Author: Shefali Chaudhary, 2nd year student at ICFAI University, Dehradun.
Citation: (2018) 10 SCC 525
Date of decision: September 11, 2018
Original copy: View
Bench: R. F Nariman, Indu Malhotra
Statutes involved: Indian Contract Act 1872, Arbitration and Conciliation Act 1996, Companies Act, 1956
Issues in question:
- Whether REP is an agreement or an offer by the authority to the prospective bidder or any other person?
- Whether respondent 1 is entitled to claim Rs 436 crores?
Background of the case:
- The Respondent 1-Claimant is a significant port established under the Major Port Trusts Act. In 2009, it issued a Request for Qualification (hereinafter, RFQ) welcoming applications for the development of the fourth Container Terminal task on Design, Build, Finance, Operate and Transfer basis. According to the said RFQ, offers were gotten from different bidders.
- The monetary bid was opened and the appilant consortium was pronounced a successful bidder of the said Project. The respondent 1 gave a Letter of Award to the appellant Consortium and the appellant Consortium acknowledged it and gave the signed copy to the Petitioner.
- Clause 6 of the said Letter of Award gave that the Concession Agreement was to be signed within 30 days from the date of the letter of acknowledgment. But the signing of the Concession Agreement was delayed by the appellant consortium by virtue of having a problem with paying stamp duty.
- The respondent 1, from that point, raised a demand through a letter calling upon the appealing consortium to pay damages of Rs. 436 Crores. The Appellant Consortium denied any liability and called upon respondent 1 to pull out its claim. Respondent 1, from that point, given a notice of arbitration clause provision contained in Clause 19.3 of the Concession Agreement.
- The Arbitrator permitted the said application recorded by the appellant consortium and dismissed the reference of respondent 1 holding that there didn’t exist an arbitration agreement between the parties and consequently there was no question of alluding any dispute to the Arbitral Tribunal. Being aggrieved by the said of the arbitrator, the Respondent 1 filed a Petition under Section 37(2)(a) of the Act.
- The Hon’ble High Court of Bombay gave judgement in favour for the respondent 1 putting aside the order of the learned arbitrator and reestablishing the arbitration proceedings to record, ordering the learned arbitrator to continue with the arbitration procedures speedily. It was additionally held that the arbitration agreement recorded in Clause 19.3 of the Concession Agreement exists between both the parties. Being aggrieved by the order of the Hon’ble High Court of Bombay, the appellant party filed a common writ petition before the Hon’ble Supreme Court of India.
- In its judgement the Supreme Court noted that
- A disclaimer at the forefront of the RFP clarifies that there is just a bid process which is going on between the both the parties and that there is no closed agreement between the equivalent.
- It is similarly clear that such bid cycle would subsume a Letter of Award to be given by the Respondent No.1 with two further processes under the schedule to be gone into before the draft Concession Agreement at last turns into an agreement between Respondent No.1 and the Special Purpose Vehicle that is constituted by the Consortium for this reason.
- Also that all through the phase of the bid cycle, the dispute resolution forum is only with the Courts at Mumbai.
- It also concluded that right up till the phase of the entering into the Concession Agreement, the bid cycle might be invalidated without giving any explanation at all by the Respondent No.1 Under Section 7 of the Indian Contract Act, 1872 to convert a proposal into promise, the acceptance must be unqualified and absolute.
- The Supreme Court held that the High Court judgment was completely incorrect in holding that the Letter of Award would establish a binding agreement between the parties for the reasons given above.
- The Supreme Court also concluded that it would be a tragedy of justice, in the current case, if we have not interfered and set aside the same. Therefore, the reviled judgment of the High Court is set aside and the order for the Arbitrator is reestablished. Thus the honourable supreme court gave its judgement in the favour of the appellant consortium.
- In the given case the Bombay High Court likewise observed that signing of the Concession Agreement after issuance of Letter of Award was one of the prerequisites to be followed by the appellant consortium however was not a condition point of reference for the contract. It was held that the agreement was concluded between the parties before the date of signing to the Concession Arrangement.
- But the Supreme Court totally ruled out the judgement of the Bombay High Court. It is clear about current facts of this case that there is no unqualified and absolute acceptance by the Letter of Award – a few vital processes must be gone through before there could be an agreement which would be enforceable in law as a contract between the parties. So the Supreme Court looked into all the aspects and then decided in favour of the truth.