Delhi High Court
M/S Sadbhav Engineering Ltd. vs M/S National Thermal Power ... on 22 February, 2022
$~1
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Decision : 22nd February, 2022
+ CS(COMM) 123/2021
SADBHAV ENGINEERING LTD. ..... Plaintiff
Through: Mr. Satyendra Kumar and Ms.
Archana Mishra, Advocates.
versus
NATIONAL THERMAL POWER
CORPORATION LTD. (NTPC) ..... Defendant
Through: Mr. Puneet Taneja, Ms. Laxmi
Kumari and Mr. Manmohan Singh
Narula, Advocates.
CORAM:
HON'BLE MR. JUSTICE AMIT BANSAL
JUDGMENT
AMIT BANSAL, J. (ORAL)
[VIA VIDEO CONFERENCING]
I.A. No. 6061/2021 (u/s 8 of Arbitration & Conciliation Act)
1. This application has been filed on behalf of the applicant/defendant
(hereinafter „defendant‟) under Section 8 of the Arbitration and Conciliation
Act, 1996 (hereinafter „the Act‟) claiming that there exists an arbitration
clause between the parties and therefore, the plaint be rejected and the
parties be referred to arbitration.
2. Brief facts relevant for the purposes of deciding the present
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application are stated below:
i. The defendant, for the development and operation of Dulanga
Coal Block, Odisha, issued a Request For Proposal (hereinafter
„RFP‟) dated 22nd January, 2016. The bid documents, inter alia,
included Notice Inviting Tender, Instructions to Bidders (RFP
documents) and Project Agreement.
ii. The RFP documents, (Instructions to Bidder) under Chapter-12
titled as "Information To Bidders", contains a Dispute
Resolution Clause (Clause 12.16) in terms of which, any
dispute between the parties has to be referred to arbitration. The
said Clause 12.16 refers to the Dispute Resolution contained in
the Project Agreement.
iii. The Project Agreement contains the elaborate Dispute
Resolution Clause providing for arbitration.
iv. Pursuant to the aforesaid RFP, the non-applicant/plaintiff
(hereinafter „plaintiff‟) participated in the bidding process.
3. It is the case of the defendant that the plaintiff in support of its bid
enclosed a false/forged certificate of the plaintiff having executed a project
on behalf of Bharat Coking Coal Ltd. The defendant conducted an
investigation pursuant to which it came to light that the certificate was not
issued by Bharat Coking Coal Ltd. Therefore, acting in terms of Clause
12.47 of "Information to Bidders", the defendant encashed the bid security
of the plaintiff amounting to Rs.19,98,61,000/- vide invocation letter dated
8th May, 2017. Further, a Show Cause Notice dated 29th June, 2017 was
issued to the plaintiff in terms of Clause 5.3 of the Banning Policy of the
defendant, as to why the plaintiff should not be banned for a period of three
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years.
4. After considering the reply of the plaintiff, the competent authority of
the defendant vide order dated 24th January, 2018 suspended the issuance of
bidding documents to the plaintiff and directed that no award shall be made
to the plaintiff for any future tenders of the defendant and its subsidiaries for
a period of three years from 24th January, 2018.
5. An appeal against the said decision was filed by the plaintiff, which
was rejected vide order dated 18th October, 2018.
6. By way of the present suit, the plaintiff has challenged the
encashment of its bid security as well as the banning order dated 24 th
January, 2018.
7. It has been contended on behalf of the defendant that (i) there is a
valid arbitration agreement between the parties contained in Clause 12.16 of
the RFP which by way of reference incorporates the Dispute Resolution
Clause of the Project Agreement to be executed between the defendant and
the successful bidder, which contains the arbitration clause; (ii) the RFP that
was given to all bidders including the plaintiff, included the draft of the
Project Agreement; and (iii) therefore, the present suit is not maintainable
and the parties should be referred to arbitration in terms of Section 8 of the
Act.
8. Counsel appearing on behalf of the plaintiff has contended that (i) the
RFP does not constitute a contract between the parties; (ii) the RFP is a
document seeking information on the technical and financial capacity of the
interested bidders and gives details about the process of selection. In this
regard, reliance is placed on Clause 1 of the RFP which is the Disclaimer
Clause; (iii) Clause 3.1.37 of the RFP itself defines the Project Agreement to
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be the agreement entered into between the defendant and the selected bidder
and to be executed after issuance of Letter of Acceptance; and (iv) the RFP
contains a clause, being Clause 3.3, with regard to applicable law and
jurisdiction, which provides that Courts in Delhi alone shall have exclusive
jurisdiction. Reliance has been placed on behalf of the plaintiff on the
judgment of the Supreme Court in National Highways and Infrastructure
Development Corporation Limited. Vs. BSCPL Infrastructure Limited.,
(2019) 15 SCC 25 in support of its contentions.
9. In rejoinder, it is submitted on behalf of the defendant that (i) the
aforesaid judgment would not be applicable in the facts and circumstances
of the present case as in the said case there was no reference to an arbitration
clause in the RFP; (ii) the reference to the jurisdiction of the Courts in the
RFP in the present case is in the context of the said Court being a
supervisory Court and not the Court to decide the status of the dispute; and
(iii) once a bid has been submitted on behalf of the plaintiff, they have
agreed to the terms and conditions of the RFP including the Dispute
Resolution Clause, which contains an arbitration clause.
10. I have heard the counsels for the parties.
11. The RFP Documents (Instructions to Bidders) begins with a
Disclaimer Clause which is contained in Clause 1, relevant clauses of which
are reproduced hereinafter:
" 1. - Disclaimer
1.1- This Document is not an Agreement or an offer by NTPC
to Bidders or any third party. The purpose of this Document is to
provide interested parties with information to facilitate the
formulation of their Proposal. "
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xxx xxx xxx
1.8 - The RFP comprises of general guidelines and conditions for
bidding but not an offer by NTPC to Bidders or any third party.
The purpose of the RFP is to provide interested parties with
information to facilitate the formulation of their Proposal to
undertake this Project and to convey the terms on which the work
shall be assigned by NTPC."
12. The aforesaid clauses categorically stipulate that the RFP is neither an
agreement nor an offer being made by the defendant to the bidders or any
third parties. It further states that the purpose of the RFP is only to provide
information so that the prospective bidders/interested parties can formulate
their proposal. Therefore, the RFP would have to be interpreted in terms of
the aforesaid Disclaimer Clause. It is clear from the aforesaid clauses that
the RFP cannot be taken to be an agreement between the defendant and any
of the bidders, and that it only provides information pursuant to which,
interested parties would decide whether to make a bid or not, and if so, the
manner in which the said bid is to be submitted. The RFP is an invitation to
make offer/bid. Merely because a person decides to make a bid would not
mean that such a person has entered into a contract with the defendant. In
fact, the bid would be in the nature of an offer and only upon acceptance of
such a bid/offer by the defendant, would a valid enforceable contract come
into force.
13. The RFP itself lays down the process by which the offer made by a
bidder culminates into a contract. In this regard, reference may be made to
Clauses 6.4.3 and 6.4.4 extracted below:
"6.4.3 - Letter of Acceptance - NTPC shall, after determination
of the Selected Bidder in accordance with Chapter 11, notify the
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Selected Bidder in writing by registered letter or by tele fax, to be
confirmed in writing by registered letter, that its Project
Proposal has been accepted.
For the avoidance of doubt, it is clarified that upon issuance of
the Letter of Acceptance the Project Agreement shall come into
effect and force on the date of issuance of the Letter of
Acceptance and shall constitute valid and binding obligations
enforceable against either Party in accordance with and subject
to its terms and conditions.
6.4.4 Execution of Project Agreement - At the same time as
Owner notified the successful Bidder that its bid has been
accepted Owner will send the Bidder the Project Agreement,
incorporating all the Corrigendum (a) issued from time to time
by Owner, along with all the documents specified at Clause 1.3
of Project Agreement.
With twenty eight (28) days of receipt of the Project Agreement,
the successful Bidder shall sign and date the Project Agreement
along with all the documents specified at Clause 1.3 of Project
Agreement and return it to the Owner."
The aforesaid clauses provide that the defendant, after determination of the
selected bidder, shall notify the selected bidder by way of a Letter of
Acceptance that its project proposal has been accepted. The next stage
would be of signing of the Project Agreement between the successful bidder
and the defendant, which is provided under Clause 6.4.4 of the RFP.
Admittedly, no Letter of Acceptance was issued in favour of the plaintiff by
the defendant in the present case.
14. At this stage, it may be relevant to refer to Clause 12.16 relied upon
by the defendant, which is set out below:
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"12.16 Dispute Resolution: Dispute resolution shall be as per
the provisions of the Project Agreement."
Counsel for the defendant contends that the aforesaid clause would be
binding on all bidders and if there is any dispute between the defendant and
a bidder with regard to the terms and conditions of the RFP, the same would
have to be referred to arbitration as provided in the Dispute Resolution
Clause of the Project Agreement.
15. Reference may also be made to Clause 12.17 providing for
Assignment and Clause 12.18 providing for Sub-contracting, reproduced
hereinafter:
12.17 Assignment
12.17.1 The Mine Operator shall not, without the express prior
written consent of the Owner, assign to any Third Party the
Agreement or any part thereof, or any right, benefit, obligation
or interest therein or thereunder.
The Owner shall not, without the express prior written consent of
the Mine Operator, assign to any Third Party the Agreement or
any part thereof, or any right, benefit, obligation or interest
therein or there under.
12.17.2 In case, Mine Operator is a single corporate entity,
assignment of the contract to its existing or a new Subsidiary
may be considered by NTPC within five years of award of
contract subject to the following:....
12.18 Sub Contracting
a) In case Mine Operator would like to outsource/sub-
contract the work as stipulated in Clause 12.3 of the Project
Agreement then it shall submit details of experience of parties to
whom it would like to sub-contract the work involved during
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development stage and Operations stage, for approval of the
owner based on the Sub QR for the Sub Contractors stipulated at
Clause 12.3 of the Project Agreement.
Above information may be furnished in the formats enclosed at
Appendix-17 in this Volume-I
The very nature of Clauses 12.17 and 12.18 is such that they can only come
into effect after a bid has been accepted and a contract comes into force
between the defendant and the successful bidder. There cannot be
assignment or sub-contracting of a contract before the contract is executed
between the parties. Similarly, the Dispute Resolution Clause in Clause
12.16 is only for information purposes. The purpose of Clause 12.16 is to
inform a prospective bidder that in the event a contract is executed with the
successful bidder, if there arises a dispute, the same would be resolved as
per the Dispute Resolution Clause contained in the said Project Agreement.
The Dispute Resolution Clause is an important part of the ultimate contract
to be executed between the successful bidder and the defendant and
therefore, through Clause 12.16, the defendant seeks to notify all bidders
about its existence. By no stretch of imagination can this clause be
interpreted to constitute a Dispute Resolution Clause between the defendant
and the prospective bidder. If that were to be the case, Clause 12.16 would
have specifically provided that if there arises a dispute between the bidder
and the defendant, that would be the subject matter of an arbitration clause
as contained in the draft Project Agreement. On the other hand, Clause 3.3
in the RFP specifically provides that the RFP shall be governed by the law
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of India and the courts at Delhi will have the exclusive jurisdiction over
matters relating thereto.
16. At this stage, it may be relevant to refer to Clause 3.3 of the RFP. The
said clause is extracted below:
"3.3 Governing Law & Jurisdiction of Courts
The RFP shall be governed by and interpreted in accordance
with laws in force in India and the Courts of Delhi, India shall
have exclusive jurisdiction over matters relating thereto."
There is no doubt that the aforesaid clause would be the applicable clause in
respect of disputes arising between the defendant and the prospective
bidders like the plaintiff. It is in terms of the aforesaid clause that the
plaintiff has filed the present suit before courts in Delhi. I do not agree with
the submission made on behalf of the defendant that this clause is in the
nature of a supervisory clause in respect of the arbitration clause as referred
in Clause 12.16.
17. At this stage, reference may also be made to Section 7(5) of the Act
which is reproduced below:
"7 Arbitration agreement
xxx xxx xxx
(5) The reference in a contract to a document containing an
arbitration clause constitutes an arbitration agreement if the
contract is in writing and the reference is such as to make that
arbitration clause part of the contract."
18. In terms of Section 7(5) of the Act, a reference in a contract can be
made to arbitration clause contained in a separate document, provided that
the contract wherein the reference is made is in writing. In view of my
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finding that RFP does not constitute a contract between the parties, it cannot,
by reference, incorporate the arbitration clause contained in the Project
Agreement. Therefore, there is no merit in the submission of the defendant
that submitting a bid in response to the RFP, would result in a contract
coming into force between the defendant and the bidder.
19. Counsel for the plaintiff has placed reliance on the judgment of the
Supreme Court in BSCPL Infrastructure (supra). In BSCPL Infrastructure
(supra), the Supreme Court has followed its judgment in PSA Mumbai
Investments PTE Limited Vs. Board of Trustees Of The Jawaharlal Nehru
Port Trust And Anr., (2018) 10 SCC 525. In PSA Mumbai (supra) also,
there was an RFP issued by the respondent therein, which contained a
similarly worded Disclaimer Clause clarifying that the said bid document
was only to be construed as a document providing information to bidders
and not as a binding contract between the parties. The RFP therein also
contained clauses with respect to jurisdiction of any disputes arising out of
the RFP being that of the courts in Mumbai. It was further provided in the
RFP that post the bid process, the respondent would issue a letter of award
to the successful bidder, who, upon embarking on two further steps
contained therein would be bound by the Concession Agreement. In the
above background, the Supreme Court observed that the acceptance as per
Section 7 of the Contract Act, 1872 would become unqualified and absolute
only after the Concession Agreement is entered into between the parties,
upon which, the arbitration clause contained in the agreement would take
force. It was further observed that that even at the stage of issuance of Letter
of Award, there was no binding contract between the parties. Relevant
observations of the Supreme Court in PSA Mumbai (supra) are set out
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below:
"12. On a conjoint reading of the aforesaid clauses, a few
things become clear-
(i) first and foremost a disclaimer at the forefront of the RFP
makes it clear that there is only a bid process that is going on
between the parties and that there is no concluded contract
between the same,
(ii) it is equally clear that such bid process would subsume a
letter of award to be issued by Respondent 1with two further
steps under the schedule to be gone into before the draft
concession agreement finally becomes an agreement between
Respondent 1 and the special purpose vehicle that is constituted
by the consortium for this purpose,
(iii) that through out the stage of the bid process, the forum for
dispute resolution is exclusively with the courts at Mumbai, and
(iv) that right uptil the stage of the entering into the concession
agreement, the bid process may be annulled without giving any
reason whatsoever by Respondent 1.
* * *
14. Under Section 7 of the Contract Act, 1872 in order to
convert a proposal into a promise, the acceptance must be
absolute and unqualified. It is clear on the facts of this case that
there is no absolute and unqualified acceptance by the letter of
award- two or three very important steps have to be undergone
before there could be said to be an agreement which would be
enforceable in law as a contract between the parties."
20. Following the dicta in PSA Mumbai (supra), the Supreme Court in
BSCPL Infrastructure (supra) observed as under:
"15. What really puts paid to this agreement is the schedule of
bidding process which is identical to the schedule of bidding
process in PSA Mumbai Investment Pte. Ltd. case. This
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schedule of bidding process begins with the last date of
receiving queries and ends with the signing of concession
agreement, LOA being Item 7 and part and parcel of this
bidding process. The moment this is so, then what is clear is
that under Clause 6.1, dispute resolution can only take place by
the courts of Delhi.
16. It is not possible to say that a standard form arbitration
clause contained in a draft agreement would then oust Clause
6.1 and disturb the entire scheme of the schedule of bidding
process. This being the case, it is clear that even at the stage of
acceptance of LOA, if disputes arise between the parties, they
can only be resolved by the courts of Delhi and not by
arbitration. This being the case, it is clear that PSA Mumbai
Investments Pte. Ltd. judgment is, in fact, on all fours and
would govern the facts of the present case."
21. The dicta of the aforesaid judgments would squarely be applicable to
the present case. The counsel for the defendant has sought to distinguish
BSCPL Infrastructure (supra) on the ground that in the said case there was
no clause such as Clause 12.16 in the present case. In my view, that would
not make any difference. Like in both the aforesaid cases, the RFP in the
present case contains a similarly worded 'Disclaimer Clause' and a 'Dispute
Resolution Clause' which conferred jurisdiction upon the competent courts
in Delhi. Therefore, the arbitration clause contained in the standard form of
the Project Agreement would not oust the Dispute Resolution Clause of the
RFP, till the time the said Project Agreement is entered into by the parties.
In the cases before the Supreme Court, a Letter of Acceptance/Award had
already been issued in favour of the party, which is not the case in the
present matter. Therefore, the case of the plaintiff herein is at an even higher
footing.
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22. Therefore, I am of the view that in the present case, there is no valid
enforceable contract constituting an arbitration agreement between the
parties and hence, the parties cannot be referred to arbitration in terms of
Section 8 of the Act.
23. Accordingly, I do not find any merit in the present application and the
same is dismissed.
CS(COMM) 123/2021
24. Written statement be filed within statutory period along with
documents in support.
25. List before the Joint Registrar for completion of pleadings on 27 th
April, 2022.
AMIT BANSAL, J
FEBRUARY 22, 2022
Sakshi R.
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