Dresser Rand S.A. v Bindal Agro Chem Ltd and K. G. Khosla Compressors Ltd

Citation: (2006) 1 SCC 751

Date of Decision: January 12, 2006

Original Copy: View

Bench: Arun Kumar & R V Raveendran

Statues Involved:

Issues in question:

Whether acquiescence of arbitration binds the parties to continue with arbitration?
Whether the agreement between parties arises from the arbitration clause or not?Background of the Case:

Bindal Agro Chem Ltd (Bindal) invited global tenders for Fertilizer project in Shahjahanpur containing 4 attachments, and further asked DR that if could provide equipments required to setup CO2 compressors and they discussed about the required documents and modifications for the setup of the compressors where DR will have the overall responsibility for supplies.

The terms and conditions in Attachment 4 were modified and agreed in general conditions.

The DR alleged that Bindal sent a letter of intent to KGK for placing an order of two machines which DR questioned that why was this was only to KGK and not included Bindal as DR only had all the agreements and negotiations with Bindal and not KGK also he never met any official of KGK to enter into any agreement with KGK and these allegations were to contended by Bindal to be false as it never sent any such letter for the order.

Furthermore, Bindal refused to buy the machines from DR on finding out that it had no experience in manufacturing such machines and as Bindal came to know of such inexperience after the visit and promised to pay the credit after the proper clearance from the bank which DR claimed they never received and it is a breach of contract on part of Bindal and KGK and filed a suit in the International Chambers of Commerce, Paris.

Judgment:

Bindal and KGK filed a counter complaint in Delhi HC stating that there was no such arbitration clause in their agreement and sought injunction from the arbitration proceedings and DR filed suit seeking relief under section 3 of Foreign Awards Act.
The court noted that the stay on proceedings under section 3 is mandatory and since the agreement was signed by the parties, the court has to check whether there is a written agreement or not to invoke the arbitration proceedings.
The appeals filed by Dresser Rand (DR) came before the apex court against the judgment of the Delhi High Court dated February 14, 2002 affirmed by the order on March 4, 2003.
Bindal and KGK aimed at seeking injunction from arbitration proceedings as they alleged that there was no arbitration agreement among them, and filed counter proceedings seeking benefit under section 3 Foreign Awards act for staying the arbitration proceedings.

Agreement between DR and Bindal:

Taking note of the principle consensus ad idem from the case Rickmers Verwaltung GmbH v Indian Oil Limited observed that the agreement is not mandatory in writing if the words and actions shows agreement.
Here in the present case DR argued the general conditions of purchase had formed the arbitration agreement between Bindal and DR while the letter of intent by KGK formed the arbitration agreement between DR and KGK.
But the court stated that the General condition of purchase was not an agreement and thus not a contract as it was just an invitation to enter into the contract and it was just a type of instructions which have to be read first and then decide whether to enter the contract or not.
And when Bindal and DR modified the conditions it was just a change in the instructions and thus cannot make these instructions the basis of a legally enforceable contract.

Agreement between DR and KGK:

The letter of intent as stated by DR as per the facts was countersigned in absence of any representative from KGK and still DR signed without objecting, and if Bindal presumed to be acted on behalf of KGK then also it can be observed that it was only a detailed purchase order and this preclude to contract can also not invoke any arbitration agreement between the parties.
The purchase order is the agreement between Bindal and the supplier as for the supply of some specific things as mentioned in the general conditions of the contract. Thus the Letter of intent even if assumed to be done on behalf of Bindal does not make the arbitration clause enforceable as it was not part of the contract and was merely a preclude.

As observed in Rajasthan Coop Dairy Federation Ltd v MahaLaxmi Mingrate Service that the letter of intent merely shows the intention to enter into contract and does not create any legal obligations and is not enforceable in the court of law.

DR contention that the clause of the letter of intent were purchase orders to which the court replied that the letter if read completely it shows the offer is open till August 31, 1991 and if order is not placed then DR would be bound to supply within Fifteen and half months and thus it cannot be called as purchase orders.

If the letter of intent were to supply the machinery then the damages can be asked in the court and also with KGK there was no arbitration clause in the letter so even if it was binding, there cannot be any arbitration proceedings filed against it.

Lastly DR contended that Bindal and KGK also appointed an arbitrator when DR filed the arbitration suit so there was acquiescence but the court replied on the basis of the judgment in U.P. Rajkiya Nirman Ltd v Indure Ltd that acquiescence does not confer jurisdiction and Bindal and KGK won’t be bound to go through arbitration.
Thus finally as per section 33 and 34 of the arbitration act the court said that there was no stand of contention as per the law as only the court has power and jurisdiction to decide the validity of agreement and not the arbitrator and thus the appeals are dismissed.

Critical Analysis:

This case gives a very vivid clarification of the term purchase order and also shows when an arbitration proceeding can be invoked in such matters.

The case also looks upon the application of section 33 and 34 of the arbitration act and section 3 of Foreign Awards (Recognition and Enforcement) Act.

From the case the bench also defined the extent of powers of the jurisdiction that an arbitrator has.