2010 (1) TMI 1241 - SC - Indian Laws

No arbitration agreement found in cable supply tender dispute; arbitration application deemed not maintainable. Importance of valid agreement stressed.

The court found that there was no arbitration agreement in place for disputes arising from the tender process regarding the supply of cables. As a result, ... Arbitration Proceedings - application u/s 11 - Whether there exists an arbitration agreement between the parties? - whether the BSNL while evaluating the bidders had committed an error in adjudging NICCO as V-1 (vendor with the highest rating) ? - HELD THAT:- Considering the matter on record, we are of opinion that only when a purchase order was placed, a ‘contract’ would be entered; and only when a contract was entered, the General Conditions of Contract including the arbitration clause would become a part of the contract. If a purchase order was not placed, and consequently the general conditions of contract (Section III) did not become a part of the contract, the conditions in Section III which included the arbitration agreement, would not at all come into existence or operation. In other words, the arbitration clause in Section III was not an arbitration agreement in praesenti, during the bidding process, but a provision that was to come into existence in future, if a purchase order was placed. In this case, the dispute raised is in regard to a claim for ₹ 10,61,28,000/- as damages on account of BSNL not placing a purchase order, that is loss of profit @ ₹ 200/- per CKM for a quantity of 5.306 LCKM. Obviously the respondent cannot invoke the arbitration clause in regard to that dispute as the arbitration agreement was non-existent in the absence of a purchase order. Thus in the absence of any purchase order in respect of 5.306 LCKM by BSNL on the respondent, respondent cannot seek recourse to the arbitration agreement contained in clause 20 of Section III of the bid document, in regard to a dispute relating to that quantity for which order was not placed. It is not sufficient to show that there was an arbitration agreement in regard to some contract between the parties.For the foregoing reasons, we hold that in the absence of an arbitration agreement, the application under section 11 of the Act was not maintainable. High Court chose to issue a direction for re-assessment of the vendor rating and if respondent was found to have V-1 rating, then place a purchase order for the quantity that remained over after all the purchase orders. This was unobjectionable as a public law remedy - As there was no justification for the High Court to make any observation regarding compensation, as that was impermissible on the facts and circumstances, either in public law or private law. In fact, it was not based on any prayer. That unwarranted observation while disposing of the first writ petition, though it did not cast any liability on BSNL, was sufficient to persuade the designate of the Chief Justice while exercising jurisdiction under section 11 of the Act to assume that the High Court in the order dated 29.4.2004 had ordered the respondent to pursue the remedy against the appellant for compensation/damages and therefore, an arbitrator should be appointed to decide the claim. Instances abound where observations of the court reserving liberty to a litigant to further litigate have been misused by litigants to pursue remedies which were wholly barred by time or to revive stale claims or create rights or remedies where there were none. It is needless to say that courts should take care to ensure that reservation of liberty is made only where it is necessary, such reservation should always be subject to a remedy being available in law, and subject to remedy being sought in accordance with law. Vulnerable position of public undertakings - Public undertakings to avoid being accused of malafides, bias or arbitrariness spend most of their time and energy in covering their back rather than in achieving development and progress. When courts grant stay, the entire projects or business ventures stand still or get delayed. Even if ultimately the stay is vacated and the complaint is rejected as false, the damage is done as there is enormous loss to the public undertaking in terms of time and increase in costs. The private sector is not open to such scrutiny by courts. When the public sector is tied down by litigations and controls, the private sector quietly steals a march, many a time at the cost of the public sector. We are not advocating less of judicial review. We are only pointing out that if the public sector has to survive and thrive, they should be provided a level playing field. How and when and by whom is the question for which answers have to be found. Issues Involved:1. Existence of an arbitration agreement between the parties.2. Entitlement to seek remedy by way of arbitration after availing public law remedy.Detailed Analysis:Existence of an Arbitration Agreement:The appellant invited bids for the supply of Polythene Insulated Jelly Filled cables through a Notice Inviting Tenders. The tender procedure required an evaluation of bids based on 'Vendor Rating,' with the highest-rated bidder receiving a significant portion of the order. The respondent challenged the awarding of the highest Vendor Rating to NICCO, claiming it should have received the highest rating and a larger order. The Delhi High Court directed BSNL to redo the Vendor Rating, and if the respondent was rated as V-1, it was to benefit from any remaining supplies. The respondent later sought damages for the shortfall in orders due to the initial incorrect Vendor Rating.The bid documents consisted of various sections, including General Conditions of Contract (Section III) which contained an arbitration clause. However, the court clarified that the bid documents did not constitute a contract but were merely an invitation to make an offer. The arbitration clause in Section III applied only to contracts made by placing purchase orders and not to the bidding process or non-placing of purchase orders. Therefore, there was no arbitration agreement for disputes arising from the tender process, and the arbitration clause was not in force for the claim of damages due to non-placement of orders.Entitlement to Seek Remedy by Way of Arbitration:The respondent issued notices and filed a writ petition seeking compensation for the shortfall in orders. The High Court allowed the withdrawal of the writ petition with liberty to pursue civil remedies. The respondent then sought arbitration for the claim of damages, which was resisted by BSNL. The court held that since there was no arbitration agreement for the disputed quantity of 5.306 LCKM, the application for arbitration was not maintainable.Collateral Issues:The court addressed the misuse of routine observations made by courts reserving liberty to litigants to seek further remedies. It emphasized that such reservations should be made only when necessary and subject to the availability of remedies in law. The court also highlighted the challenges faced by public undertakings due to unnecessary litigation and the need for a level playing field to compete with the private sector.Conclusion:The appeal was allowed, the order appointing an arbitrator was set aside, and the application under Section 11 of the Arbitration and Conciliation Act was dismissed.