Case: U.P.Rajkiya Nirman Nigam Vs. Indure Pvt.Ltd.

the construction thereof. We, therefore hold that the arbitrators cannot clothe themselves with jurisdiction to decide conclusively the arbitrability of the dispute. It is for the Court under Section 33 or on appeal thereon to decide it finally. The appellant, therefore, is not estopped to challenge the action and to seek a declaration under Section 33. 15. The clear settled law thus is that the existence or validity of an arbitration agreement shall be decided by the Court alone. Arbitrators, therefore, have no power or jurisdiction to decide or adjudicate conclusively by themselves the question since it is the very foundation on which the arbitrators proceed to adjudicate the disputes. Therefore, it is rightly pointed out by Shri Adarsh Kumar Goel, learned counsel for the appellant that they had by mistake agreed for reference and that arbitrators could not decide the existence of the arbitration agreement or arbitrability of the disputes without prejudice to their stand that no valid agreement existed. Shri Nariman contended that having agreed to refer the dispute, the appellant had acquiesced to the jurisdiction of the arbitrators and, therefore, they cannot exercise the right under Section 33 of the Act. We find no force in the contention. As seen, the appellant is claiming adjudication under Section 33 which the Court alone has jurisdiction and power to decide whether any valid agreement is existing between the parties. Mere acceptance or acquiescing to the jurisdiction of the arbitrators for adjudication of the disputes as to the existence of the arbitration agreement or arbitrability of the dispute does not disentitle the appellant to have the remedy under Section 33 through the Court. In our considered view the remedy under Section 33 is the only right royal way for deciding the controversy.16. Since the tenders- the source of the contract between the parties-had not transformed into a contract, even if the proposal and counter-proposal are assumed to be constituting an agreement, it is a contingent contract and by operation of Section 32 of the Contract Act, the counter-proposal of the respondent cannot be enforced since the event of entering into the contract with the Board had not taken place. 17. In Ramji Dayawala & Sons (P) Ltd. v. Invest Import, AIR 1981 SC 2085 , a two-Judge Bench of this Court considered the existence of the contract and arbitration clause thereunder. This Court had held that in the facts of a given case acceptance of a suggestion may be sub silentio reinforced by the subsequent conduct. Where there is mistake as to terms of a document, amendment to the draft was suggested and a counter-offer was made, the signatory to the original contract is not estopped by his signature from denying that he intended to make an offer in the terms set out in the document. Where the contracts is in a number of parts it is essential to the validity of the contract that the contracting party should either have assented to or taken to have assented to the same thing in the same sense or as it is sometimes put, there should be consensus ad idem. In that case a sub-contract was signed and executed by the Managing Director of the appellant-Company but part of the contract was altered subsequently since counter-proposal was given by the respondent. This Court had held that one such case is where a part of the offer was disputed at the negotiation stage and the original offered communicated that fact to the offeror saying that he understood the offer in a particular sense; this communication probably amounts to a counter-offer in which case it may be that mere silence of the original offeror will constitute his acceptance. Where there is a mistake as to the terms of the documents as in that case, amendment to the draft was suggested and a counter-offer was made, the signatory to the original contract is not estopped by his signature from denying that he intended to make an offer in the terms set out in the document; to wit, the letter and the cable. It can, therefore, be stated that where the contract is in a number of parts it is essential to the validity of the contract that the contracting party should either have assented to or taken to have assented to the same thing in the same sense or as it is sometimes put, there should be consensus ad idem. It was held that there was no consensus ad idem to the original contract. It was open to the party contending novatio to prove that he had not accepted a part of the original agreement though it had signed the agreement containing that part. 18. As found earlier, there is no signed agreement by a duly competent officer on behalf of the appellant. The doctrine of "indoor management" cannot be extended to formation of the contract or essential terms of the contract unless the contract with other parties is duly approved and signed on behalf of a public undertaking or the Government with its seal by an authorised or competent officer. Otherwise, it would be hazardous for public undertakings or Government or its instrumentalities to deal on contractual relations with third parties.19. In view of the fact that Section 2(a) of the Act envisages a written agreement for arbitration and that written agreement to submit the existing or future differences to arbitration is a pre-condition and further in view of the fact that the original contract itself was not a concluded contract, there existed no arbitration agreement for reference to the arbitrators. The High Court, therefore, committed a gross error of law in concluding that an agreement had emerged between the parties, from the correspondence and from submission of the tenders to the Board. Accordingly it is declared that there existed no arbitration agreement and that the reference to the arbitration, therefore, is clearly illegal. Consequently arbitrators cannot proceed further to arbiter the dispute, if any. The conclusion of the High Court is set aside.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]It is seen that the tenders were not jointly signed by the appellant and the respondent but where unilaterally submitted to the Board by the appellant and were later on a withdrawn. There did not exist any concluded contract between the Board and the appellant for the performance of the work as per terms and conditions of the tenders floated by the Board. Under Section 32 it was a contingent contract until it was accepted by the Board. In this Background, the question emerges :there is an arbitration agreement between the parties ?It is seen that Clause (14) of the agreement (subject to the dispute whether it is arbitrable under Clause (14) which is yet another issue with which we are not concerned independently does not come into existence unless there is a concluded contract pursuant to the proposal made by the appellant on June 22, 1984 or a counter-proposal by the respondent dated June 26, 1984. It is not the case of the respondent that there exist any such independent arbitrationis no dispute to the proposition of law but two factors have to be kept in mind. viz. when the counter-offer was made by the respondent and whether the unilateral offer amounts to acceptance by submitting the tenders by the appellant to the Board. We find that it does not amount to acceptance of counter proposal. It is seen that admittedly, Clause (10) which thrusts responsibility on the first respondent was deleted in the counter-proposal. In Clause 12, for joint responsibility unilateral liability was incorporated. In other words the respondent disowned its material responsibilities. Unless there is acceptance by the appellant to those conditions no concluded contract can be said to have emerged. It is seen that the appellant is a Government Undertaking and unless contract is duly executed in accordance with the Articles of Association, the appellant is not bound by any such contract. Shri Nariman sought to rely on the passage from Palmer on Companies Law containing that it is an indoor management between the appellant and its officers. When the negotiations were undertaken on behalf of the appellant, the respondent was led to believe that the officer was competent to enter into the contract on behalf of the appellant. When the counter-proposal was sent, the appellant had not returned the proposal. Therefore, it amounts to acceptance and thus concluded contract came into existence. We fail to appreciate the contention. As seen, the material alteration in the contract make world of difference to draw an inference of concluded contract. The joint liability of the parties was made unilateral liability of the appellant. Thereby, the respondent sought to absolve itself from the liability of further performance of the contract with the Board. Similarly, Clause (10) which contains material part of the terms for the performance of the contract with the Board was deleted. Thereby there is no consensus ad idem on the material terms of the contract which contains several clauses. In the absence of any consensus ad idem on the material terms of the contract to be entered into between the parties, there emerged no concluded contract. Apart from the draft agreement and the counter-proposal there is no independent contract for reference to arbitration. Clause (14) which is an integral part of the draft agreement proposed by the appellant and the counter-proposal is the foundation for reference to the arbitration.We find no force in the contention of Shri Nariman that the appellant had submitted to the jurisdiction of the arbitrators and having nominated the arbitrator, they are estopped to go back upon it. Acquiescence does not confer jurisdiction.The clear settled law thus is that the existence or validity of an arbitration agreement shall be decided by the Court alone. Arbitrators, therefore, have no power or jurisdiction to decide or adjudicate conclusively by themselves the question since it is the very foundation on which the arbitrators proceed to adjudicate the disputes. Therefore, it is rightly pointed out by Shri Adarsh Kumar Goel, learned counsel for the appellant that they had by mistake agreed for reference and that arbitrators could not decide the existence of the arbitration agreement or arbitrability of the disputes without prejudice to their stand that no valid agreement existed. Shri Nariman contended that having agreed to refer the dispute, the appellant had acquiesced to the jurisdiction of the arbitrators and, therefore, they cannot exercise the right under Section 33 of the Act. We find no force in the contention. As seen, the appellant is claiming adjudication under Section 33 which the Court alone has jurisdiction and power to decide whether any valid agreement is existing between the parties. Mere acceptance or acquiescing to the jurisdiction of the arbitrators for adjudication of the disputes as to the existence of the arbitration agreement or arbitrability of the dispute does not disentitle the appellant to have the remedy under Section 33 through the Court. In our considered view the remedy under Section 33 is the only right royal way for deciding the controversy.16. Since the tenders- the source of the contract between the parties-had not transformed into a contract, even if the proposal and counter-proposal are assumed to be constituting an agreement, it is a contingent contract and by operation of Section 32 of the Contract Act, the counter-proposal of the respondent cannot be enforced since the event of entering into the contract with the Board had not taken place.As found earlier, there is no signed agreement by a duly competent officer on behalf of the appellant. The doctrine of "indoor management" cannot be extended to formation of the contract or essential terms of the contract unless the contract with other parties is duly approved and signed on behalf of a public undertaking or the Government with its seal by an authorised or competent officer. Otherwise, it would be hazardous for public undertakings or Government or its instrumentalities to deal on contractual relations with third parties.19. In view of the fact that Section 2(a) of the Act envisages a written agreement for arbitration and that written agreement to submit the existing or future differences to arbitration is a pre-condition and further in view of the fact that the original contract itself was not a concluded contract, there existed no arbitration agreement for reference to the arbitrators. The High Court, therefore, committed a gross error of law in concluding that an agreement had emerged between the parties, from the correspondence and from submission of the tenders to the Board. Accordingly it is declared that there existed no arbitration agreement and that the reference to the arbitration, therefore, is clearly illegal. Consequently arbitrators cannot proceed further to arbiter the dispute, if any. The conclusion of the High Court is set aside.