TMI Blog2010 (1) TMI 1241X X X X Extracts X X X X X X X X Extracts X X X X ..... in future, if a purchase order was placed. In this case, the dispute raised is in regard to a claim for ₹ 10,61,28,000/- as damages on account of BSNL not placing a purchase order, that is loss of profit @ ₹ 200/- per CKM for a quantity of 5.306 LCKM. Obviously the respondent cannot invoke the arbitration clause in regard to that dispute as the arbitration agreement was non-existent in the absence of a purchase order. Thus in the absence of any purchase order in respect of 5.306 LCKM by BSNL on the respondent, respondent cannot seek recourse to the arbitration agreement contained in clause 20 of Section III of the bid document, in regard to a dispute relating to that quantity for which order was not placed. It is not sufficient to show that there was an arbitration agreement in regard to some contract between the parties.For the foregoing reasons, we hold that in the absence of an arbitration agreement, the application under section 11 of the Act was not maintainable. High Court chose to issue a direction for re-assessment of the vendor rating and if respondent was found to have V-1 rating, then place a purchase order for the quantity that remained over after al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard the parties. 2. The appellant, by Notice Inviting Tenders dated 27.3.2001, invited bids for supply of 441 LCKM of different sizes of Polythene Insulated Jelly Filled cables ( PIJF cables for short). The tender procedure (vide clause 13 of Special Conditions of Contract) required an evaluation of the bids, so as to limit the number of bidders selected for placing orders against the tender, to two-third of the participating and eligible bidders in each group; and the bidders for placement of orders were to be selected from the list of technically and commercially responsive bidders in each group arranged in decreasing order of Vendor Rating starting from the highest. The bidder with the highest Vendor Rating (V-1) was to be considered for placing the order for about 30% of the tendered quantity and the balance quantity was to be distributed among the remaining selected bidders in each group in direct ratio of their Vendor Rating. Thus the quantity for which a purchase order was to be placed by BSNL on a bidder depended upon the Vendor Rating of such a bidder. The first round of litigation 3. There were several bidders including the respondent and NICCO Corporation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led to further supplies then it will be open to the petitioner to pursue its remedies against the respondents for compensation/damages that may be available to it in law. The special leave petition filed by BSNL against the said judgment was dismissed by this court on 1.4.2005. The decision of the High Court thus attained finality. The second round of litigation 5. By the time the said decision was rendered on 29.4.2004, BSNL, as per its policy, had already carried forward the balance quantity of the Tender dated 27.3.2001 to the next tender issued in 2002 and had even placed the purchase orders on the successful bidders against the said tender issued in 2002. (BSNL claimed that its counsel had erroneously submitted to the court during hearing of the first writ petition that some quantity still remained to be ordered. Be that as it may). Therefore, according to BSNL, no balance quantity was available and no order for any further quantity could be placed with the respondent, even if the respondent was to be given V-1 rating on a re-evaluation. The respondent was aggrieved that the BSNL did not adjudge it as V-1 and did not place orders for further quantities, as per the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court as an Arbitrator. Questions for consideration 8. On the contentions urged, two questions arise for consideration: (i) Whether there exists an arbitration agreement between the parties ? (ii) Even if there is an arbitration agreement, whether the respondent, having availed the public law remedy in regard to its grievance, will be entitled to again seek remedy by way of arbitration? Relevant provisions of the bid documents 9. The Bid Documents in regard to the tender issued on 27.3.2001 consisted of twelve sections. Section I consisted of Notice Inviting Tenders. Section II consisted of Instructions to Bidders. Section III consisted of General Conditions of Contract. Section IV consisted of Special Conditions of Contract. Sections V and VI consisted of Schedule of Requirements and Technical Specifications. Schedule VII consisted of Bid Form and Price Schedules. Schedule XI contained the Price Variation Table. Sections VIII, IX, X and XII contained formats of Bid Security form, Performance security bond, Bidder s Authorization Letter and Declaration. 10. Definition clause 1(f) of Instructions to Bidders defined Purchase Order as meaning the order placed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in accordance with the Arbitration and Conciliation Act, 1996.... The first question 12. At the outset, what should be noticed is that there was no contract or agreement between the parties (except in regard to the contracted quantity of 0.536 LCKM for which an order was placed by BSNL, but which is not the subject matter of the present dispute). Bid documents did not constitute a contract, or an agreement or an agreement to enter into a contract. It was merely an invitation to make an offer. It informed the prospective bidders, how they should make their bids; how the bids would be processed by BSNL; how contracts would be entered by placing purchase orders; and what terms would govern the contracts, if purchase orders were placed. Some sections of the bid documents governed the tender process which preceded the placing of purchase orders. Some sections contained the forms in which the bid should be made by the bidder. Other sections of bid documents contained provisions which would govern the contracts, when purchase orders were placed by BSNL by accepting the bid. For example, Section I (Notice Inviting Tenders) and Section II (Instructions to bidders) had nothing to do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BSNL on a bidder (vide clauses 1(f) and 28 of Section II - Instructions to Bidders). When a purchase order is not placed, there is no contract or agreement and if there is no contract or agreement, the terms of General Conditions including the arbitration clause do not come into existence. In other words there is no arbitration agreement at all. BSNL intended to have arbitrations only where it had entered into contracts and there were disputes relating to such contracts. It did not intend to have arbitrations in regard to tender stage disputes or pre-contract differences, at a stage when there was no privity of contract. 15. It is also very significant that Section II (Instructions to Bidders) and Section IV (Special Conditions) which are relevant at the bid stage do not contain any arbitration clause providing that if there is any dispute between BSNL and a bidder in regard to the bid/tender process, the dispute will be settled by arbitration. On the other hand, the Instruction to Bidders contains a specific provision that if there is a dispute or claim arising out of the tender till (issue of authorization for) placement of the purchase order, only courts will have jurisdictio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a purchase order was not placed, and consequently the general conditions of contract (Section III) did not become a part of the contract, the conditions in Section III which included the arbitration agreement, would not at all come into existence or operation. In other words, the arbitration clause in Section III was not an arbitration agreement in praesenti, during the bidding process, but a provision that was to come into existence in future, if a purchase order was placed. In this case, the dispute raised is in regard to a claim for ₹ 10,61,28,000/- as damages on account of BSNL not placing a purchase order, that is loss of profit @ ₹ 200/- per CKM for a quantity of 5.306 LCKM. Obviously the respondent cannot invoke the arbitration clause in regard to that dispute as the arbitration agreement was non-existent in the absence of a purchase order. 18. The respondent contended that BSNL has entered into a contract with it in respect of a quantity (0.536 LCKM), and as the dispute raised was whether the contract quantity should be more, the arbitration clause was in force and available. The contention has no merit. The arbitration agreement was available in regard to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment of vendor rating by BSNL. In other words, the rating of NICCO as V-1 was apparently on account of a bonafide error in assessment or wrong understanding of the principles relating to assessment of Vendor Rating. The High Court directed correction of that error. The High Court was also aware that by the time it decided the writ petition, BSNL had completed the process of placing of purchase orders and only a very small quantity remained unallotted (In fact according to BSNL even this quantity had been transferred to next year s tender). Consequently, the High Court while disposing of the first writ petition directed the BSNL to reassess the vendor rating, and if as a result the respondent secured V-1 rating, to allot to it, any unallotted quantity of cables. So far so good. 21. But the High Court did not stop there. It proceeded to observe at the end of the order that after giving effect of balance supply, if the respondent was entitled to further supplies, it will be open to the respondent to pursue its remedies against the appellant for compensation/damages that may be available to it in law. 22. Where the terms of the bid documents barred any claim being made on acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do not normally face. When public undertakings used to have monopoly and discharged public duties, control by the government and legislature and judicial review by the Judiciary was an absolute necessity to safeguard public interest and ensure transparency and accountability. But when public undertakings are required to compete with private sector, in commercial areas, controls by the executive and legislature (sometimes referred to as political bondage) and judicial review of their action, became a handicap which impedes their progress. A public undertaking is required to ensure fairness, non-discrimination and non-arbitrariness in their dealings and decision making process. Their action is open to judicial review and scrutiny under the Right to Information Act, 2005. They are required to take out advertisements and undergo elaborate and time-consuming selection processes, whether it is purchase of materials or engaging of contractors or making appointments. Just to ensure that everyone is given a fair and equal opportunity, public undertakings are required to spend huge amounts and enormous time in elaborate tender processes. A proposal for a purchase of the value of Rupees Ten ..... X X X X Extracts X X X X X X X X Extracts X X X X
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