TaxTMI 
TaxTMI 
2006 (1) TMI 653
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..... 3. BINDAL has filed Suit Nos. 1363/1993 in 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 orde....
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....learned Single Judge relating to furnishing of bank guarantee 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: ....
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....rmance of the syn. gas compressor discussed. 11. Thereafter, DR gave its comments/modifications to the 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) sta....
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....etter of Credit shall be valid for a period of 15 months from its notification to DR and shall be extendable by two (2) months period at DR's request in order to allow complete drawings of the said 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....
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....cept a corresponding delay in the delivery schedule. 14.1) Thereafter, DR by communication dated 24.10.1991, after referring to the discussions with BINDAL (wherein the Commercial Director of BINDAL had assured that all approvals from the Government were received and the 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 st....
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....hemselves, their agents or contractors from using any of the said documents for any purposes; and 4. for interest, costs etc. ICC issued a notice dated 10.3.1993 to BINDAL and KGK in regard to lodgment of the said claim by DR. 16. One Bishwajit Bhattacharyya, Advocate, acting under instructions 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 s....
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....ces which have arisen or which may arise between them in respect of defined legal relationship, whether contractual or not, concerning a subject-matter capable of settlement by arbitration. 2. The term "agreement in writing" shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained 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; ....
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....ion 3 and will have to be finally decided by the Court. 20. It is clear from Clause (2) of Article II that an 'agreement in writing' includes not only an arbitral clause in a contract or a separate arbitration agreement, signed by the parties, but a term contained in an exchange of letters or telegrams agreeing to submit their differences to arbitration. The question, therefore, is whether 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 t....
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....GK as an agent/authorized consultant of BINDAL to DR provided that "the purchase order shall be subject to the 'general conditions of purchase' included in inquiry and as amended by DR's comments thereto, Revision No. 4 dated 10.6.1991 initialled by DR and KGK separately"; (c) The Letters of Intent are the purchase orders and they have been accepted by DR by counter-signing them. Therefore, there are concluded contracts between DR on 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 ar....
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....h reference to a common denominator. The general conditions of purchase act as a common denominator for all tenderers to base their offers and for evaluation of such offers. Further, the said General Conditions stipulated by the purchaser enable the tenderer to assess his obligations and calculate the offer price accordingly. For example, there will be a marked difference in the responsibility of a supplier and the pricing, if the purchaser seeks a three year warranty 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 ....
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....r was placed and accepted a contract arose. It is true this contract would be governed by the terms set out in the letters but until an order was placed and accepted there was no contract. In Rickmers Verwaltung (supra), the appellant contended that though the agreement drawn up on 11.11.1993 was not formally signed by the parties, the contemporaneous correspondence between them showed that a binding contract came into existence between the parties in terms of such draft 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 per....
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....e disputes between parties. Whether Letters of Intent dated 12.6.1991 contain an arbitration agreement. 29. We will next examine whether any arbitration agreement came into existence by issue of Letters of Intent dated 12.6.1991 by KGK countersigned by DR and if so who are the parties to such arbitration agreement. 30. The circumstances in which the Letters of Intent dated 12.6.1991 by KGK 'surfaced' is strange and illogical if not mysterious. It is admitted by DR that at no point of 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 ....
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.... of intent dated 12.6.1991 issued by KGK. iii) When DR sent notices dated 9.1.1993 to BINDAL and KGK, alleging that KGK acted as agent of BINDAL in issuing the Letters of Intent dated 12.6.1991, there was no denial either by BINDAL or KGK iv) When DR lodged a request for arbitration with ICC making a claim jointly against BINDAL and KGK specifically alleged that KGK acted as agent of BINDAL in issuing of Letters of Credit, and when copies of such request for arbitration were forwarded by ICC to BINDAL and KGK, significantly, 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 pu....
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....entered into between BINDAL and the prospective supplier as recorded in the purchase order form (prepared in the form of Attachment-VII to the General Conditions of Purchase) signed by the parties, including all Attachments and annexures thereto and all documents incorporated by reference therein together with any subsequent modifications thereof in writing." Admittedly, no such purchase order was placed by either BINDAL or any one authorized by BINDAL. It is also evident from Clause (I) of the Letters of Intent that the purchase order was to be issued 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....
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....that the Letter of Credit should be opened by 31.8.1991 by a bank acceptable to DR. Clause (D) provided that delivery date shall be 15 1/2 months from the date of receipt of the Letter of Intent by DR. Clause (F) stated that "this Letter of Intent shall serve as DR's authorization to proceed with this order". Clause (L) stated that 'This contract will come into force upon receipt of this letter of intent by supplier'. DR contends that as the Letters of Intent were referred to as "this order" and 'this contract' in Clauses (F) and (L), and as 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 b....
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....d in the Letters of Intent and are, therefore, interchangeable. We cannot agree. Firstly, it is not open to us to change the terms of any document. Secondly, the use of the words "this purchase order" in some clauses of the General Conditions of Purchase was not inappropriate. It should be remembered that the General Conditions of Purchase, in entirety, were intended to be treated as a part to the purchase order as and when the purchase order was placed. Therefore, when the General Conditions of Purchase were read as part of the purchase order, use of the words 'this 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....
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....cerning challenge to arbitrability, this Court observed thus: Acquiescence does not confer jurisdiction.... The clear settled law thus is that the existence or validity of an arbitration agreement shall be decided by the Court alone. Arbitrators, therefore, have no power or jurisdiction to decide or adjudicate conclusively by themselves the question since it is the very foundation on which the arbitrators proceed to adjudicate the disputes. Therefore, it is rightly pointed out by Shri Adarsh Kumar Goel, learned Counsel for the appellant that they had by mistake agreed for reference and that arbitrators could not decide the existence of the arbitration agreement or arbitrability of the disputes without prejudice to their stand that no valid agreement existed. Shri Nariman contended that having agreed to refer the dispute, the appellant had acquiesced to the jurisdiction of the arbitrators and, therefore, they cannot exercise the right under Section 33 of the Act. We find no force in the contention. As seen, the appellant is claiming adjudication under Section 33 which the Court alone has jurisdiction and power to decide whether any valid agreement is existing between the pa....