AI Drafter 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2011 (1) TMI 1527
X X X X Extracts X X X X
X X X X Extracts X X X X
....rbitrator is vitiated by patent error of law are the questions which arise for consideration in this appeal filed by the State of U.P. and two others against the judgment of the Division Bench of the Allahabad High Court, which dismissed the appeal preferred by the appellants against the order passed by the trial Court making award of the Arbitrator rule of the Court. 2. By an advertisement dated 19.8.1985, appellant No. 2 invited bids for supply of 2000 metric tonnes Zinc Sulphate of Agriculture Grade on quantity basis to meet the requirement of the Agriculture Department. Clause 16 of the tender form, which has bearing on this case, reads thus: Tender Form: 16. In the event of any dispute arising out of or concerning this Agreement (except as to any matters the decision of which is specifically provided for in this Agreement), the same shall be referred to the arbitration of an arbitrator nominated by the Director of Industries, Uttar Pradesh and an arbitrator nominated by the contractor, or in the case of the contractor or the said Director failing to nominate an arbitrator within the time fixed in the notice to be served on him by the said Director or the contrac....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... name of consignee, destination, railway station, payment of bills, etc. 4. Period of Contract - Until the supply is satisfactorily completed in accordance with the aforesaid terms and conditions. 7. Inspection - For the purpose of this contract the consignee receipt shall be deemed as the inspection certificate unless an inspection is stipulated before dispatch. Ordinarily, the decision of the consignee or consignees as regards the acceptability or otherwise of the stores shall be final. Defective supplier shall have to be replaced at your cost. 10. Formal Agreement - If so required, the successful tenderer shall have to execute a formal agreement deed within the time fixed by the Director of Industries. 12. You are required to send a statement giving details of order placed on you and executed by you against this contract together with their value, within one month after the expiry of this contract. 14. In the case of rate of contract order shall be placed by the officer of various Government Department directly. In the case of quasi-Government Departments, such as Local Bodies and Municipal Boards, etc. the orders shall be placed this office. Please acknowledge....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... written statement filed on behalf of the appellants, it was pleaded that the petition was not maintainable because no contract had been executed between the parties and no order for supply of the goods was placed with the respondent because the other firm had quoted much lower rate. 6. By an order dated 28.3.1989, the trial Court overruled the objections raised on behalf of the appellants and held that a contract was indeed executed between the parties for supply of Zinc Sulphate. The trial Court then referred to Clause 16 of the tender form and directed the parties to propose name of their respective Arbitrator within 20 days with the rider that if they fail to do so, then the Court will appoint an Arbitrator. 7. The appellants did not nominate the Arbitrator. Therefore, by an order dated 20.5.1989, the trial Court appointed Shri Dipak Seth, Advocate as an Arbitrator. 8. The Arbitrator fixed 6.8.1989 for preliminary hearing but no one appeared on behalf of the appellants. The respondent filed statement of claim for award of compensation to the tune of Rs. 42,92,015.90 along with cost of Rs. 25,000/-. The details of the claim lodged by the respondent are reproduced below:....
X X X X Extracts X X X X
X X X X Extracts X X X X
....spondents are liable to compensate to the extent of amounts claimant may suffer on these accounts. The claimant, therefore, prays for the following reliefs against the respondents jointly, severally or in alternative: (A) That by an award, the claimant be declared entitled to recover and receive Rs. 42,92,015/- towards and on account of compensation for loss suffered due to breach of contract and the respondents, jointly, severally or in alternative be directed to pay the same within a time fixed for the purpose. (B) Rs. 25,000/- be awarded towards costs of these proceedings and, (C) The respondents be directed to compensate the claimants in lieu of the amounts realized by the MPFC and State Bank of Indore till date of actual payment in full of the amount claimed above. 9. On 1.10.1981, Shri B.K. Bajpai, Accountant in the office of the Director of Agriculture, appeared before the Arbitrator and sought 15 days' time to intimate the fate of the appeal filed against order dated 28.3.1989, which was pending before the High Court. On the next date of hearing i.e., 1.11.1989, Shri Irshad Hussain appeared on behalf of the Director of Agriculture and made a request for a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....await the result of the first appeal filed against order dated 28.3.1989 amounted to violation of the rules of natural justice and held that in the absence of a stay by the High Court, the Arbitrator was entitled to proceed with the matter and the appellants did not have any legitimate cause to abstain from the arbitration proceedings. 13. Smt. Shobha Dikshit, learned senior counsel appearing for the appellants referred to various clauses of the tender form and acceptance letter dated 16.11.1985 and argued that no contract can be said to have come into existence between the parties because the agreement was not signed as per the requirement of Article 299 of the Constitution and the High Court committed serious error by treating the acceptance letter as a contract. Learned senior counsel pointed out that an agreement was required to be executed and signed by the parties in the proforma prescribed for the purpose, but no such agreement was either executed or signed and, therefore, the conclusion recorded by the trial Court and the High Court that a contract had been executed between the parties is legally unsustainable. Mrs. Dikshit further argued that the award of the Arbitrator....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ply was also indicated in the acceptance letter. Clause 10 of the terms and conditions embodied in the acceptance letter did speak of formal agreement, but the same was to be executed only if required. Undisputedly, the respondent completed all the formalities inasmuch as it deposited the security money and dispatched a duly signed agreement to the Directorate of Agriculture, which was to take the supply of Zinc Sulphate, and also sent letters for placing the supply order. Thus, a contract had come into existence between the parties and the fact that the Director of Agriculture did not sign the formal agreement sent by the respondent cannot lead to an inference that the contract had not been executed. This view is consistent with the plain language of Section 5 of the Sale of Goods Act, 1930, Sub-section (1) whereof lays down that a contract of sale is made by an offer to buy or sell goods for a price and the acceptance of such offer. That Sub-section further lays down that the contract may provide for the immediate delivery of the goods or immediate payment of the price or both, or for the delivery or payment by installments, or that the delivery or payment or both shall be postpo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts behalf. In December 1991, the respondent informed the appellant that it was not possible to accept the synthesis gas compressors turbine manufactured by the latter. After further correspondence, the appellant indicated its intention to refer the disputes relating to agreement to the International Chamber of Commerce, Paris. Thereupon, the respondent filed suit in the Delhi High Court for grant of a declaration that there was no arbitration agreement between the parties. The respondent also applied for injunction. K.G. Khosla Compressors Ltd. also filed similar suit. A learned Single Judge of the High Court allowed the applications for temporary injunction filed by the respondent and K.G. Khosla Compressors Ltd. The Division Bench of the High Court dismissed the appeals filed by the appellant. While considering the question whether there was an arbitration agreement between the appellant and the respondent, this Court extensively referred to the contents of the letters of intent and observed: Clause `C' of letters of intent provides that the purchase order shall be subject to the "General Conditions of Purchase" included in the inquiry, as amended by dr's comments ther....
X X X X Extracts X X X X
X X X X Extracts X X X X
....orporation Dairy Federation Ltd. v. Maha Laxmi Mingrate Marketing Service (P) Ltd.: (SCC p. 408, para 7) The letter of intent merely expressed an intention to enter into a contract. ... There was no binding legal relationship between the appellant and Respondent 1 at this stage and the appellant was entitled to look at the totality of circumstances in deciding whether to enter into a binding contract with Respondent 1 or not." It is no doubt true that a letter of intent may be construed as a letter of acceptance if such intention is evident from its terms. It is not uncommon in contracts involving detailed procedure, in order to save time, to issue a letter of intent communicating the acceptance of the offer and asking the contractor to start the work with a stipulation that the detailed contract would be drawn up later. If such a letter is issued to the contractor, though it may be termed as a letter of intent, it may amount to acceptance of the offer resulting in a concluded contract between the parties. But the question whether the letter of intent is merely an expression of an intention to place an order in future or whether it is a final acceptance of the offer thereby l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly and the contract will be exclusively governed by the terms and conditions mentioned in the acceptance letter, tender form and the agreement forms. This shows that the terms and conditions mentioned in the tender form were treated as part of the contract for supply of 200 metric tonnes Zinc Sulphate by the respondent to appellant No. 3. Clause 16 of the tender form provided for reference of any dispute arising out of or concerning the agreement to the arbitration of an Arbitrator nominated by appellant No. 2 and an Arbitrator nominated by the respondent. Therefore, the respondent was entitled to invoke the arbitration clause and the trial Court did not commit any jurisdictional error by entertaining the petition filed by the respondent under Section 20 of the Act. In Smita Conductors Ltd. v. Euro Alloys Ltd. (supra), this Court referred to Article II Part 2 of the New York Convention, which is pari materia to Section 7 of the Arbitration and Conciliation Act, 1996 (for short, `the 1996 Act') and observed: What needs to be understood in this context is that the agreement to submit to arbitration must be in writing. What is an agreement in writing is explained by Para 2 o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the case. Let us, therefore, consider the gist of the facts involved in this case. Tender Enquiry No. 2PGI/OGL/2K/6281 dated 21-12-2000 for purchase of pulse oxymeters was floated by PGI. It is an admitted position that the appellant submitted their tender vide their Offer No. UIPL/331177/00-01 dated 15-1-2001. The tender of the appellant was accepted by PGI vide their Letter No. PGI/P-61/02/477/11936-51 dated 29-9-2002 for supplying forty-one pulse oxymeters to their different departments. The tender documents themselves contain an arbitration clause and by reason of acceptance of the tender of the appellant by PGI, it must be held that there was a valid arbitration agreement between the parties. The appellant supplied forty-one pulse oxymeters and the receipt thereof was duly acknowledged on behalf of PGI on the delivery challans. The service/ installation reports of the aforesaid machines were duly signed on behalf of PGI. In the letters issued by PGI, there was an apparent acknowledgment of supply of the aforesaid meters by the appellant and also reference to the aforementioned tender enquiry number. In view of the aforesaid facts and the correspondences between the parti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rd without assigning any reason whatsoever and without even recording a finding that the respondent had suffered loss/damages on account of the failure of appellant No. 3 to place supply order in furtherance of the acceptance letter dated 16.11.1985. The casual manner in which the Arbitrator decided the dispute is evident from paragraph 10 of the Award, which is extracted below: 10. I have heard the learned Counsel for the claimant and the representatives of the opposite party No. 3 at length and carefully perused the records and I am of the certain opinion that the claimant is entitled to receive Rs. 23,56,500/- from the opposite parties No. 1 and 2 which said amount also comprises of Rs. 12,300/- as cost of these proceedings details whereof are given hereunder: AWARD The claim of the claimant is allowed to the extent of Rs. 23,44,200/- with interest thereon at the rate of 6% per annum with effect from the date of this award till the date of payment or the decree which is earlier. The claimant is also awarded Rs. 12,300/- being the cost of this arbitration as per details given below: (a) Cost of non-judicial stamp for award Rs. 6,500/- (b) Arbitration fee paid by....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the State to be prejudicially affected by non-reviewable -- except in the limited way allowed by the statute --non-speaking arbitral awards. Indeed, this branch of the system of dispute resolution has, of late, acquired a certain degree of notoriety by the manner in which in many cases the financial interests of government have come to suffer by awards which have raised eyebrows by doubts as to their rectitude and propriety. It will not be justifiable for governments or their instrumentalities to enter into arbitration agreements which do not expressly stipulate the rendering of reasoned and speaking awards. Governments and their instrumentalities should, as a matter of policy and public interest -- if not as a compulsion of law -- ensure that wherever they enter into agreements for resolution of disputes by resort to private arbitrations, the requirement of speaking awards is expressly stipulated and ensured. The same view was reiterated in Tamil Nadu Electricity Board v. Bridge Tunnel Constructions: (1997) 4 SCC 121 and Punjab SEB v. Punjab Pre-Stressed Concrete Works (supra). In the second judgment, the Court referred to some of the earlier judgments and observed: After he....