M/S. NATIONAL HIGHWAYS AND INFRASTRUCTURE DEVELOPMENT CORPORATION LTD. versus M/S. BSCPL INFRASTRUCTURE LTD. on 7 August 2019

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SUPREME COURT REPORTS

[2019] 10 S.C.R.

AM/s. NATIONAL HIGHWAYS AND INFRASTRUCTUREDEVELOPMENT CORPORATION LTD.

v.

M/s. BSCPL INFRASTRUCTURE LTD.

B(Civil Appeal No. 6168 of 2019 )

AUGUST 7, 2019

[R. F. NARIMAN AND SURYA KANT, JJ.]

Arbitration: Arbitration clause – Whether an arbitrationclause would spring into being at the stage of Letter of Award (LOA)Cacceptance or whether it would be necessary to sign the ultimateagreement which would then bring in the arbitration clausecontained therein – In the instant case, Request for Proposal (RFP)was sent out by the appellant for road construction – In the LOA,the Government of India made reference to the bid document and aDrequest to return signed copy of duplicate LOA as itsacknowledgment and to execute contract agreement within 15 daysfrom date of issue of LOA – Respondent accepted the bid proposaland enclosed copy of LOA received by fax duly signed with anacknowledgment – After 2 years, appellant decided to withdrawthe LOA due to non-availability of NOC from District council whichEwas sine qua non for the land for the project – High Court heldthat the arbitration clause is contained in the standard form of thedraft agreement and that general reference to it was sufficient toappoint arbitrator – On appeal, held: A perusal of the clausescontained in the RFP would only show that a bidder is liable forFdisqualification and forfeiture of bidding security at all stages ofthe agreement, notwithstanding that there may not be execution ofthe agreement between the parties – The schedule of bidding processbegins with the last date for receiving queries and ends with thesigning of concession agreement, LOA being Item No. 7 and partand parcel of this bidding process – The moment this is so, thenGunder clause 6.1, dispute resolution can only take place by theCourts of Delhi – It is not possible to say that a standard formarbitration clause contained in a draft agreement would then oustclause 6.1 and disturb the entire scheme of the schedule of bidding process – This being the case, even at the stage of acceptance ofLOA, if disputes arose between the parties, they could only beresolved by the Courts of Delhi and not by arbitration – Jurisdiction.

Allowing the appeal, the Court

HELD : 1. A perusal of the clauses contained in the RFPwould only show that a bidder is liable for disqualification andforfeiture of bidding security at all stages of the agreement,notwithstanding that there may not be execution of the agreementbetween the parties. The expression “shall be liable to beterminated...” in clause 2.1.14 is only in this context, therebymaking it clear that even after the LOA may have been accepted,such disqualification and forfeiture of bid security, if the otherconditions exist, can be done by the appellant. The sameinterpretation goes for clauses 2.6.3 and clause 2.20.7.[Paras 14 and 15] [645-D-F]

2. The schedule of bidding process begins with the last datefor receiving queries and ends with the signing of concessionagreement, LOA being Item No. 7 and part and parcel of thisbidding process. The moment this is so, under clause 6.1, disputeresolution can only take place by the Courts of Delhi. It is notpossible to say that a standard form arbitration clause containedin a draft agreement would then oust clause 6.1 and disturb theentire scheme of the schedule of bidding process. This being thecase, it is clear that even at the stage of acceptance of LOA, ifdisputes arise between the parties, they can only be resolvedby the Courts of Delhi and not by arbitration. [Paras 17 and 18][645-G-H; 646-A]

PSA Mumbai Investments PTE. Limited v. Board ofTrustees of the Jawaharlal Nehru Port Trust andAnother (2018) 10 SCC 525 – relied on.

Inox Wind Ltd. v. Thermocables Ltd. (2018) 2 SCC519 : [2018] 1 SCR 86 – referred to.

Case Law Reference

[2018] 1 SCR 86

referred torelied on

Para 5

(2018) 10 SCC 525

Para 6

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ACIVIL APPELLATE JURISDICTION : Civil Appeal No. 6168of 2019.

From the Judgment and Order dated 26.10.2018 of the HighCourt of Delhi at New Delhi in Arbitration Petition No. 278 of 2018.

Debal Banerjee, Sr. Adv., Prasenjit Keswani, Abhishek Singh,Upmanyu Tewari, Kabir Shankar Bose, Advs. for the Appellant.

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Ms. Kiran Suri, Sr. Adv., Abhay N. Das, S. J. Amith, Satish Kumar,Vishnu Shankar Jain, K. V. Kharlyngdoh, Advs. for the Respondent.

The Judgment of the Court was delivered by CR. F. NARIMAN, J. 1. Leave granted.

2. The present case involves the question as to whether anarbitration clause would spring into being at the stage of Letter of Award(referred to as ‘LOA’ for brevity) acceptance, or whether it would benecessary to sign the ultimate agreement which would then bring in theDarbitration clause contained therein.

3. The skeletal facts necessary to appreciate the controversy inthe present case is that a Request for Proposal (referred to as ‘RFP’ forbrevity) was sent out by the appellant for road construction in the Stateof Meghalaya. The LOA so far as the RFP is concerned, is by a letterEdated 31.10.2014, in which the Government of India referred to the biddocument and requested for return of a signed copy of duplicate LOAas its acknowledgment within seven days of the receipt of the LOA. Itwas clearly stated therein that “Thereafter, you are required to executethe Contract Agreement within 15 days from the date of issue of LOAas per clause 1.3 of the RFP……….”F

4. In answer to this letter, on 05.11.2014, the respondent acceptedthe bid proposal and enclosed a copy of the LOA received by fax dulysigned with an acknowledgment. By a further communication dated08.11.2014, the respondent then wished to sign the contract agreementfor the above work on 13.11.2014. Nothing happened until August, 2016,Gexcept that the guarantees that were required under the RFP were keptalive by the respondent. Finally, on 04.08.2016, the appellant decided towithdraw the LOA due to non-availability of No Objection Certificatefrom the Khasi Hill Autonomous District Council, which was a sine quanon for the land for the project. It is in this factual scenario that the H

controversy has arisen in this case, which is, as to whether the LOA is abinding contract, and further that, if it is found to be a binding contract,whether the arbitration clause of the draft agreement between the partieswould kick in.

5. The Delhi High Court, by its judgment dated 26.10.2018, wentthrough various clauses of the draft agreement which is part of the RFP,and after referring to this Court’s judgment in Inox Wind Ltd. v.Thermocables Ltd. (2018) 2 SCC 519 found that, contained in thestandard form of the draft agreement, is an arbitration clause, and that ageneral reference to it is good enough, so that an arbitrator could beappointed. The Court then went on to appoint Justice Shiavax Jal Vazifdar,former Chief Justice, Punjab and Haryana High Court, after which twoother arbitrators would then be appointed by the International Centre forAlternate Dispute Resolution.

6. According to Shri Debal Banerjee, learned senior counsel,events have overtaken the respondent. This Court’s judgment in PSAMumbai Investments PTE. Limited v. Board of Trustees of theJawaharlal Nehru Port Trust and Another (2018) 10 SCC 525 wouldsquarely cover this case. He prepared for our perusal a chart in whichhe pointed out the similarity of this case with the facts in PSA MumbaiInvestments PTE. Limited’s case - the disclaimer clause referred to byus in the said judgment; the schedule of bidding process; the signing ofthe LOA; and most importantly the fact that the entire bidding processshall be governed by and construed in accordance with the laws of Indiaand that the Courts at Mumbai shall have exclusive jurisdiction over alldisputes arising under, pursuant to or in connection with the biddingprocess; and the fact that the authority may, in its own discretion, cancelthe bidding process at any stage prior to entering into the ultimate contractagreement.

7. According to him, the minor difference between the PSAMumbai Investments PTE. Limited’ judgment containing a reference tothe formation of a Special Purpose Vehicle, which is absent in the factsof this case, would be entirely immaterial for the purpose of discoveryas to whether an agreement exists in this case and whether an arbitrationclause contained in a standard form would, therefore, govern the parties.

8. Ms. Kiran Suri, learned senior counsel appearing on behalf ofthe respondent, has taken us through the impugned judgment as well as A

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Aour judgment, and has pointed out various differences which accordingto her should conclude the matter in her favour. Most importantly,according to her, what is important is contained in clause 2.1.14, whichmakes it clear that in the facts of the present case, the moment the stageof LOA of the agreement is reached, the agreement between the parties“shall be liable to be terminated...” thereby indicating that at the stage ofBthe LOA, an agreement has, in fact, been reached between the parties.

9. She also relied upon clause 2.6.3 and clause 2.20.7 to indicatethat, on the facts of the present case, since an agreement had beenentered into at the stage of acceptance of the LOA, the arbitration clausecontained in the standard form would definitely kick in.

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10. Having heard learned counsel for the both the parties, it isimportant to set out some of the important clauses contained in the RFPin the present case. These clauses are as follows:

‘DisclaimerD

This RFP is not an Agreement and is neither an offer nor invitationby the Authority to the prospective Bidders or any other person.The purpose of this RFP is to provide interested parties withinformation that may be useful to them in making their financialoffers (BIDs) pursuant to this RFP. This RFP includes statementsEwhich reflect various assumptions and assessments arrived at bythe Authority in relation to the project.

...The issue of this RFP does not imply that the Authority is boundto select a Bidder or to appoint the Selected Bidder JV orContractor, as the case may be, for the Project and the Authorityreserves the right to reject all or any of the Bidders or Bids withoutFassigning any reason whatsoever.

Clause 1.3:

Schedule of Bidding Process

The Authority shall endeavour to adhere to the following schedule:

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Event Description:

1. Last date of receiving queries: 09.06.2014

2. Pre-bid meeting: 16.06.2014

3. Authority response to queries latest by: 04.07.2014

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4. Last date of sale of BID document: 25.07.2014

5. Bid Due Date: 28.07.2014 up to 1100 Hrs.

6. Opening of Bids: 28.07.2014 upto 1100 Hrs

7. Letter of Award (LOA) : Within 30 days of Bid Due Date

8. Validity of Bids: 120 Days of Bid Due Date

9. Signing of Concession Agreement: Within 15 days of award ofLOA.

After selection, a Letter of Award (the ‘LOA’) shall be issued, induplicate, by the Authority to the Selected Bidder and the SelectedBidder shall, within 7 (seven) days of the receipt of the LOA, signand return the duplicate copy of the LOA in acknowledgementthereof. In the event the duplicate copy of the LOA duly signedby the Selected Bidder is not received by the stipulated date, theAuthority may, unless it consents to extension of time for submissionthereof, appropriate the BID Security of such Bidder as Damageson account of failure of the Selected Bidder to acknowledge theLOA, and the NOI inconformity with 3.3.3.

After acknowledgement of the LOA as aforesaid by the SelectedBidder, it shall cause the bidder to execute the Agreement withinthe period prescribed in Clause 1.3. The Selected Bidder shallnot be entitled to seek any deviation, modification or amendmentin the Agreement.

Clause 2.20.5

The Selected Bidder’s BID Security will be returned, without anyinterest upon the bidder signing the Contract Agreement andfurnishing the Performance Security in accordance with theprovisions thereof. The Authority may, at the Selected Bidder’soption, adjust the amount of BID Security in the amount ofPerformance Security to be provided by him in accordance withthe provisions of Agreement.

Clause 6.1

The Bidding Process shall be governed by, and construed in A

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Aaccordance with, the laws of India and the Courts at Delhi shallhave exclusive jurisdiction over all disputes arising under, purusantto and/or in connection with the Bidding Process.

Clause 6.2(a)

The Authority, in its sole discretion and without incurring anyBobligation or liability, reserves the right, at any time, to; (a) suspend and/or cancel the Bidding Process and/or amend and/or supplement the bidding Process or modify the dates or otherterms and conditions relating thereto;...”

C11. Even a cursory look at the aforesaid clauses will show thatbarring one or two small differences, these clauses are virtually identicalwith the clauses contained in the PSA Mumbai Investments PTE. Limitedcase.

12. After setting out some of these clauses, this Court in itsDjudgment in PSA Mumbai Investments PTE. Ltd.’s case, held:

12) On a conjoint reading of the aforesaid clauses, a few thingsbecome clear -

(i) first and foremost a Disclaimer at the forefront of the RFPmakes it clear that there is only a bid process that is going onEbetween the parties and that there is no concluded contractbetween the same,

(ii) it is equally clear that such bid process would subsume a Letterof Award to be issued by the Respondent No.1 with two furthersteps under the schedule to be gone into before the draftFConcession Agreement finally becomes an agreement betweenRespondent No.1 and the Special Purpose Vehicle that isconstituted by the Consortium for this purpose,

(iii) that through out the stage of the bid process, the forum fordispute resolution is exclusively with the Courts at Mumbai, and G

(iv) that right uptil the stage of the entering into the ConcessionAgreement, the bid process may be annulled without giving anyreason whatsoever by the Respondent No.1.

14) Under Section 7 of the Indian Contract Act, 1872 in order toconvert a proposal into a promise, the acceptance must be absolute H

and unqualified. It is clear on the facts of this case that there is noabsolute and unqualified acceptance by the Letter of Award –two or three very important steps have to be undergone beforethere could be said to be an agreement which would be enforceablein law as a contract between the parties.

19) Mr. Dave also strongly relied upon the judgment in INOXWind Limited v. Thermocables Limited, (2018) 2 SCC 519. Thisjudgment in paras 17-19 thereafter made it clear that an exceptionto the general rule laid down in M.R. Engineers and ContractorsPrivate Limited (2009) 7 SCC 696 as to standard forms of practicecontaining arbitration clauses would be extended also to standardforms between individual persons and not merely standard formsof professional assessments.

20) We may hasten to add that this judgment in INOX Wind Ltd.case would have no manner of application on the facts of thiscase for the reason that it has been found by us that there is noagreement between the parties at all in the facts of the presentcase, making it clear, therefore, that the arbitration clause containedin the draft Concession Agreement would not apply.

13. However, learned senior counsel for the respondent reliedheavily upon clause 2.1.14, which reads as follows:

“2.1.14 A Bidder shall be liable for disqualification and forfeitureof BID Security, if any legal, financial or technical adviser of theAuthority in relation to the Project is engaged by the Bidder, itsMember or any Associate thereof, as the case may be, in anymanner for matters related to or incidental to such Project duringthe Bidding Process or subsequent to the (I) issue of the LOA or(ii) execution of the Agreement. In the event any such adviser isengaged by the selected Bidder or Contractor, as the case maybe, after issue of the LOA or execution of the Agreement formatters related or incidental to the project, then notwithstandinganything to the contrary contained therein or in the LOA or theAgreement and without Prejudice to any other right or remedy orthe Authority, including the forfeiture and appropriation of the BIDSecurity or Performance Security, as the case may be, which theAuthority may have there under or otherwise, the LOA or theAgreement, as the case may be, shall be liable to be terminated A

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without the Authority being liable in any manner whatsoever tothe Selected Bidder or Contractor for the same. For the avoidanceor doubt, this disqualification shall not apply where such adviserwas engaged by the Bidder, its member or Associate in the pastbut its assignment expired or was terminated 6 (six) months priorto the date of issue of this RFQ. Nor will this disqualificationapply where such adviser is engaged after a period of 3 (three)years from the date of commercial operation of the Project.”

She also relied upon clauses 2.6.3 and 2.20.7:

She also relied upon clauses 2.6.3 and 2.20.7:

“2.6.3 In case it is found during the evaluation or at any timebefore signing of the Agreement or after its execution and duringthe period of defect liability, subsistence thereof, that one or moreof the pre-qualification conditions have not been met by the Bidder,or the Bidder has made material misrepresentation or has givenany materially incorrect or false information, the Bidder shall bedisqualified forthwith if not yet appointed as the contractor eitherby issue of the LOA or entering into of the Agreement, and if theSelected Bidder has already been issued the LOA or has enteredinto the Agreement, as the case may be, the same shall,notwithstanding anything to the contrary contained therein or inthis RFP, be liable to be terminated, by a communication in writingby the Authority to the selected Bidder or the Contractor, as thecase may be, without the Authority being liable in any mannerwhatsoever to the Selected Bidder or the Contractor. In such anevent, the Authority shall be entitled to forfeit and appropriate theBID Security or Performance Security, as the case may be, asDamages, without prejudice to any other right or remedy thatmay be available to the Authority under the Bidding Documentsand/or the Agreement, or otherwise.”

2.20.7 The BID Security shall be forfeited and appropriated bythe Authority as damages payable to the Authority for, inter-alia,time cost and effort of the Authority without prejudice to anyother right or remedy that may be available to the Authority underthe bidding documents and / or under the Agreement, or otherwise,under the following conditions:

(a) If a Bidder submits a non-responsive BID as defined in3.2.

(b) If a Bidder engages in a corrupt practice,fraudulent practice, coercive practice, undesirable practiceor restrictive practice as specified in Section 4 of this RFP;

(c) If a Bidder withdraws its BID during the period of Bidvalidity as specified in this RFP and as extended by mutualconsent of the respective Bidder(s) and the Authority; (d)In the case of Selected Bidder, if it fails within the specifiedtime limit -

(i) to sign and return the duplicate copy of LOA;

(ii) to sign the Agreement; or

(iii) to furnish the Performance Security within the periodprescribed therefor in the Agreement; or (e)In case the Selected Bidder, having signed the Agreement,commits any breach thereof prior to furnishing thePerformance Security.

14. A perusal of the aforesaid clauses would only show that abidder is liable for disqualification and forfeiture of bidding security at allstages of the agreement, notwithstanding that there may not be executionof the agreement between the parties.

15. The expression “shall be liable to be terminated...” in clause2.1.14 is only in this context, thereby making it clear that even after theLOA may have been accepted, such disqualification and forfeiture ofbid security, if the other conditions exist, can be done by the appellant.The same interpretation goes for clauses 2.6.3 and clause 2.20.7.

16. What really puts paid to this agreement is the schedule ofbidding process which is identical to the schedule of bidding process inthe PSA Mumbai Investments PTE. Ltd.’s case.

17. This schedule of bidding process begins with the last date forreceiving queries and ends with the signing of concession agreement,LOA being Item No. 7 and part and parcel of this bidding process. Themoment this is so, then what is clear is that under clause 6.1, disputeresolution can only take place by the Courts of Delhi.

18. It is not possible to say that a standard form arbitration clausecontained in a draft agreement would then oust clause 6.1 and disturb A

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Athe entire scheme of the schedule of bidding process. This being thecase, it is clear that even at the stage of acceptance of LOA, if disputesarise between the parties, they can only be resolved by the Courts ofDelhi and not by arbitration. This being the case, it is clear that the PSAMumbai Investments PTE. Ltd.’s judgment is, in fact, on all fours andwould govern the facts of the present case.B

19. In this view of the matter, we set aside the impugned judgmentdated 26.10.2018 and allow the appeal.

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Devika Gujral

Appeal allowed.

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