o 1067 of 1971
Appeal by special leave from the judgment and order dated October 30 1970 of the Delhi High Court in FA0
OS No 40 of 1970
N A Palkhivala D Mukherjee R H Dhebar and A J Rane for the appellants
V M Tarkunde G L Sanghi B R Agarwala and Janendra Lal for respondent No 1
A K Sen G L Sanghi and B R Agarwala for respondent No 2
The Judgment of the Court was delivered by P Jagammohan Reddy J
This appeal is by special leave
The question for consideration is whether there is a binding valid and concluded contract between the appellants and the respondents
On an application filed by the respondents under section 20 of the Arbitration Act a single Judge of the Delhi High Court directed the appellants to file the arbitration agreement to refer the disputes between the parties arising under the contract to arbitrators
An appeal against that order to a Division Bench was dismissed
In order to understand the scope of the controversy a few facts may be stated
On the 21st March 1968 a notice of Global Tender No 1 of 1968 was issued by the President of India therein referred to as the Government of India Ministry of Railways Railway Board proposing to sell 80000 tones of surplus released serviceable and scrap rails as per details given in the schedule thereto to established buyers abroad or their accredited agents
It invited offers in respect thereof to be addressed to the President of India and sent to Shri R No Mubayi Director Railway Stores Railway Board
With this notice were enclosed the general conditions of tender special conditions of tender instructions to tenderers including proforma for performance guarantee and deed bonds as in clauses 4A and 4B shipping terms and schedule of stocks available as on 1st March 1968
In the general conditions the seller was defined to mean the President of India acting through the Director Railway Stores Railway Board unless the context otherwise provided
The delivery FOB Free an Board FAS Free Alongside Ship invoices and freight were dealt with in clause 9
The default clause in clause 11 provided that where a buyer fails to execute the contract the seller was to have power under the hand of the Director Railway Stores Railway Board to declare the contract at an end 439 at the risk and cost of the buyer
The special conditions of tender dealt with prices quotations payments terms of shipment weighment basis of sales and handling at ports force majeure arbitration legal jurisdiction acceptance of offers and title and risk
In the instructions to tenderers the tenderers were requested to quote their highest offer indicating the price per metric tonne inclusive of export incentive of 5 of FOB value currently applicable as guarantee by the Government of India which will always be to the sellers benefit for handing over of the rails FOB docksFASFOB Indian Port or CIF destination port
The tenderer was required to offer comments clause by clause on the general conditions of tender  and the special conditions of tender  either confirming acceptance of the clauses or indicating deviation therefrom if any
It was further provided that the contract will come into force from the date the buyers  letter of credit is accepted by the sellers  nominee
In 4A of these instructions the proforma deed bond was given which was to be signed by the tenderer and the acceptance was to be signed for and on behalf of the President of India by the person designated for that purpose
Similarly para 4B gave the proforma performance guarantee bond to be addressed to the President of India executed by the tenderer and accepted for and on behalf of the President of India by the person so designated
The terms and conditions also set out the shipping terms in detail though a few of them were also mentioned in the special conditions under the headings Shipment Terms of Shipping and Receiving Notice
It appears that the terms and conditions enclosed with the tender notice annexed to the petition filed in court were not full and complete
Consequently the appellant has annexed a true copy of the enclosures with the special leave petition and prayed that this may be admitted in evidence
As there was no dispute in respect of the contents thereof we have allowed this prayer because without them it is not possible to arrive at a just conclusion
Pursuant to this tender notice the respondents by their letter exhibit B  dated 21 5 1968 offered to buy 80000 tonnes of rails at 451 per tonne FOB Indian Ports on the term and conditions set out therein
In reply thereto by a letter dated 25 5 1968 the Dy Director Railway Stores Railway Board PC Oak in para 1 6 categorically
stated by reference to para 14 of the conditions of the letter of the respondents that as shipping terms have finan cial implications they were requested to indicate with reference to the tender which particular clauses they desire to re negotiate and settle
In para 2 it was stated that the offer of the respondents was not addressed to the President of India as required under clause 13 of the Instructions to the Tenderers and therefore the Respondents were required to confirm that their offer was deemed to nave been addressed to the President of India and  is 440 open for acceptance on behalf of the President it was further stated in para 4 that they should send the reply addressed to the President of India through the Director of Railway Stores Railway Board covering all the points indicated therein to reach them not later than 28 5 1968
No reply was however received by the time indicated in the letter of the appellants and while so stating another letter was addressed to the Respondents on 3 6 68 by C Parasuraman for Secretary Railway Board seeking further clarification in respect of items Nos 26 and 27 of the offer contained in the aforesaid letter of the Respondents dated 21 5 1968
There were also two other clarifications in respect of the weight of the tonne for which 451 was quoted and the option to transfer the contract in the name of the foreign principles which it was stated could not be agreed to straightaway unless and until they knew the names of the foreign principles and their willingness to enter into a legal binding guarantee of all the terms and conditions of the contract
The Respondents wrote subsequently to the Director Railway Stores on the 15th June 29th June 8th July and the three letters on 10th July and one on the 15th July 1968 some of which were written after a discussion with the Director of Railway Stores in the presence of the Director of Finance Mr Datta
On the same day as the letter of 15th July was sent by the Respondents P C Oak signing for the Secretary of the Railway Board addressed the following letter of acceptance No 68RSG70910 to the Respondents Subject Tender No 1 of 1968 for Export sale of used re rollable and repayable steel rails
Reference Your letter Nos
Nil dated 21 5 68 15 6 68 29 6 68 8 7 68 10 7 68 and 15 7 68
Kindly be advised that your offer at 39 per long ton FOB Indian Port for export and Rs 458 per long ton for indigenous consumption with terms and conditions referred to in your above letters is hereby accepted
Formal contract will be issued shortly
Kindly acknowledge receipt
Yours faithfully Sd P C Oak
for Secretary Railway Board
Thereafter it is alleged that several draft agreements were
exchanged regarding which there is a dispute but ultimately be fore us it is not contested that a draft agreement which the appellants say is the 5th draft but according to the Respondents is 441 the final draft was handed over to the Respondents by P C Oak on 27 8 68 but this however was not signed
Clause 2 of this draft agreement states
that the contract has been concluded by the issue of seller s letter No 68RSG70910 dated 15 7 68 to the buyers that the term of the contract shall be three years from 1 11 1968 to 31 10 1971 that the buyers reserve the right to act upon the contract any time before 1 1 1 68 and start inspection and take delivery of the goods but this will not in any manner effect the terms of the contract
Even thereafter there was further correspondence between the parties
By letter dated 18 9 68 the Respondents wrote to the Director Railway Stores agreeing to several other matters to be included in the final draft and requested him to issue the final
contract  without delay
On the 21st September 1968 the Respondents again wrote to the Director Railway Stores complaining that the information provided by the various Railways was not complete and requested him to contact the various Railways and obtain the required information as soon a  possible
After the receipt of this letter the Joint Director Railway Stores G wrote to the general Manager S All Indian Railways with a copy to the respondents calling for the required information
In that letter the Joint Director stated thus   the Board have finalized an export cum internal sale contract with Ms N K p Ltd New Delhi for a period of 3 years entitling them to export stock of such surplus rails available with the Railways
The de tailed terms and conditions of the contract will be apprised to you when finalized
On the 23rd October 1968 C Parasuraman for Secretary
 Railway Board replied to the letter of the Respondents of the 21st September 1968 stating that it was not correct that their officehas assured them that it would arrange to get the missing details from the concerned COSs
After this letter two other letters were written by the Respondents to the Director Railway Stores dated 7th and 23rd November 1968
In the first letter it was stated thus In pursuance of your invitation we submitted our tender for purchase of used relayable and re rollable steel rails on 21 5 68
After some negotiations the terms of the contract were finalized and the Secretary Railway Board by his letter No 68RSG70910 dated 15 7 68
accepted our offer and concluded the contract
We were informed that the formal contract will be issued shortly
A draft of the formal contract was handed over to us on 27 8 68
In our letter of 18 9 68 some agreed terms were set out which had to be incorporated in the formal contract
Since the acceptance of our 442 offer we have made all arrangement for the sale of the material We beg to inform you that out of the total quantity of 88936 tonnes of Rails already offered to us for our approval we approve and shall take delivery of 53807 Tonnes as per list enclosed herewith
The above quantity may kindly be reserved for us and arrangement be made for their delivery in terms of the contract
 In the second letter the respondents complained that though the contract for sale of used rerollable and relayable steel rails was concluded on 15 7 68 they regretted that they had not received the formal contract so far and requested that it should be sent without any further delay
In the last paragraph of that letter the Respondents complained that they came to know that some of the Railways who were
holding storks are selling the steel rails which they have no right to do and requested them to stop such sales
To this P C Oak for Secretary Railway Board replied Kindly refer to correspondence resting with your letters dated July 26 1968 18th September 1968 and No RBRails681114 dated 2nd December 1968
Your contention contained in your letter No RBRails 681 dated 23 11 68 that the Railway Board is not authorized to sell rails  to other parties because of their having concluded a contract with you is factually incorrect
No doubt letter No 68RSG70910 dated 15 7 68 indicated an intention to enter into a con tract with you but subsequent to this discussions had been held with you over a number of sittings on 20 7 68 12 8 68 26 8 68 27 8 67 culminating in your letter dated 18 9 68
This would amply indicate that no agreement had been reached on vital terms and conditions and the question of the existence of a concluded contract does not arise 
  The Respondents replied to this letter by their letter dated 25 1 1969 expressing surprise and contesting the stand taken by the Railway Board
In the petition of the Respondents filed in Court after setting out the relevant correspondence leading upto the letter of acceptance of P C Oak dated 15th July 1968 it was stated that that letter was a definite acceptance of the offer and constitutes a binding and valid contract between the parties
With respect to the draft agreement of the 27th August 1968 handed over to the Respondents embodying the agreement between the parties the averment was that the then Acting Director of Railway Stores desired certain additional terms to be embodied in the terms that were agreed to
The additional terms were agreed to by the plaintiffs Respondents by their letter to the 443 Director Railway Stores dated 18 9 1968
In para 16 it was further alleged that after the letter of acceptance by the appellants the then Acting Director of Railway Stores and the Director of Finance proposed to the plaintiffs that the price offered by them should be increased or in the alternative certain alterations be made in the agreed terms but the plaintiffs having justly refused to do so the 2nd defendant C Parasuraman falsely wrote to the plaintiffs on 15 1 1969 that no concluded contract had taken place and that the Railway Board was therefore not precluded from selling rails to other parties
The appellants in their written statement raised a prelimi nary objection namely that the petition was misconceived as there was no arbitration agreement between the parties and so the question of enforcing the arbitration clause in the alleged contract did not arise
It also reiterated its stand earlier taken that the letter dated 15 7 68 written by Oak on behalf of the Secretary Railway Board was not a letter of acceptance of the offer of the Respondents so as to amount to a concluded contract binding on the Union of India nor could it be construed as such in view of the mandatory provisions of Article 299 of the Constitution of India
The contention was that unless and until a formal instrument of contract was executed in the manner required by Article 299 of the Constitution and by the relevant notifications there would not be a contract binding on the Union of India and at any rate no such agreement was entered into as it was
alleged that though interviews had taken place at various times between the plaintiffs and the several officers of the Railway Board no agreement had been reached on vital terms and conditions
Two submissions were urged on behalf of the appellants namely  1 that apart from the contention relating to article 299 of the Constitution there was no concluded contract between the parties because a the essential terms were not agreed to between them on the date when the acceptance letter was issued by P C Oak on 15 7 68 and b even it there was an acceptance as alleged that acceptance was conditional upon a formal contract being executed by the appellants 2 that the three mandatory requirements of article 299 of the Constitution for a valid and binding contract made in exercise of the executive power of the Union have not been complied with namely a that the contract was not expressed to be in the name of the President nor b was 444 it executed on behalf of the President or c by a person authorized to execute it on his behalf
The crucial question which arises for determination is whether there was a concluded contract and if there was one whether the mandatory requirements of Article 299 of the Constitution for entering into a valid and binding contract have been satisfied It is now settled by this Court that though the words expressed  and executed  in Article 2991 might suggest that it should be by a deed or by a formal written contract a binding contract by tender and acceptance can also come into existence if the accept ance is by a person duly authorized on this behalf by the President of India
A contract whether by a formal deed or otherwise by persons not authorized by the President cannot be binding and is absolutely void
We do not for the present consider it necessary to go into the question whether and to what extent the requirements of article 299 have been complied with in this case
What we have to first ascertain is whether apart from the contention relating to Article 299 a concluded contract has come into existence as alleged by the Respondents
Before us detailed arguments were addressed on behalf of the appellants to show that notwithstanding the letter of acceptance of 15th July 1968 no concluded contract had in fact come into existence and though that letter accepted certain terms there were other essential terms of the contract which had to be agreed to and were the subject matter of further negotiations between the parties that it was the intention of the parties that all those terms were to be embodied in a formal contract to be executed which contract alone was to be binding between the parties and that in any case the letter of acceptance and the subsequent letters were not by the Director of Railway Stores but by the Secretary to the Railway Board who was not a person authorized to enter into the agreement between the President of India represented by the Ministry of Railways and the Respondents
On the other hand the stand taken by the Respondents was that all the essential terms of the contract were agreed to and the contract was concluded on 15th July 1968 though at the ins tance of the Director Railway Stores further terms with respect to the execution of the contract were the subject matter of negotiations between the parties and in any case these did not pertain to the essential terms and could not on that account detract from the binding nature of a concluded contract
It was also contended that the letter of acceptance by P C Oak though signed on behalf of the Secretary Railway Board was in fact on behalf of the said Board which was authorized to enter into such a contract
It is in our view unnecessary to consider the several contentions as to whether all the essential terms of the contract had been agreed to or that the contract was concluded by the acceptance 445 letter of 15th July 1968 or whether the parties intended it to be a term of the contract that a formal contract should be entered into between them in order to bind the parties
In this case we are of the view that the Secretary to the Railway Board on whose behalf the offer of the Respondents was accepted was not the person authorized to enter into a contract on behalf of the President of India
As can be seen from the various documents already extracted that the tender notice invited offers to be addressed to the President of India through the Director of Railway Stores Railway Board
Under the general conditions the seller was defined to mean the President of India acting through the Director Railway Stores and in the default clause it was provided that where the buyer fails to execute the contract the seller shall have power under the hand of the Director Railway Stores Railway Board to declare the contract at an end
In the letter written by Oak on 25 5 68 as earlier noticed it was pointed out to the Respondents that their offer was not addressed to the President of India as required under clause 13 of the Instructions to the Tenderers and therefore the Respondents were required to confirm that their offer can be deemed to have been addressed to the President and is open for acceptance on behalf of the President and their reply should be addressed to the President of India through the Director of Railway Stores Railway Board
Even the draft contract dated 27 8 68 in terms of which the Respondents were insisting on a final contract to be issued to them by the appellants was to be executed by the Respondents as buyers on the one part and the President of India acting through the Director Railway Stores Ministry of Railways Railway Board as the sellers on the other
There is little doubt that the only person authorized to enter into the contract on behalf of the President is the Director Railway Stores
It is true that the notification of the Ministry of Law issued in exercise of the powers under clause 1 of Article 299 of the Constitution shows that the President directed the authorities named therein to execute on his behalf the contracts and assurances of property specified therein
But notwithstanding this the President is fully empowered to direct the execution of any specified contract or class of contracts on ad hoc basis by authorities other than those specified in the said notification
This Court had in Seth Bikhraj Jaipuria vs Union of India 1 earlier held that the authority to execute contracts may be conferred on a person not only by rules expressly framed and by formal notifications issued in this behalf but may also be specifically conferred
In this case the letter of ac ceptance dated 15 7 1968 was on behalf of the Secretary Railway Board who is not authorized to enter into a contract on behalf of the President
1  446 It is contended that clause 43 of part XVIII and Part XII empower the Secretary Railway Board to enter into such con tracts
Clause 43 of Part XVIII provides that all deeds and instruments other than those specified in that part may be executed by the Secretary or the Joint Secretary or the Deputy Secretary or the Under Secretary in the Railway Board or a Director Joint Director Deputy Director or Assistant Director in the Railway Board
It is submitted that as nothing has been specified in Part XVIII relating to the contract of the type we are considering the Secretary Railway Board is authorized to enter into a contract on behalf of the President
This submission is untenable because clause 9 specifically provides for the contracts connected with the sale of scrap ashes coal dust empty containers and stores
The tender it will be observed is for rails which are scrap as well as rerollable and relayable but it is urged that relayable rails are not stores nor can they be considered as scrap and as these are not covered by clause 9 the Secretary Railway Board is fully empowered by the President to enter into a contract on his behalf
We cannot accept this argument because in our view relayable rails are part of the stores
It may be that some of these rails which are part of the stores may be considered to be in a condition which the authorities concerned think should be disposed of
The contracts relating to the goods of the nature specified in the tender notice are therefore dealt with by clause 9 as such clause 43 will have no application
Part XLI empowers the Secretaries to the Central Government in the appropriate Ministries or Departments to execute any contract or assurances of property relating to any matter whatsoever and is in these terms  Notwithstanding anything hereinbefore contained any contract or assurance of property relating to any matter whatsoever may be executed by the Secretary or the Special Secretary or the Additional Secretary or a Joint Secretary or a Director or where there is no Additional Secretary or a Joint Secretary or a Director a Deputy Secretary to the Central Government in the appropriate Ministry or Department and in the case of
 The contention on behalf of the Respondents is that since Railway Board is a Department of the Government the Secretary to the Department is authorized to enter into a contract under the above provision
This submission in our view is equally misconceived because reading the above requirement carefully it will appear that the persons there mentioned should be Secretary
Special Secretary etc to the Central Government in the appropriate Ministry or Department and not that the Secretary to any Department or office of the Government of India is empowered thereunder
It is however contended that the Secretary to the 447 Railway Board is a Joint Secretary to the Government of India and as such under the above Provision the acceptance letter should be considered to have been executed on behalf of the president Even this submission lacks validity because as pointed out on behalf of the appellant at the relevant time the Secretary to the Railway Board did not have any status as Secretary to the Central Government
The status of a Joint Secretary was only conferred on him by a notification by the Government of India in the Ministry of Railways for the first time on 15 9 1969 with effect from that date
An affidavit of the Deputy Secretary to the Railway Board Ministry of Railways has been filed before us setting out the above fact and enclosing the said notification
Then again it was urged that the members of the Railway Board were Secretaries to the Central Government and hence the Board on whose behalf the Secretary communicated the acceptance could enter into a binding contract
This submission also is without force because there is no material before us to conclude that the Board was so authorized
In these circumstances even if the correspondence shows that the formalities necessary for a concluded contract have been satisfied and the parties were ad item by the time the letter of acceptance of the 15th July 1968 was written about which we do not wish to express any opinion there is no valid or binding contact because the letter of acceptance on the evidence before us is not by a person authorized to execute the contracts for and on behalf of the President of India
On the evening before the day the judgment in the case was due to be delivered an application dated 7 2 72 was filed enclosing an affidavit of R N Mubayi who was Director Railway Stores between 18 12 1965 to 30 9 1969 as also an affidavit of R B Lal Managing Director of the Respondent No 1 to take them in evidence and consider the facts stated therein before judgment is delivered and if necessary to call for the file and give a re hearing
The affidavit of Mubayi states that only after he recorded on the relevant file and issued instructions to his Deputy Director Shri P C Oak to convey the acceptance of the offer of Ms N K Private Limited that the acceptance was conveyed by Shri P C Oak to the said company
The affidavit of R B Lal says that though the affidavit filed by P Lal Deputy Secretary Railway Board stating that the Secretary Railway Board did not have the status of Secretary Special Secretary Additional Secretary Joint Secretary or Deputy Secretary to the Government of India in the Ministry of Railway he has not denied that the Secretary did not have the status of a Director
It is further submitted in that affidavit that the Secretary of the Board had the status of a Director at the relevant time and as mentioned in Part XLI of the Notification of the Ministry of Law a Director  is authorized to accept offers
448 Apart from the question whether we should admit additional evidence at this stage in this case and though we had rejected an earlier submission to call for the files having regard to the facts stated by R N Mubayi Director of Railway Stores during the relevant period that it was he who had asked PC Oak to accept the offer and had so endorsed it on the file as also the affidavit of R B Lal that the Secretary to the Board was the Director of Railway Stores we withheld the judgment and called for the file to satisfy ourselves
The file has been submitted to us by the appellants along with an affidavit of R Srinivasan Joint Director Railway Board in which it is categorically averred that at the relevant time namely 15 7 68 the Secretary Railway Board did not have the status of the Director under Para XLI of the Notification of the Ministry of Law or at all
A perusal of the relevant file relating to the letter of acceptance would show that on 15 7 68 Shri Oak made the following endorsement Reference to Board s orders at page 38N draft letter accepting Ms NK P Ltd offer is being issued today
DRS may kindly see before issue and this endorsement was merely signed by RN Mubayi
We are not here referring to the other proceedings on the file as to whether the execution of a formal contract was a condition precedent and as one of the terms of the contract but even the above endorsement does not show that the letter of acceptance of 15 7 68 was issued on the orders and directions of Mubayi as alleged by him in the affidavit
What it in fact shows is that it is the Board that issued the orders of acceptance and that the acceptance letter was only to be seen by him
Even the draft letter issued does not contain his initials or his signature in token of his having seen or approved it
The letter of acceptance not having been issued on the orders of the Director Railway Stores there was no concluded contract as on that date by a person authorized to enter into a contract
There is also nothing to show that the Secretary to the Board was the Director Railway Board as further alleged in the affidavit of R B Lal
In this view the appeal is allowed and the application under section 20 of the Arbitration Act is dismissed but there will be no order as to costs of the appellants
On the other hand we direct the appellants to pay the costs of the Respondents because special leave was granted on condition that the petitioner will pay the costs of the Respondents in this appeal in any event
SC Appeal allowed


Summary:
A global tender to sell surplus serviceable and scrap rails was issued to established buyers by the Government of India and pursuant to this tender notice the respondents by their letter dated 21 5 68 offered to buy the rails at a particular price and Shri P C Oak Deputy Director Railway Stores Railway Board on behalf of the Secretary Railway Board accepted the respondents  offer with the terms and conditions mentioned in the letters sent by the respondent on 15 7 68
Negotiations for the final contract however took place between the parties and on 15 7 68 the respondents complained that some of the Railways who were holding stocks are selling the steel rails which they have no right to sell in view of the concluded contract but Shri P C Oak for Secretary Railway Board replied that subsequent to 15 7 68 there were negotiations for the vital terms and conditions of the contract and so the question of the existence of a concluded contract did not arise
At this the respondents filed a petition in Court under section 20 of the Arbitration Act after setting out the relevant correspondence leading upto the letter of acceptance of 15th July 1968 and it was stated that the letter was a definite acceptance of the offer and constitute a valid and binding contract between the parties
In the written statement the appellants raised a preliminary objection that the petition was misconceived as there was no arbitration agreement between the parties and so the question of enforcing the arbitration clause in the alleged contract did not arise
Further it was contended by the appellants that the letter of acceptance and the subsequent letters were not by the Director of Railway Stores but by the Secretary to the Railway Board who was not a person authorized to enter into the agreement between the President of India represented by the Ministry of Rail ways and the respondents as required under article 299 of the Constitution
Allowing the appeal
BELD  The Secretary to the Railway Board on whose behalf the offer of the respondents was accepted was not the person authorized to enter into a contract on behalf of the President of India as required under article 299 and therefore the contract if any was not binding on the appellants
Further it was not correct to say that Clause 43 of Part XVIII and Part XLI empowered the Secretary Railway Board to enter into such contracts because Clause 9 specifically provided for the contracts connected with the sale of scrap ashes coal dust empty containers and stores and repayable rails being part of the stores it was covered by Clause 9 and the Secretary Railway Board was not empowered by the President to enter into a contract on his behalf
445 B Seth Bikhraj Jaipuria vs Union of India 1962 2 SCR 880 referred to 438