2011 (1) TMI 1527 - SC - Indian Laws

Court Allows Appeal, Orders Fresh Arbitration: Key Contract Dispute Decision

State of U.P. and Ors. Versus Combined Chemicals Company Private Limited

The appeal was partly allowed. The court concluded that a contract had come into existence between the parties based on the acceptance letter issued by ... - Issues Involved:1. Whether the letter dated 16.11.1985 could be treated as an agreement executed by the parties.2. Whether the respondent could invoke the arbitration clause contained in the tender document.3. Whether the Arbitrator acted in violation of the rules of natural justice by declining the appellants' prayer for adjournment.4. Whether the award passed by the Arbitrator is vitiated by patent error of law.Detailed Analysis:Issue 1: Agreement ExecutionThe primary issue was whether the letter dated 16.11.1985 issued by the Director of Industries, Uttar Pradesh, conveying acceptance of the bid for the supply of 200 metric tonnes of Zinc Sulphate, could be treated as an agreement executed by the parties. The acceptance letter was issued on behalf of the Governor of Uttar Pradesh, indicating that the bid given by the respondent was accepted. The letter and Schedule 'A' appended thereto mentioned that the contract was being made for and on behalf of the Governor of Uttar Pradesh. The respondent completed all formalities, including depositing the security money and dispatching a signed agreement. The Court concluded that a contract had come into existence between the parties, and the lack of a formal agreement signed by the Director of Agriculture did not negate this fact. This was consistent with Section 5 of the Sale of Goods Act, 1930, which states that a contract of sale is made by an offer to buy or sell goods for a price and the acceptance of such offer.Issue 2: Invocation of Arbitration ClauseThe next issue was whether the respondent could invoke the arbitration clause contained in the tender document. The tender of the respondent was accepted subject to the terms and conditions specified in the tender notice and the acceptance letter. Clause 16 of the tender form provided for arbitration in case of any dispute arising out of or concerning the agreement. The Court held that the terms and conditions mentioned in the tender form were part of the contract, and thus, the respondent was entitled to invoke the arbitration clause. The trial Court did not commit any jurisdictional error by entertaining the petition under Section 20 of the Arbitration Act, 1940.Issue 3: Violation of Natural JusticeThe appellants argued that the Arbitrator acted in violation of the rules of natural justice by refusing to adjourn the proceedings despite the appeal against the trial Court's order pending before the High Court. The Arbitrator initially adjourned the proceedings but proceeded when the appellants could not obtain a stay from the High Court. The Court found that the appellants had no legitimate cause to abstain from the arbitration proceedings and were to blame for the ex parte award. Thus, the appellants could not complain about being denied a reasonable opportunity of hearing.Issue 4: Patent Error of Law in the AwardThe final issue was whether the award passed by the Arbitrator was vitiated by a patent error of law. The Arbitrator's award lacked reasons and did not record a finding that the respondent had suffered loss or damages. The Court held that the Arbitrator was duty-bound to examine the tenability of the claim and assign reasons, however brief. The absence of reasons constituted a valid ground for setting aside the award. The trial Court and the High Court erred in making the award rule of the Court and approving the trial Court's judgment, respectively. The award was quashed, and the Arbitrator was directed to decide the dispute afresh, giving reasonable opportunity to both parties.Conclusion:The appeal was partly allowed. The impugned judgment and the trial Court's order were set aside, and the award of the Arbitrator was quashed. The Arbitrator was directed to decide the dispute afresh, providing reasonable opportunity to the parties to adduce evidence. If the original Arbitrator was unavailable, the trial Court was to appoint a new Arbitrator.