Prabhu Steel Industries Ltd. vs Union Of India (Uoi) And Anr.
2005 Latest Caselaw 546 Del

JUDGMENT

Pradeep Nandrajog, J.

1. Pursuant to a notice inviting tender floated by the respondent inviting offers for supply of M.S. Round, petitioner, vide letter dated 6.6.1980 submitted its offer. Inter alia, in the offer letter, petitioner stated:-

"Validity : Our offer will remain valid up to 30.6.1980, thereafter subject to our confirmation."

2. Rates quoted were as under :

  6 mm 10 MT @ Rs.4,600/   - PMT
8 mm 110 MT @ Rs.4,225/  - PMT
10 mm 430 MT @ Rs.3.980/ - PMT
12 mm 185 MT @           - do -
16 mm 225 MT @           - do -
18 mm 410 MT @           - do -
20 mm 400 MT @           - do -
22 mm 1165 MT @          - do -
25 mm 770 MT @           - do -
-------------
3705 MT
------------ 
 

3. Rates quoted were ex-works Nagpur. Sales Tax @ 4% was to be charged extra against Form 'C'.
 

4. Offer was extended up to 10.1.1981. Admission to this effect is to be found in petitioner's letter dated 6.7.1981 (pages 18-19 of list of documents filed by the petitioner).

5. Though tenders were opened on 10.6.1980, acceptance was conveyed vide telegraph dated 9.1.1981, received by petitioner on 10.1.1981. Acceptance required petitioner to deposit Rs.75,000/- towards security deposit.

6. Prices of iron and steel were increased by the Government on 7.2.1981 and again on 14.2.1981. Petitioner did not furnish the security deposit and wrote to the respondent informing that the Government has increased price of iron and steel and as a consequence, petitioner sought increase in price. Respondent did not agree.

7. Respondent extended the time for effecting delivery. Petitioner stuck to its guns and demanded higher price. There was exchange of correspondence, details whereof may not be noted as not being relevant for determination of the issue. Respondent terminated the contract vide letter dated 17.11.1981 reserving the right to proceed for risk purchase. Following was written :

M/s Prabhu Steel Industries Pvt.Ltd.,

Old Motor Stand, Itwari,

NAGPUR-440008

Sub: This office A/Tender No.218/0028/0029/0030/ 25.4.80/C-6/COAB/008 dt. 23.2.81 for supply of various sizes M.S.round against Chief Engineer and Administration, ALHW, New Delhi indent No(s) : 1) ALHW/TECH/7(4)/76 dated 22.1.80. 2) ALHW/PUR/7(4)/76 dt. Feb'80, and 3) ALHW/PUR/7(4)/76 dt Feb'80.

Dear Sir,

You have failed to supply the entire quantity of stores against the aforesaid A/Tender within the delivery period stipulated in the contract which was ultimately extended up to 31.7.81 and thus you have committed a breach of contract. Please, therefore, note that the aforesaid A/Tender is hereby cancelled at your risk and expense in exercise of the rights under relevant clause of the General Conditions of contract governing supply Deptt. Contracts including the pamphlet entitled general conditions of contract (FORM No.DGSandD-68-Revised) as amended up to date.

Further, please note that the amount of extra expenditure/general damages on account of cancellation and risk purchase will be recovered from you in due course.

Please acknowledge receipt.

Yours faithfully,

sd/-

(S.K.CHATTOPADHYAY)

FOR and ON BEHALF OF THE PRESIDENT OF INDIA"

8. Having purchased the material from the market, respondent claimed to have incurred a loss in the sum of Rs.11,09,550/-. It demanded said sum from the petitioner vide letter dated 14.1.1983. Petitioner did not reply. Arbitration clause was invoked and vide letter dated 17.6.1987, the respondent requested the Director General of Supplies and Disposal to nominate an arbitrator. Dr. B.N. Mani was appointed as an arbitrator. Respondent filed its claim.

9. Petitioner filed the present petition invoking Section 5, 11, 12 and 33 of the Arbitration Act, 1940 praying :

"(a) Quash and set aside arbitration proceedings pending on the file of the respondent No.2 being arbitration case No.66-B of 1987 holding it is without jurisdiction, without authority of law and consequently bad, illegal and inoperative in the eyes of law.

(b) That the appointment of respondent No.2 as sole arbitrator in the facts and circumstances of the above case be quashed and set aside and the authority of respondent No.2, sole arbitrator, in Arbitration Case No.66-B of 1987 be revoked and/or the arbitrator be removed and the arbitration agreement be superseded.

(c) It be held and declared that the alleged contract giving rise to the arbitration agreement was not a concluded contract nor the terms and conditions thereof include terms to refer the dispute to arbitration and that the arbitration agreement is not in existence as the alleged right to claim damages from the petitioner is barred by limitations, consequently, the appointment of respondent No.2 and the proceedings unedertake4n by him are without jurisdiction."

10. Petition was sought to be amended to urge a point that contract was not signed as per business allocation rules of Govt. of India. Vide order dated 22.11.2000 amendment was disallowed.

11. It was urged by Mr. N.M. Popli, counsel for the petitioner that there was no concluded contract between the parties for the reason telegram of acceptance required the petitioner to deposit, by way of security, a sum of Rs.75,000/- and the petitioner having not deposited the same, there was no concluded contract. Second submission made was that immediately after receipt of the telegram from the respondent, petitioner sought increase in price due to increase in price of iron and steel. Respondent did not agree to the increase in prices and, therefore, parties were not ad- idem on the price. Thus, there was no concluded contract.

12. Tender clearly indicated that DGSandG Terms and Conditions would govern the contract. The tender documents contained the following :

"The conditions of contract which will govern any contract made, are thus contained in DGSandD-68."

13. DGSandD-68 contained a provision empowering the respondent to demand security deposit before or on acceptance of the tender. While accepting the offer, respondent required petitioner to deposit Rs.75,000/- as security deposit. Respondent exercised the option to require the petitioner to deposit security deposit on acceptance of offer. Thus, furnishing of security deposit is clearly a condition antecedent and not a condition precedent.

14. Contract concludes when an offer is unconditionally accepted. In the instant case, contract concluded when acceptance was communicated by telegram. Acceptance was communicated within the extended period of offer being kept valid. Requirement of furnishing security deposit is clearly a condition antecedent.

15. Learned counsel for the petitioner relied upon , Zodiac Electricals Pvt. Ltd. v. Union of India and Ors. The said decision would show that the Hon'ble Supreme Court held that there was no concluded contract between the parties for the reason offer made by the appellant contained a term that appellant would not deposit the sum of Rs.75,000/- towards security deposit for due performance of contract. Respondent accepted the offer by stating that the offer was accepted on the terms and conditions specified in the Schedule to the tender form. Noting that a contract concludes when an offer is unconditionally accepted, their Lordships held that the offer excluded security deposit for due performance of contract but acceptance required deposit of security deposit and there being no unconditional acceptance of the offer, there was no concluded contract. The authority relied upon by counsel for the petitioner being , M/s India Meters Ld. v. Punjab State Electricity Board and Ors. is also not attracted for the reason appellant in the said case while submitting the tender clearly indicated that it would not be submitting deposit bank guarantee.

16. Once a contract is concluded, merely because one of the party claims a higher price due to increase in cost of raw material does not mean that parties are not ad-idem on the terms of the contract pertaining to price. Petitioner's offer dated 10.6.1980 kept, valid till 10.1.1981, was accepted on 9.1.1981. Increase in prices thereafter would not unsettle the concluded contract. In any case, this issue would be a post contract dispute and would require adjudication in terms of the contract through the process of adjudication. If the contract contains an arbitration clause, process of adjudication would be through the medium of arbitration.

17. That takes me to the last and concluding submission made by counsel for the petitioner. It was urged that breach, if any, was committed by the petitioner prior to November,1981. The respondent terminated the contract on 17.11.1981. On 14.1.1983 demand towards damages was raised. Petitioner did not pay the demand. Period of limitation to refer disputes to an arbitrator was three years. It was accordingly submitted that reference made to the arbitrator on 17.6.987 was barred by limitation.

18. In a proceeding under Section 33 of the Arbitration Act,1940 pertaining to an arbitration agreement, a party to an arbitration agreement can :-

a) Challenge the existence.

b) Question the validity

c) Have the effect determined.

19. As held in , New India Assurance Co. Ltd. v. Dalmia Iron and Steel Ltd. validity of arbitration agreement includes validity of reference also.

20. There cannot be any dispute with the proposition that right to seek reference of disputes to an arbitrator would accrue when there exists a dispute which can be subject matter of a reference. Period of limitation, in the instant case, would commence at least from 14.1.1983, if not from 17.11.1981. It has to be kept in mind that the respondent terminated the contract on 17.11.1981 reserving the right to proceed for risk purchase. Having effected risk purchase, respondent demanded from the petitioner, a sum of Rs.,11,09,550/- vide letter dated 14.1.1983. Petitioner refuted liability. Reference of claim to arbitrator vide letter dated 17.6.1987 was clearly barred by limitation.

21. An arbitrator would have no jurisdiction to entertain or adjudicate on a claim which is barred by limitation. I may lodge a caveat here. If the issue of claim being time barred is raised and is a debatable point, decision being on a question of fact post evidence, it would be for the arbitrator to decide whether claim is barred by limitation. Where, as in the instant case, there is no dispute on facts and issue is clear, reference being well beyond limitation could be adjudicate on a proceeding under Section 33 of the Arbitration Act,1940.

22. Petition accordingly succeeds. It is declared that the claim of the respondent, being barred by limitation, could not be referred to arbitration of second respondent, Dr. B.N. Malik. Reference is revoked.

23. No costs.