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

3. The appellant filed an application under Section 33 of the Arbitration Act, 1940 (for short, "the Act") for declaration that there exist no agreement between the appellant and the first respondent-- Indure Pvt. Ltd. on the basis of which a dispute for a claim of Rs. 1,68,73,628/- could be referred for arbitration as the agreement set up by the respondent was non est and alternately the dispute was not arbitrable under the agreement. Accordingly it sought declaration to set aside the said agreement. The learned single Judge of the High Court in the impugned order held that the draft agreement dated June 22, 1984 contains provision for arbitration under Clause (14) and the appellant is bound thereby : consequently, the arbitrators are entitled to arbiter the dispute.4. The dispute arose in the backdrop of the facts that the U.P. State Electricity Board has floated tenders for construction, supply and erection of mechanical equipment and construction work including consultancy services. Last date for submission of the tender was June 30, 1984. The appellant-Nigam an Undertaking of State of U.P. had purchased tender documents from the Board on February 6, 1984. The respondent approached the appellant for their joint participation to submit the tenders to the Board. In furtherance thereof, negotiations were set on foot and they decided to enter into an agreement in that behalf and ultimately draft agreement dated June 22, 1984 was sent to the respondent for signature. The appellant did not sign the draft agreement. On June 27, 1984, the respondent sent a counter-proposal deleting Clause (10) of the agreement suggested by the appellant and materially altering Clause (12) therein after signing the same. The tenders were submitted on June 30, 1984, i.e. the last date for submission of tenders; but before negotiating with the Board on February 23, 1985 the appellant had withdrawn the tenders. On February 25, 1985, the respondent had offered in its letter to the Board agreeing to undertake the entire contract by itself and offered to complete the formalities with the Board. Simultaneously, on March 3, 1985, the respondent sent a notice through its counsel claiming damages stating therein that there was no arbitration agreement between the parties. On January 21, 1986 the respondent had further sent a notice nominating an arbitrator, an arbitrator on its part and called upon the appellant to nominate its arbitrator. The respondent purported to have exercised that right under Clause (14) of the draft agreement proposed by the appellant on June 22, 1984 alleging that they had accepted the same by letter dated June 27, 1984. The appellant by letter dated February 28, 1986 disputed the existence of the arbitration agreement and also asserted that no concluded contract existed between the parties. It was further stated therein that deletion of material Clause (10) of the draft agreement and material alteration of Clause (12) constituted substantial modification of the draft agreement and consequently it did not accept the counter-proposal of the respondent and that, therefore, no valid agreement came into existence which was admitted by the respondent in their letter dated March 5, 1985. The question of appointing an arbitrator on their behalf did not arise. However, without prejudice to their right to claim that no valid agreement, much less arbitration agreement, was in existence, they nominated an arbitrator on their behalf to arbiter on the question "whether there existed any valid or subsisting agreement between the parties and whether there existed any valid and binding arbitration clause between the parties ?" Since the arbitrator nominated by them expired, the respondent was called upon the appellant to nominate another arbitrator. At that stage the appellant filed above petition under Section 33 of the Act.5. The High Court found that the respondent returned the agreement duly signed but after deleting Clause (10) and materially altering Clause (12) thereof. There was no communication by the appellant refusing or negativing the alterations made in the draft agreement. Tenders were submitted on June 30, 1984 after receipt of the modified agreement. Till March 1, 1986, the respondent had not received any communication disowning the contract between it and the appellant. Clause (14) of the agreement contained an arbitration clause for adjudication of the disputes. The withdrawal of the tenders by the appellant caused damages as claimed by the appellant in the notice. Therefore, the respondent called upon appellant to nominate their arbitrator to adjudicate the dispute intimating in their letter appointment of the arbitrator on their part. From this there emerged a concluded contract containing Clause (14) providing for arbitration for adjudication of the disputes.As stated earlier, the High Court came to the conclusion that from the correspondence between the parties there emerged a concluded contract. After due discussion between the parties the draft agreement duly signed with official seal of the respondent affixed thereon, was communicated to the appellant on June 27, 1984 which contained Clause (14) which formed an integral part of the contract. The modification suggested by the respondent were acted upon by the appellant. At no point of time it was suggested by any communication that the modifications were not accepted. On the other hand, tenders were submitted on June 30, 1984 for the joint participation of the appellant and the respondent. The respondent had sent a bank Draft for a sum of Rs. 2 lakhs on October 29, 1984. "(2) It is clear that the petitioner had accepted the agreement and in such an eventuality, the petitioner cannot deny the existence of arbitration clause :. "Therefore, from the conduct of the petitioner the inference can be drawn that the agreement had come into force the moment it was signed by the respondent and sent the same to the petitioner and the petitioner though did not sign it but acted upon it which amounts to indirect acceptance".

Court's reasoning:
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.