TaxTMI 
TaxTMI 
2006 (1) TMI 653
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....n the Delhi High Court, for a declaration that there exists no arbitration agreement between itself and DR and for a consequential injunction restraining DR from proceeding with the arbitration before the International Chamber of Commerce, Paris. KGK has also filed Suit No. 1380/1993 in the said court for similar relief. 4. BINDAL and KGK have filed IA Nos. 5795/93 and 5819/1993 respectively in their respective suits, under Order 39 Rules 1 and 2 CPC seeking a temporary injunction to restrain DR from proceeding with the arbitration. 5. DR has filed I.A. No. 9246/1993 in Suit No. 1363/1993 and I.A. No. 9355/1993 in Suit No. 1380/1993 under Section 3 of the Foreign Awards (Recognition and Enforcement) Act, 1961 [for short 'Foreign Awards Act'] for staying further proceeding in the said suits. DR contended that there was an arbitration agreement between itself and BINDAL and KGK and consequently, further proceedings in the suits filed by BINDAL and KGK should be stayed under Section 3 of the Foreign Awards Act. 6. A learned single Judge of the High Court heard the four applications in the two suits and passed a common order dated 14.2.2002. He held that the plaintiffs in th....
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....arantee by BINDAL and KGK. 8. Feeling aggrieved, DR has filed these civil appeals by special leave [CA No. 8357/2003 and CA No. 8358/2003] challenging the rejection of FAO (OS) No. 136/2002 and FAO (OS) No. 137/2002. On the contentions urged, the following questions arise for consideration in these appeals :- (i) Whether there is an arbitration agreement between DR and BINDAL; (ii) Whether there is an arbitration agreement between DR and KGK; (iii) Whether BINDAL and KGK are estopped from contending that there is no arbitration agreement, in view of their counsel having stated in his telex dated 11.4.1993, that his clients were in the process of jointly appointing an arbitrator. FACTUAL BACKGROUND : 9. BINDAL wanted to invite global tenders for supply of various equipments and materials for its Shahjahanpur Fertilizer Project. For that purpose, it prepared its standard 'Invitation to Bid' comprising "Conditions of Purchase for Supply of Equipment and Material under ICB Procedure - Shahjahanpur Fertilizer Project". The said Invitation to Bid consisted of the following Section s: (i) Attachment I - Instructions to bidders (Articles 1 to 34); (ii) Attachment II - ....
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....terms and conditions of BINDAL termed as "Revision 4 (Attachment IV)" dated 10.6.1991 wherein it set out the amendments/modifications it required to BINDAL's 'General Conditions of Purchase'. The said "Revision 4" was initialled by the representatives of DR and BINDAL, presumably in token of the changes agreed in the standard General Conditions of Purchase of BINDAL. 12. We extract below relevant portions of Clauses 1 and 27 in the BINDAL's 'General Conditions of Purchase' and the modifications thereto by DR (Note : We are not referring to other clauses of 'General Conditions of Purchase' or the modifications thereto by DR, as they are not relevant for our immediate purpose): 13. According to DR, after Revision No. 4 dated 10.6.1991 was initialled, negotiations and discussions continued, and they were concluded late in the evening of 12.6.1991. It is stated that at that stage, the representative of BINDAL delivered two letters described as "Letters of Intent" dated 12.6.1991 issued on the letterhead of K.G. Khosla Compressors Ltd. (KGK) stating the intention to place an order for the following: (a) One Dresser Rand Model 463 B.5/5 and one Model 3....
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.... Letter of Credit." x x x D. DELIVERY DATE The delivery date (last shipment) shall be 15-1/2 (Fifteen & One Half Months) after DR's receipt of this Letter of Intent. For the purpose of assessing liquidated damages for delivery, delivery time shall be calculated on the basis of issuance of DR's Certificate of readiness to ship, after inspection by KGK or its authorized agents and in the event of their failure to do so, a declaration by DR that one month's notification of readiness to ship and invitation to inspect was given. The time lag between the first and the last shipment will not exceed 12 weeks. G. OPTIONAL PERFORMANCE TEST KGK has an option of asking DR to carry out shop performance test (PTC-10 class III) for the equipment described in this LOI for an extra price of FF. 875,020/-. The said option shall be exercised by 19th June, 1991 in writing by KGK. It is agreed that the delivery period described in para D of this Letter shall be extended by three week in case performance test is desired to be carried out. F. AUTHORISATION TO PROCEED This Letter of Intent shall serve as DR's authorization to proceed with this order. L. ENTRY INTO FORCE Thi....
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....Letter of Credit was likely to be opened before the end of November, 1991) advised BINDAL that in view of the delay, there will be a price increase of 4.5% (provided the LOC was established by 30.11.1991) apart from the corresponding delay in supply. 14.2) By communication dated 9.12.1991, BINDAL informed DR that it was not possible to accept the Syn. Gas Compressor turbine manufactured by DR as it found after a visit to DR's works at France that DR did not have any experience in manufacturing large mechanical turbines, and therefore it was proposing to obtain the drive turbine for Syn. Gas Compressor from an alternative source who has supplied similar turbines. By a subsequent letter dated 23.12.1991, BINDAL informed DR that it was not agreeable to any revision in prices and it would like to discuss certain other issues in January, 1992. This was followed by a communication dated 13.2.1992 from BINDAL stating that the Bank required a purchase order for opening the Letter of Credit and, therefore, it was taking action to re-write all their foreign letters of intent in the format of letter of intent and labelling them as purchase orders, and that consequently, some of the claus....
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....from BINDAL and KGK sent a telex dated 11.4.1993 to ICC in reply to the notice of Lodgment dated 10.3.1993 stating that BINDAL and KGK were in the process of jointly nominating an arbitrator and that his clients were not agreeable for appointment of a sole arbitrator. This was, however, followed by two different communications from different counsel. Mr. R. S. Gill, Advocate sent a communication dated 27.4.1993 to ICC stating that he had been instructed to represent BINDAL in place of Mr. Bhattacharyya. Similarly, one Mr. J.S. Sinha, Advocate sent a communication dated 28.4.1993 to ICC stating that he had been instructed to represent KGK in place of Mr. Bhattacharyya. The written replies of BINDAL and KGK were enclosed with the said communications dated 27.4.1993 and 28.4.1993. In those communications, BINDAL and KGK denied the very existence of any arbitration agreement and sought rejection of the claim lodged by DR. On 28.5.1993, ICC informed the parties that the advance on costs in regard to arbitration would be US $ 2,70,000 and directed the counsel for claimant and counsel for defendants to deposit US $ 67,500 each towards 50% of advance as costs of arbitration. 17. At that s....
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....ined in an exchange of letters or telegrams. 3. The Court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. 19. In Renusagar Power Co. Ltd. v. General Electric Company [1985]1SCR432 , this Court considered the scope of Section 3 of Foreign Awards Act and formulated the following six conditions required to be fulfilled for invoking Section 3: (i) there must be an agreement to which Article II of the Convention set forth in the Schedule applies; (ii) a party to that agreement must commence legal proceeding against another party thereto; (iii) the legal proceedings must be "in respect of any matter agreed to be referred to arbitration" in such agreement; (vi) the application for stay must be made before filing the written statement or taking any other step in the legal proceedings; (v) the Court has to be satisfied that the agreement is valid, operative and capable of being performed; this rel....
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....there is an "agreement in writing" under which parties have agreed to submit their differences to arbitration. 21. The principle as to how to find out whether the correspondence shows consensus ad idem, was stated by this Court in Rickmers Verwaltung Gmbh v. Indian Oil Corporation Ltd.: AIR1999SC504 : The submission of Mr. Nariman that an agreement, even if not signed by the parties, can be spelt out from correspondence exchanged between the parties admits of no doubt. In fact, various judgments cited by him at the bar unmistakably support this assertion. The question, however, is can any agreement be spelt out from the correspondence between the parties in the instant case? In this connection the cardinal principle to remember is that it is the duty of the court to construe correspondence with a view to arrive at a conclusion whether there was any meeting of mind between the parties, which could create a binding contract between them but the Court is not empowered to create a contract for the parties by going outside the clear language used in the correspondence, except insofar as there are some appropriate implications of law to be drawn. Unless from the correspondence it ca....
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....n the one hand and KGK representing BINDAL on the other, for supply of the machinery mentioned in the Letters of Intent which are governed by BINDAL's 'general conditions of purchase' which contain an arbitration clause. Thus there is an arbitration agreement between the parties in terms of Clause 27.4.2 of the 'General Conditions of Purchase. 23. We find that the said submission of DR is based on two premises. The first is that there is an 'arbitration agreement' between 'DR' on the one hand and 'BINDAL' on the other as per Clause 27.4.2 of the 'General Conditions of Purchase'. The second is that even if Clause 27.4.2 of General Conditions of Purchase itself may not operate as an arbitration agreement between the parties, the Letters of Intent by KGK are purchase orders placed on behalf of BINDAL which are made subject to the General Conditions of Purchase including the arbitration clause (clause 27.4.2) and therefore, there is an arbitration agreement between DR and BINDAL/KGK. On a careful examination, we find that both premises are erroneous and are baseless assumptions. Whether Clause 27.4.2 of 'General Conditions of Purcha....
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....arranty instead of one year warranty, or seeks delivery of machinery at site instead of at supplier's factory, or seeks delivery to be expedited instead of the normal period. Many a time the supplier is able to persuade the purchaser to agree for modification of the 'conditions of purchase' stipulated by the purchaser, particularly where a supplier is in a position of strength and the purchaser is keen to purchase a particular product of that supplier. There are also several suppliers who stipulate their own 'conditions of sale' and refuse to go by the conditions of purchase stipulated by the purchaser. The intending purchaser and the intending supplier are at liberty to negotiate and agree upon the terms subject to which offers will be made and accepted. As contrasted from sale of ready Goods sold off the shelf across the counter, sale/purchase of complex machinery/ equipment made to order, to suit particular requirements of the purchaser, have several facets relating to pricing, period of delivery, mode of delivery, period and nature of warranty, suitability for the intended purpose, patent rights, packing, insurance, incidental services, consequences of delay....
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.... dated 11.11.1993 and Clause 53 of the said 'agreement' provided for arbitration and therefore, the claim raised by the appellant had to be settled by reference to arbitration. The first Respondent (Indian Oil Corporation Ltd) on the other hand contended that no arbitration agreement had been executed between the parties and the correspondence between the parties did not bring about any enforceable contract between the parties, because the fundamental conditions of the terms of the bargain were neither agreed upon nor fulfilled by the parties. This Court accepted the contention by the first respondent that there was no 'arbitration agreement' on the following reasoning: From a careful perusal of the entire correspondence on the record, we are of the opinion that no concluded bargain had been reached between the parties as the terms of the standby letter of credit and performance guarantee were not accepted by the respective parties. In the absence of acceptance of the standby letter of credit and performance guarantee by the parties, no enforceable agreement could be said to have come into existence. The correspondence exchanged between the parties shows that ther....
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....time, it held any negotiation or discussion or exchanged correspondence with KGK in this matter. The case of DR is that BINDAL was corresponding and negotiating with it for purchase of certain types of compressors for its Shahjahanpur Fertilizers Project; that neither BINDAL nor KGK ever informed DR that KGK was the agent/consultant of BINDAL; and that the modifications to 'General Conditions of Purchase' were discussed and finalized on 10.6.1991, as per Revision No. 4 initialled by the representatives of DR and BINDAL. In the circumstances, there appears to be no logical reason for two letters of intent being prepared and issued on the letterhead of KGK on 12.6.1991 out of the blue, particularly when no representative of KGK was present during discussions on 12.6.1991 nor were the Letters of Intent signed by anyone on behalf of KGK in the presence of DR's representatives. According to DR, the representative of BINDAL handed over the Letters of intent issued on the letterhead of KGK stating that though the Letters of intent were issued by KGK, the compressors were for BINDAL and payment and performance will be the BINDAL. No one has chosen to explain why the letters of ....
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....antly, BINDAL and KGK sent a common reply through a common counsel (Mr. Bishwajit Bhattacharyya) stating that both (BINDAL and KGK) were proposing to jointly nominate an Arbitrator. v) Even when BINDAL and KGK subsequently decided to challenge the arbitration agreement and issued separate notices dated 27.4.1993 and 28.4.1993 though different counsel, such notices were sent through two counsel who shared the same office and telephones. The conduct of BINDAL subsequent to 12.6.1991 leads to an inescapable inference that letters of intent issued by KGK on 12.6.1991 were on behalf of BINDAL. In fact, even otherwise, we will assume for the purpose of this case that KGK was acting on behalf of BINDAL as its agent or consultant in issuing the letters of intent dated 12.6.1991. The question is whether that will take DR any further in establishing that there is an arbitration agreement. 32. The Preamble to the Letters of Intent states that KGK "hereby confirms its intention to place an order on Dresser Rand". This is further made clear from Clause (I) of each letter of intent which provides that "this letter of intent" will be followed by a regular and detailed purchase order to be iss....
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....ued simultaneously with the Letter of Credit. Clause (M) made it clear that the Letters of Intent were being issued subject to necessary approvals being given by the Authorities of the Indian Government. These provisions clearly indicate that the Letters of Intent were only a step leading to purchase orders and were not, by themselves, purchase orders. Therefore, issue the Letters of Intent by KGK, assuming that it was done on behalf of BINDAL, did not mean that the General Conditions of Purchase which contains the provision for arbitration became a part of the Letters of Intent or became enforceable. 34. It is now well-settled that a Letter of Intent merely indicates a party's intention to enter into a contract with the other party in future. A Letter of Intent is not intended to bind either party ultimately to enter into any contract. This Court while considering the nature of a Letter of Intent, observed thus in Rajasthan Co-operative Dairy Federation Ltd. v. Maha Laxmi Mingrate Marketing Service Pvt. Ltd. AIR1997SC66 : The Letter of Intent merely expressed an intention to enter into a contract. There was no binding legal relationship between the appellant and Respondent ....
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....Clause (F) authorized DR to proceed with the order, the Letters of Intent were, in fact, purchase orders. 36. When all the terms of the Letter of Intent are harmoniously read, what is clear is that Letters of intent merely required the supplier to keep the offer open till 31.8.1991 with reference to the price and delivery schedule. They also made it clear that if the purchase orders were not placed and Letter of Credit was not opened by 31.8.1991, DR was at liberty to alter the price and the delivery schedule. In other words, the effect of Letters of intent was that if the Purchase Orders were placed and LCs were opened by 31.8.1991, DR would be bound to effect supply within 151/2 months, at the prices stated in the Letter of Intent. Therefore, it may not be possible to treat the Letters of Intent as Purchase Orders. 37. Even if we assume that the Letters of Intent were intended to contracts for supply of machinery in accordance with the terms contained therein, it may only enable DR to sue for damages or sue for the expenses incurred in anticipation of the order and opening of LC. But that will not be of any assistance to contend that there was an arbitration agreement between t....
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....s purchase order' in the 'General Conditions of Purchase' would be appropriate. Therefore, it is impermissible to read the words 'the purchase order' in Clause (C) of Letters of Intent as 'this purchase order. 40. Thus, neither the General Conditions of Purchase forming part of Invitation of Bid nor Revision No. 4 dated 10.6.1991, nor the Letters of Intent dated 12.6.1991 contain any arbitration agreement. There is also no other document or correspondence which can be read as containing a provision that can be interpreted as an agreement to resolve disputes by arbitration. We are, therefore, of the view, though for slightly different reasons, that the decision of the learned Single Judge and the Division Bench of the High Court holding that there is no arbitration agreement, does not suffer from any infirmity. Re: Point No. (iii) : 41. DR contends that the conduct of BINDAL and KGK clearly showed that they proceeded on the basis that there was an arbitration agreement. DR referred to the notices dated 9.1.1993, 29.1.1993 and 4.2.1993 issued by its Counsel culminating in the final notice dated 5.2.1993 seeking reference to arbitration. It is pointed out th....