guarantees
pursuant to the LOI, which at best is a preliminary requirement as a
precursor to the Work Order being issued. As discussed above, the LOI
in the instant case was indicative of a preliminary document in course of
the contract and was not intended to be an end-all-be-all contract
between the parties, it did not create contractual obligations or legal
relationship between them.”
Whether an arbitration agreement exists notwithstanding the non-
execution of the formal contract:
29. Section 7 of the A&C Act reads as under:
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“Arbitration Agreement -
1) In this Part, “arbitration agreement” means
an agreement by the parties to submit to arbitration all or certain
disputes which have arisen or which may arise between them in respect
of a defined legal relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration clause
in a contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in—
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of
telecommunication [including communication through electronic means]
which provide a record of the agreement; or
(c) an exchange of statements of claim and defence in which the existence
of the agreement is alleged by one party and not denied by the other.
(5) The reference in a contract to a document containing an arbitration
clause constitutes an arbitration agreement if the contract is in writing
and the reference is such as to make that arbitration clause part of the
contract
.”
30. In the present case, it is important to note that Clause 5.3(b) of the
“Pre-Qualification and Instructions to the Bidders” expressly provides that
the notification of award shall constitute formation of a contract, subject
only to the furnishing of performance security. The language of the
provision is unambiguous. Thus, in terms of said Clause 5.3(b), the
notification of award, viz.
, the letter of acceptance, constitutes a contract
upon fulfilment of the ‘sole stipulated condition’, namely, furnishing of the
performance security.
31. The formal agreement contemplated under Clause 5.3(c) of the “Pre-
Qualification and Instructions to the Bidders” was to be executed thereafter,
consequent upon a contract having already been formed. In the present case,
the Performance Guarantee of Rs.1,84,12,354/- was admittedly furnished on
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27.06.2024 and was retained by respondent no.1. In fact, respondent no.1
proceeded to encash the said Performance Guarantee after issuance of the
termination letter dated 20.06.2025. Thus, on the express terms of the tender
documents, the sole condition stipulated for the constitution of the contract
stood duly satisfied.
32. Clause 85.0(i) of the GCC reinforces the aforesaid conclusion. It
expressly stipulates that “unless and until a formal contract is prepared and
executed, the Letter of Intent read in conjunction with the Bidding
Documents will constitute a binding contract” . The provision is, in
substance, a deeming provision, whereby the parties have expressly agreed,
in writing, as to what would constitute a binding contract in the absence of a
formally executed agreement.
33. Reference to the LOI is also instructive. Clause 8 thereof specifically
provides that “all other terms and conditions as specified in the tender
” . Significantly, the LOI
documents shall form part of the Letter of Intent
expressly refers to Clause 85 of the GCC, which contains the aforesaid
deeming provision. Equally significant is the fact that the LOI contains no
independent dispute resolution clause of its own, much less any provision
that is inconsistent or in conflict with Clause 76 of the GCC.
34. The aforesaid circumstances unmistakably demonstrate that,
prima
, a contract exists between the parties. Further, in terms of Clause
facie
85.0(i), pending execution of the formal contract, the Letter of Intent, in
conjunction with the bidding documents, constitutes the binding contract.
35. The dispute resolution clause, i.e. Clause 76, admittedly forms part of
the bidding documents. It is also significant that the conduct of the parties
has been consistent with the aforesaid position. It is a matter of record that
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the petitioner furnished the Performance Guarantee, mobilised its resources
at the site, and proceeded to partly execute the works.
36. The Joint Minutes of Meeting dated 12.12.2024 also record that
certain works had been executed by the petitioner. Further, the termination
of the contract itself was premised upon Clauses 72.2, 72.4, 84.0 and 85.0 of
the GCC, thereby demonstrating that the parties acted on the basis of the
terms and conditions contained in the GCC.
37. A party which terminates a contract by invoking its contractual
provisions, appropriates the Performance Guarantee, and reserves its right to
recover amounts towards risk and costs under the contract, cannot
simultaneously be heard to contend, for the purpose of resisting reference to
arbitration, that no contract ever came into existence.
38. The position that emerges is squarely covered by the judgment of the
Supreme Court in UNISSI (India)
(supra). In that case, the tender, which
contained an arbitration clause, was accepted, and supplies were thereafter
made and received, although the formal agreement was never executed. The
Supreme Court, in the said judgment, observed as under:
“16. It is an admitted position that the appellant had sent the agreement
containing the arbitration clause, as per the format provided by PGI, after duly
signing the same on requisite value of stamp paper for signing of the same by
PGI. PGI though admittedly received the same, did not send back the
agreement to the appellant after signing it as per the agreement between the
parties. PGI admittedly had used the machines for about an year and
thereafter returned the same to the appellant. Subsequently, the bank
guarantee furnished by the appellant for Rs 2,13,160 and the earnest money
deposit of Rs 45,000 was encashed and forfeited by PGI.
17. In view of the aforesaid facts and the correspondences between the parties,
particularly the tender offer made by the appellant dated 15-1-2001 and supply
order of PGI dated 29-9-2002, and, in our view, to constitute an arbitration
agreement between the parties and the action taken on behalf of the appellant
and in view of Section 7 of the Act and considering the principles laid down by
the aforesaid two decisions of this Court, as noted herein earlier, we are of the
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view that the arbitration agreement did exist and therefore the matter should
be referred to an arbitrator for decision
. That apart, as we have already noted
hereinearlier that in this case, the documents on record, in our view,
apparently show supply of materials by the appellant and acceptance thereof
by PGI in pursuance of the tender enquiry by PGI, wherein tender of the
appellant containing an arbitration clause was admittedly accepted by the
respondent. In that view of the matter, it cannot be said that PGI should now
be allowed to wriggle out from the arbitration agreement between them.
18.
We may reiterate that in this case admittedly the documents which are on
record apparently show supply of the material by the appellant to PGI and
acceptance thereof by PGI in pursuance of the tender enquiry by them wherein
tender of the appellant containing the arbitration clause was admittedly
accepted by PGI. Accordingly, we hold that arbitration agreement did exist
and, therefore, dispute between the parties would be referred to an arbitrator
for decision
19. Therefore, considering the above aspects of the matter in this case, we must
come to this conclusion that
.
although no formal agreement was executed, the
tender documents indicating certain conditions of contract contained an
arbitration clause.
It is also an admitted position that the appellant gave his
tender offer which was accepted and the appellant acted upon it. Accordingly,
we are of the view that the learned Additional District Judge, Chandigarh
erred in holding that there did not exist any arbitration agreement between the
parties and, therefore, the order passed by him is liable to be set aside.”
39. The present case stands on an even stronger footing than UNISSI
(India) (supra), inasmuch as, in the present case, the tender documents
, Clauses 5.3(b) and 85.0(i),
themselves contain an express stipulation, viz.
which specifically determine the point at which the contract comes into
existence.
Decision in the case of NBCC (India) Ltd. v. Zillion Infraprojects (P) Ltd. ,
(2024) 7 SCC 174 and Maharashtra State Electricity Distribution
Company Limited (MSEDCL) & Ors vs R Z Malpani , 2026 SCC OnLine
SC 553.
40. Reliance on the part of the respondent no.1 on the aforesaid decisions
is misconceived. Both the aforesaid decisions apply the settled principles of
Section 7(5) of the A&C Act enunciated by the Supreme Court in M.R.
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Engineers & Contractors (P) Ltd. v. Som Datt Builders Ltd. , (2009) 7 SCC
696. The said judgment, inter alia , holds as under:
“16. There is a difference between reference to another document in a
contract and incorporation of another document in a contract, by
reference. In the first case, the parties intend to adopt only specific
portions or part of the referred document for the purposes of the
contract. In the second case, the parties intend to incorporate the
referred document in entirety, into the contract. Therefore when there
is a reference to a document in a contract, the court has to consider
whether the reference to the document is with the intention of
incorporating the contents of that document in entirety into the
contract, or with the intention of adopting or borrowing specific
portions of the said document for application to the contract.
17. We will give a few instances of incorporation and mere reference
to explain the position (illustrative and not exhaustive). If a contract
refers to a document and provides that the said document shall form
part and parcel of the contract, or that all terms and conditions of the
said document shall be read or treated as a part of the contract, or
that the contract will be governed by the provisions of the said
document, or that the terms and conditions of the said document shall
be incorporated into the contract, the terms and conditions of the
document in entirety will get bodily lifted and incorporated into the
contract. When there is such incorporation of the terms and
conditions of a document, every term of such document (except to the
extent it is inconsistent with any specific provision in the contract) will
apply to the contract.
If the document so incorporated contains a
provision for settlement of disputes by arbitration, the said arbitration
clause also will apply to the contract.
*
24. The scope and intent of Section 7(5) of the Act may therefore be
summarised thus:
(i) An arbitration clause in another document, would get incorporated
into a contract by reference, if the following conditions are fulfilled:
(1) the contract should contain a clear reference to the
documents containing arbitration clause,
(2) the reference to the other document should clearly
indicate an intention to incorporate the arbitration clause
into the contract,
(3) the arbitration clause should be appropriate, that is
capable of application in respect of disputes under the
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contract and should not be repugnant to any term of the
contract.
(ii) When the parties enter into a contract, making a general reference
to another contract, such general reference would not have the effect
of incorporating the arbitration clause from the referred document
into the contract between the parties. The arbitration clause from
another contract can be incorporated into the contract (where such
reference is made), only by a specific reference to arbitration clause.
(iii) Where a contract between the parties provides that the execution
or performance of that contract shall be in terms of another contract
(which contains the terms and conditions relating to performance and
a provision for settlement of disputes by arbitration), then, the terms
of the referred contract in regard to execution/performance alone will
apply, and not the arbitration agreement in the referred contract,
unless there is special reference to the arbitration clause also.
(iv) Where the contract provides that the standard form of terms and
conditions of an independent trade or professional institution (as for
example the standard terms and conditions of a trade association or
architects association) will bind them or apply to the contract, such
standard form of terms and conditions including any provision for
arbitration in such standard terms and conditions, shall be deemed to
be incorporated by reference. Sometimes the contract may also say
that the parties are familiar with those terms and conditions or that
the parties have read and understood the said terms and conditions.
(v) Where the contract between the parties stipulates that the
conditions of contract of one of the parties to the contract shall form a
part of their contract (as for example the general conditions of
contract of the Government where the Government is a party), the
arbitration clause forming part of such general conditions of contract
will apply to the contract between the parties
.”
41. In
Zillion Infraprojects (supra), the arbitration clause was contained
not in the tender issued by NBCC to the respondent/contractor, but in a
separate, anterior tender issued by a third party, namely, Damodar Valley
Corporation, to NBCC. The case was, therefore, clearly one involving two
distinct contracts, unlike the present case. Moreover, in the said case ,
the
LOI itself contained a dispute resolution clause which was at variance with
the terms and conditions of the tender.
42. In the present case, the dispute resolution clause,
viz. , Clause 76 of the
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GCC, forms part of the very same tender issued by respondent no.1 to the
petitioner. The contractual arrangement is, throughout, between the same
parties and constitutes a single contractual framework. It is also noticed that
the LOI contains no independent dispute resolution clause. Rather, Clause 8
thereof expressly provides that “ all other terms and conditions as specified
in the tender document shall be part of the Letter of Intent ”. As such, the
present case falls within the ambit of the scenario envisaged in paragraphs
16 and 17 of M.R. Engineers (supra).
43. Even assuming that the terms and conditions referred to in the NIT
(including the dispute resolution clause) are in the nature of standard terms
and conditions, distinct from the LOI, even then the dicta laid down in
paragraph 24(v) of M.R. Engineers (supra) would be attracted inasmuch as
Clause 8 of the LOI stipulates that respondent no.1’s own conditions of part
of the LOI; Clause 85.0(i) then independently records the parties’ agreement
that the LOI read with the Bidding Documents constitute the binding
contract.
44. The judgment in Malpani
(supra) is also clearly distinguishable in the
facts and circumstances of the present case. In that case, MSEDCL issued an
LOI to the successful bidder and the requisite bank guarantees were also
furnished. However, no work order was ever issued, the sites were never
handed over, no work was ever commenced or performed, and the formal
agreement was never executed. The contractor thereafter terminated the
contract and invoked the arbitration clause contained in the tender
documents.
Malpani (supra) held
45. It was in that context, that the Supreme Court in
that no arbitration agreement existed on two principal grounds. First, the
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LOI was held to be “ a promise to make a promise and not a promise itself
and that no agreement had concluded between the parties ”, as its issuance
was contingent upon the subsequent issuance of a work order. Since no work
order was ever issued, the LOI did not create a binding contractual
relationship between the parties. This aspect has been discussed in
Paragraphs 33 to 36 of Malpani (supra).
46. Further, the language of the LOI in the said case, was also peculiar
and provided that terms and conditions of the contract as per the reference
documents shall be interpreted by reading together with them the terms of
the LOI itself and in case of conflict, the terms of the LOI shall prevail. The
same has been taken note in Paragraph 25 of the said judgment. In this
backdrop, it was concluded that the absence of any arbitration/dispute
resolution clause in LOI, had a bearing on the issue as to whether there
existed an arbitration agreement. The said judgment, inter alia , reads as
under:
“ 39. Although this Court in NBCC (India) Ltd. (Supra) was dealing with a
factual situation which was quite similar to the instant case, the reasons
why the Court interfered with the appointment of an arbitrator in the said
case were twofold. Apart from the fact that a general reference in the letter
of intent to an arbitration clause contained in the tender documents was
found to not be sufficient for its incorporation, the second reason was that
the letter of intent in that case had a separate dispute resolution clause
which limited redressal of disputes to civil courts having jurisdiction of
Delhi alone. Even then, the law laid down in respect of incorporation of
arbitration clauses contained in tender documents by means of reference
in the letter of intent is squarely applicable to the facts of the instant case.
The LOI in the instant case makes a reference to the Tender documents
contained in the following terms:
“Notwithstanding that reference are given above, the terms
and conditions and specifications of contract shall be
interpreted by reading together the terms and conditions,
specifications and contents of this Letter of intent as below.
In case of any deviations with the contents of this Letter of
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intent from corresponding conditions in the above said
tender specifications or contents of the letter under
reference as read and interpreted up to date, the contents of
this Letter of intent shall prevail.”
In our view, this is a case of ‘reference’ and not ‘incorporation’. There is
no mention of any arbitration or dispute resolution clause in the LOI itself,
neither does it purport specific incorporation thereof from the tender
documents. As such, the arbitration clause contained in the Tender
documents could not be said to have been incorporated in the LOI to
evince the existence of an arbitration agreement between the parties on its
conjoint reading with the Tender documents
.”
47. As noticed, in the present case, the position is materially different.
The petitioner not only furnished the Performance Guarantee, but also
mobilised its resources at the site and partly executed the works. The Joint
Minutes of Meeting dated 12.12.2024 record that certain works had in fact
been executed by the petitioner. Further, Clause 5.3(b) of the tender
documents expressly provides that the Notification of Award constitutes
formation of the contract, subject only to furnishing of the Performance
Guarantee, which condition stood duly satisfied. Clause 85.0 (i) of the GCC
further expressly stipulates that, pending execution of the formal agreement,
the LOI read in conjunction with the Bidding Documents constitutes a
binding contract.
48. Thus, unlike in Malpani (supra), the present case involves not merely
an LOI and furnishing of bank guarantees, but a contract which, on the
express terms of the tender documents, had already come into existence and
was thereafter acted upon by the parties. In the present case, the LOI was not
merely a preliminary or intermediate step preceding the issuance of a work
order. On the contrary, the LOI itself stipulated the date of commencement
of the work, viz. , ten days from the date of its issuance, and specified the
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period for completion. Significantly, the work was in fact commenced and
partly executed by the petitioner, unlike in Malpani
(supra), where no work
was ever commenced or performed.
49. Most significantly, the tender framework in
Malpani (supra)
contained no provision comparable to Clauses 5.3(b) or 85.0(i) of the GCC,
as in the present case. On the contrary, in Malpani
(supra), the definition of
contract was expressly anchored to the execution of the formal contract
agreement. The present case stands on a fundamentally different footing.
Clauses 5.3(b) and 85.0(i) operate as deeming provisions, expressly
stipulating that the contract comes into existence upon issuance of the
Notification of Award, subject only to furnishing of the Performance
Security. Further, Clause 85.0(i) expressly provides that, pending execution
of the formal agreement, the LOI read in conjunction with the Bidding
Documents shall constitute a binding contract.
50. Importantly, also in the present case, the very termination of the LOI
is by taking recourse to the provisions of the GCC, which pre-supposes that
there existed a contractual relationship between the parties.
51. In the circumstances, Malpani (supra), which itself reiterates that a
Court ought to decline reference to arbitration only in the rarest of rare
cases, is of no assistance to the respondents herein. It is also significant to
note that, in paragraph 40 of Malpani (supra), the Supreme Court itself
referred to its judgment in Glencore International AG v. Shree Ganesh
Metals , 2025 SCC OnLine SC 1815, wherein the non-execution of a
contract containing an arbitration clause was held not to invalidate the
arbitration agreement where the contract had been acted upon by the parties
ad idem , as evidenced by their communications and conduct. The Court in
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Glencore (supra) went on to hold that non-signing of the contract containing
the arbitration agreement cannot invalidate the arbitration agreement which
is in writing and the parties were ad idem in respect of the agreement.
52. It is also of no avail to the respondents to rely upon the reference in
”. A
Clause 1 of the LOI that “ the same has been accepted conditionally
plain reading of the said clause makes it clear that the only condition
contemplated therein was the “verification of documents”. It was not
contended that any discrepancy was found in the documents on verification,
and the termination of the contract was itself premised on an entirely
different ground.
53. As regards the peculiar facts and circumstances which prevented the
execution of the formal agreement, it is neither necessary nor permissible for
this Court, at the stage of a petition under Section 11, to adjudicate upon or
resolve that controversy. Suffice it to state that, having regard to the express
, that a
language of Clauses 5.3(b) and 85.0(i), it is evident,
prima facie
binding contract existed between the parties, of which Clause 76(i),
containing the dispute resolution mechanism, formed an integral part.
54. As regards the objection raised by respondent no.2, Clause 76 (v) of
the GCC expressly acknowledges that NPCC acts as an intermediary
between the contractor/sub-contractor and the Principal Employer/Client. It
further provides that, in the event any dispute arising under the agreement is
referred to arbitration, the Principal Employer/Client shall also be made a
party to the arbitral proceedings, subject to the corresponding provision in
the contract between the Principal Employer/Client and NPCC.
55. As such, prima facie , the present case is not a case where the
respondent no.2 is rank stranger to the arbitration agreement and/or the
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underlying transaction.
56. Be that as it may, objections raised by the respondent no.2 as to
whether it is liable to be impleaded in the arbitral proceedings or not, is an
aspect that can be agitated before the arbitral tribunal in terms of the dicta
laid down by the Supreme Court in Cox and Kings (supra). The relevant
observations are as under:
“163. Section 16 of the Arbitration Act enshrines the principle of
competence-competence in Indian arbitration law. The provision empowers
the Arbitral Tribunal to rule on its own jurisdiction, including any ruling on
any objections with respect to the existence or validity of arbitration
agreement. Section 16 is an inclusive provision which comprehends all
preliminary issues touching upon the jurisdiction of the Arbitral Tribunal.
[Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd.,
(2020) 2 SCC 455 : (2020) 1 SCC (Civ) 570] The doctrine of competence-
competence is intended to minimise judicial intervention at the threshold
stage. The issue of determining parties to an arbitration agreement goes to
the very root of the jurisdictional competence of the Arbitral Tribunal.
*
165. In Pravin Electricals (P) Ltd. v. Galaxy Infra & Engg. (P) Ltd. [Pravin
Electricals (P) Ltd. v. Galaxy Infra & Engg. (P) Ltd., (2021) 5 SCC 671 :
(2021) 3 SCC (Civ) 307] , a Bench of three Judges of this Court was called
upon to decide an appeal arising out of a petition filed under Section 11(6) of
the Arbitration Act for appointment of sole arbitrator. The issue before the
Court was the determination of existence of an arbitration agreement on the
basis of the documentary evidence produced by the parties. This Court prima
facie opined that there was no conclusive evidence to infer the existence of a
valid arbitration agreement between the parties. Therefore, the issue of
existence of a valid arbitration agreement was referred to be decided by the
Arbitral Tribunal after conducting a detailed examination of documentary
evidence and cross-examination of witnesses.
166. The above position of law leads us to the inevitable conclusion that at
the referral stage, the Court only has to determine the prima facie existence
of an arbitration agreement. If the referral court cannot decide the issue, it
should leave it to be decided by the Arbitral Tribunal. The referral court
should not unnecessarily interfere with arbitration proceedings, and rather
allow the Arbitral Tribunal to exercise its primary jurisdiction. In Shin-Etsu
Chemical Co. Ltd. v. Aksh Optifibre Ltd. [Shin-Etsu Chemical Co. Ltd. v.
Aksh Optifibre Ltd., (2005) 7 SCC 234] , this Court observed that there are
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distinct advantages to leaving the final determination on matters pertaining
to the validity of an arbitration agreement to the Tribunal : (Shin-Etsu
Chemical Co. case [Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd.,
(2005) 7 SCC 234] , SCC p. 267, para 74)
“74. … Even if the Court takes the view that the arbitral agreement
is not vitiated or that it is not valid, inoperative or unenforceable,
based upon purely a prima facie view, nothing prevents the
arbitrator from trying the issue fully and rendering a final decision
thereupon. If the arbitrator finds the agreement valid, there is no
problem as the arbitration will proceed and the award will be made.
However, if the arbitrator finds the agreement invalid, inoperative
or void, this means that the party who wanted to proceed for
arbitration was given an opportunity of proceeding to arbitration,
and the arbitrator after fully trying the issue has found that there is
no scope for arbitration.”
*
169. In case of joinder of non-signatory parties to an arbitration agreement,
the following two scenarios will prominently emerge : first, where a signatory
party to an arbitration agreement seeks joinder of a non-signatory party to
the arbitration agreement; and second, where a non-signatory party itself
seeks invocation of an arbitration agreement. In both the scenarios, the
referral court will be required to prima facie rule on the existence of the
arbitration agreement and whether the non-signatory is a veritable party to
the arbitration agreement. In view of the complexity of such a determination,
the referral court should leave it for the Arbitral Tribunal to decide whether
the non-signatory party is indeed a party to the arbitration agreement on the
basis of the factual evidence and application of legal doctrine. The Tribunal
can delve into the factual, circumstantial, and legal aspects of the matter to
decide whether its jurisdiction extends to the non-signatory party. In the
process, the Tribunal should comply with the requirements of principles of
natural justice such as giving opportunity to the non-signatory to raise
objections with regard to the jurisdiction of the Arbitral Tribunal. This
interpretation also gives true effect to the doctrine of competence-competence
by leaving the issue of determination of true parties to an arbitration
agreement to be decided by the Arbitral Tribunal under Section 16.
*
170. In view of the discussion above, we arrive at the following
conclusions:
*
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170.12. At the referral stage, the referral court should leave it for the Arbitral
Tribunal to decide whether the non-signatory is bound by the arbitration
agreement; and”
IT IS INCUMBENT ON THIS COURT TO APPOINT AN
INDEPENDENT ARBITRATOR
57. Clause 76(iii) of the GCC contemplates that the appointing authority
for the sole arbitrator would be the CMD of NPCC Limited/ respondent no.1
herein. The law on such unilateral appointment stipulations has been
recently restated in view of Section 12(5) read with the Seventh Schedule to
the A&C Act in
Bhadra International (India) Pvt. Ltd. & Ors. v. Airports
, 2026 SCC OnLine SC 7, wherein, after considering the
Authority of India
earlier decisions of the Supreme Court on the issue, the Court, inter alia,
observed as under:
“52. In TRF (supra), the arbitration agreement stated that any dispute or
difference between the parties in connection with the agreement shall be
referred to the sole arbitration of the Managing Director or his nominee.
The issue before this Court was whether the Managing Director, after
becoming ineligible by operation of law, is still eligible to nominate an
arbitrator.
In this context, a three Judge Bench of this Court categorically held that if
any person falls under any of the categories mentioned in the Seventh
Schedule, he would be ineligible to be appointed as an arbitrator. In the
facts of the case, it was held that the Managing Director, by virtue of sub-
section (5) of Section 12, acquired the disqualification under the Seventh
Schedule. Thus, as he became ineligible by operation of law to act as an
arbitrator, he could not have nominated another person as an arbitrator
.
The relevant observations read thus:—
“54.
In such a context, the fulcrum of the controversy would be, can an
ineligible arbitrator, like the Managing Director, nominate an arbitrator,
who may be otherwise eligible and a respectable person. As stated earlier,
we are neither concerned with the objectivity nor the individual
respectability. We are only concerned with the authority or the power of the
Managing Director. By our analysis, we are obligated to arrive at the
conclusion that once the arbitrator has become ineligible by operation of
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law, he cannot nominate another as an arbitrator. The arbitrator becomes
ineligible as per prescription contained in Section 12(5) of the Act. It is
inconceivable in law that person who is statutorily ineligible can nominate a
person. Needless to say, once the infrastructure collapses, the
superstructure is bound to collapse. One cannot have a building without the
plinth. Or to put it differently, once the identity of the Managing Director as
the sole arbitrator is lost, the power to nominate someone else as an
arbitrator is obliterated. Therefore, the view expressed by the High Court is
not sustainable and we say so.
”
(Emphasis supplied)
53. In a similar fact situation wherein the arbitration agreement empowered
the Chairman and Managing Director of the respondent to appoint a sole
arbitrator, the issue before this Court in Bharat Broadband (supra) was
whether the CMD, after becoming ineligible by operation of law, is still
eligible to appoint an arbitrator
.
The Court held that where a person falls within any of the categories set out
in the Seventh Schedule, which could be by virtue of a relationship with the
parties, or their counsel, or the subject-matter of the dispute, such a person
becomes ineligible to be appointed as an arbitrator. The ineligibility could
be removed after dispute has arisen, and only if the parties waive the
applicability of the provision by an “express agreement in writing”. The
arbitrator becomes de jure unable to perform his function as he falls within
the categories mentioned in the Seventh Schedule. The relevant observations
read thus:—
“15. Section 12(5), on the other hand, is a new provision which relates to
the de jure inability of an arbitrator to act as such. Under this provision,
any prior agreement to the contrary is wiped out by the non obstante clause
in Section 12(5) the moment any person whose relationship with the parties
or the counsel or the subject-matter of the dispute falls under the Seventh
Schedule. The sub-section then declares that such person shall be
“ineligible” to be appointed as arbitrator. The only way in which this
ineligibility can be removed is by the proviso, which again is a special
provision which states that parties may, subsequent to disputes having
arisen between them, waive the applicability of Section 12(5) by an express
agreement in writing. What is clear, therefore, is that where, under any
agreement between the parties, a person falls within any of the categories
set out in the Seventh Schedule, he is, as a matter of law, ineligible to be
appointed as an arbitrator. The only way in which this ineligibility can be
removed, again, in law, is that parties may after disputes have arisen
between them, waive the applicability of this sub-section by an “express
agreement in writing”. Obviously, the “express agreement in writing” has
reference to a person who is interdicted by the Seventh Schedule, but who is
stated by parties (after the disputes have arisen between them) to be a
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person in whom they have faith notwithstanding the fact that such person is
interdicted by the Seventh Schedule.”
(Emphasis supplied)
54. We may also look into the decision of this Court in Perkins
Eastman (supra), where the arbitration clause empowered the Chairman
and Managing Director of the respondent to appoint a sole arbitrator.
Following TRF (supra), this Court held that the Managing Director was
incompetent to appoint the sole arbitrator because he would be deemed to
have an interest in the outcome of the dispute.
Since, the ineligibility stems
from the operation of law, not only is a person having an interest in the
dispute or its outcome ineligible to act as an arbitrator, but appointment by
such a person would be ex facie invalid. The relevant observations read
thus:—
“20.
We thus have two categories of cases. The first, similar to the one dealt
with in TRF Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC
377 : (2017) 4 SCC (Civ) 72] where the Managing Director himself is
named as an arbitrator with an additional power to appoint any other
person as an arbitrator. In the second category, the Managing Director is
not to act as an arbitrator himself but is empowered or authorised to
appoint any other person of his choice or discretion as an arbitrator. If, in
the first category of cases, the Managing Director was found incompetent, it
was because of the interest that he would be said to be having in the
outcome or result of the dispute. The element of invalidity would thus be
directly relatable to and arise from the interest that he would be having in
such outcome or decision. If that be the test, similar invalidity would always
arise and spring even in the second category of cases. If the interest that he
has in the outcome of the dispute, is taken to be the basis for the possibility
of bias, it will always be present irrespective of whether the matter stands
under the first or second category of cases.
We are conscious that if such
deduction is drawn from the decision of this Court in TRF Ltd. [TRF
Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377 : (2017) 4 SCC (Civ)
72], all cases having clauses similar to that with which we are presently
concerned, a party to the agreement would be disentitled to make any
appointment of an arbitrator on its own and it would always be available to
argue that a party or an official or an authority having interest in the
dispute would be disentitled to make appointment of an arbitrator.
21.
But, in our view that has to be the logical deduction from TRF Ltd. [TRF
Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377 : (2017) 4 SCC (Civ)
72] Para 50 of the decision shows that this Court was concerned with the
issue, “whether the Managing Director, after becoming ineligible by
operation of law, is he still eligible to nominate an arbitrator” The
ineligibility referred to therein, was as a result of operation of law, in that a
person having an interest in the dispute or in the outcome or decision
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thereof, must not only be ineligible to act as an arbitrator but must also not
be eligible to appoint anyone else as an arbitrator and that such person
cannot and should not have any role in charting out any course to the
dispute resolution by having the power to appoint an arbitrator. The next
sentences in the paragraph, further show that cases where both the parties
could nominate respective arbitrators of their choice were found to be
completely a different situation. The reason is clear that whatever
advantage a party may derive by nominating an arbitrator of its choice
would get counter-balanced by equal power with the other party. But, in a
case where only one party has a right to appoint a sole arbitrator, its choice
will always have an element of exclusivity in determining or charting the
course for dispute resolution. Naturally, the person who has an interest in
the outcome or decision of the dispute must not have the power to appoint a
sole arbitrator. That has to be taken as the essence of the amendments
brought in by the Arbitration and Conciliation (Amendment) Act, 2015 (3 of
2016) and recognised by the decision of this Court in
TRF Ltd. [TRF
Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377 : (2017) 4 SCC (Civ)
72].
*
123. A conspectus of the aforesaid detailed discussion on the position of law
as regards Section 12 of the Act, 1996, is as follows:-
….ii. Sub-section (5) of Section 12 provides that any person whose
relationship with the parties or counsel, or the dispute, whether direct or
indirect, falls within any of the categories specified in the Seventh Schedule
would be ineligible to be appointed as an arbitrator. Since, the ineligibility
stems from the operation of law, not only is a person having an interest in
the dispute or its outcome ineligible to act as an arbitrator, but appointment
by such a person would be ex facie invalid.”
58. The dispute resolution clause (i.e. Clause 76 of the GCC) in the
present case, is in the nature of a unilateral appointment stipulation, whereby
the power to appoint the arbitrator has been vested with the CMD of the
respondent no.1. In view of Bhadra International (supra), the said
appointment procedure cannot be given effect and it is incumbent on this
Court to appoint an independent sole arbitrator.
CONCLUSION
59. For the aforesaid reasons, this Court is inclined to appoint an
independent Sole Arbitrator to adjudicate the disputes between the parties.
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60. Accordingly, Ms. Justice (Retd.) Rekha Palli, former Judge, Delhi
High Court (Mob:+ 91 9810012120) is appointed as the Sole Arbitrator to
adjudicate the disputes between the parties.
61. It is made clear that the aforesaid observations have been made only
for the purpose of ascertaining, prima facie , whether there exists an
arbitration agreement, and will not be construed as foreclosing any
objection/s relating to jurisdiction/arbitrability. The same are kept open; and
shall necessarily be considered by the learned Sole Arbitrator on their own
merits.
62. The learned Sole Arbitrator may proceed with the arbitral proceedings
subject to furnishing to the parties requisite disclosures as required under
section 12 of the A&C Act; and in the event there is any impediment to the
appointment on that count, the parties are given liberty to file an appropriate
application in this court.
63. The learned Sole Arbitrator shall be entitled to fee in accordance with
IVth Schedule to the A&C Act; or as may otherwise be agreed to between
the parties and the learned Sole Arbitrator.
64. Parties shall share the arbitrator’s fee and arbitral costs, equally.
65. All rights and contentions of the parties in relation to the
claims/counter-claims are kept open, to be decided by the learned Sole
Arbitrator on their merits, in accordance with law.
66. The petition stands disposed of in the above terms.
SACHIN DATTA, J
at/ka
AUGUST 31, 2026/
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