Supreme Court of India: In a bidding dispute, whether an arbitration clause contained in the draft agreement can be invoked when the agreement was agreed not to be concluded till completion of entire bidding process

Supreme-Court-of-India-1_85138_730x419

In the case of M/S PSA Mumbai Investments Pte. Limited v. The Board of Trustees of the Jawaharlal Nehru Port Trust and Anr. Civil Appeal no. 9352 of 2018, a dispute arose from a bidding process of a tender in which the bidding was in two stages: first stage was of eligibility & second stage was of Request for Proposal (RFP). RFP had a draft concession agreement with an arbitration clause whereas the bid documents had a governing law clause with exclusive jurisdictions to Mumbai. As per the bid documents, until the draft concession agreement is signed, there won’t be any concluded contract between the parties. The Respondent triggered the arbitration clause contained in draft concession agreement. The question before the court was whether the draft concession agreement can be termed as concluded contract and whether the parties can seek arbitration under such agreement. Read the case analysis below:

Factual Matrix

The Appellant and the Respondent were part of consortium in Request for Qualification (RFQ) for development of Terminal Project of the Respondent. As per the Disclaimer of RFQ, it was not a concluded agreement amongst the parties. But RFQ stated that the bid process will be governed by Indian law and the Courts at Mumbai shall have exclusive jurisdiction over the disputes that may arise under or in connection with the said process. Further, RFQ had a draft concession agreement (the Draft) with an arbitration clause as given below. The bidding was in two-fold stages: first stage of eligibility & second stage of RFP. In case of any discrepancy between the RFP and the Draft, the latter will override the former.

As per RFP, the consortium was to be provided with a Letter of Award (LOA) in case of successful acceptance of their bid. In terms of both RFQ & RFP, the signing of the Concession Agreement comes after the LOA as the last stage in the bid process. The Consortium was awarded the LOA being the most favourable bid. Some issues pertaining to quantum of stamp duty cropped up and the Respondent backed out from the bid. Certain disputes arose between the Appellant and the Respondent regarding different agreements entered amongst them and the Respondent triggered arbitration under clause 19. This was challenged by the Appellant arguing that the said clause of the Draft would not govern the parties. The Appellant challenged the jurisdiction of the sole arbitrator which was upheld. This order was appealed by the Respondent in High Court where the impugned order of the sole arbitrator was set aside holding that there is a concluded contract between the parties as the LOA had been accepted by the Appellant, and that since the arbitration clause forms a part of the bid document between the parties, the arbitration clause would govern the parties.

Arbitration Clause

“19.3 Arbitration

(a) Arbitrators

Failing amicable settlement and/or settlement with the assistance of Expert appointed by the Parties by mutual consent, the dispute or differences or claims as the case may be, shall be finally settled by binding arbitration under the Arbitration and Conciliation Act, 1996. Unless the Parties mutually agree otherwise, within 30 (thirty) days of invocation of the arbitration as mentioned below, the rules of arbitration prescribed by the International Centre for Alternative Dispute Resolution, New Delhi shall apply to the arbitration. The arbitration shall be by a panel of three Arbitrators, one to be appointed by each party and the third, who shall act as presiding arbitrator, to be appointed by the two arbitrators appointed by the parties. The Arbitration shall be invoked by one party issuing to the other a notice in writing invoking the arbitration and appointing an arbitrator. Upon receipt of the notice, the other Party shall appoint the second Arbitrator. The two Arbitrators so appointed shall appoint the third Arbitrator who shall act as the ‘Presiding Arbitrator’. If the other Party fails to appoint a second Arbitrator within 30 (thirty) days from the receipt of the request to do so, then the Arbitrator so appointed by the first party shall adjudicate the disputes as ‘Sole Arbitrator’.

(b) Place of Arbitration

The place of arbitration shall be the headquarters of the Concessioning Authority in India.

…….

(d) Procedure

The procedure to be followed within the arbitration, including appointment of arbitrator/arbitral tribunal, the rules of evidence which are to apply shall be in accordance with the Arbitration and Conciliation Act, 1996.”

Parties’ Contentions

The Appellant argued that as per the disclaimers in both RFQ and RFP, none of them can be treated as an agreement between the parties. Further, it was argued that the LOA is not an unqualified acceptance of an offer made but has to await a contract to be signed in the form of a Concession Agreement. Also, it was contended that until such Concession Agreement is signed, Courts in Mumbai alone will have exclusive jurisdiction to decide the disputes that may arise between the parties both under the RFQ as well as the RFP. The Appellant also relied upon a clause in the RFP which stated that he Respondent could annul the bid process right till the stage of the entering into the Concession Agreement but not thereafter.

The Respondent relied on the clause of RFP which stated that the Draft would override the RFP in the case of inconsistency between the two and therefore, since an arbitration clause between the parties governs them, the inconsistent clause of Courts at Mumbai having exclusive jurisdiction would, therefore, go out of the way. The Respondent strongly relied upon the fact that it could never have been conceived that if disputes arose during the bid process, then the Respondent would have to be driven to a Court of law instead of an arbitral process thereby emphasising on the object of the agreements as a man of commerce. Relying on earlier judgements of the Supreme Court, the Respondent argued that merely because a future formal contract may have to be entered into between the parties, this does not mean that if such future formal contract is not entered into, then an agreement could not otherwise be established on facts.

Analysis

The Court cited Section 7 of the Indian Contract Act, 1872 stating that in order to convert a proposal into a promise, the acceptance must be absolute and unqualified. After perusing all relevant clauses in different agreements involved in the bidding process, the Court made following observations:

  • That the disclaimer 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.
  • That such bid process would subsume LOA to be issued by the Respondent with two further steps under the schedule to be gone into before the Draft finally becomes an agreement.
  • That throughout the stage of the bid process, the forum for dispute resolution is exclusively with the Courts at Mumbai.
  • That right uptil the stage of the entering into the Concession Agreement, the bid process may be annulled without giving any reason whatsoever by the Respondent.

Conclusion

Finally, the Court concluded that there was no absolute and unqualified acceptance by the LOA – 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 and hence, arbitration cannot be invoked in the given case.

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