TMI Blog2006 (1) TMI 653X X X X Extracts X X X X X X X X Extracts X X X X ..... are purchase orders placed on behalf of BINDAL which are made subject to the General Conditions of Purchase including the arbitration clause (clause 27.4.2) and therefore, there is an arbitration agreement between DR and BINDAL/KGK. On a careful examination, we find that both premises are erroneous and are baseless assumptions. When DR suggested modifications to the general conditions of purchase, and when BINDAL agreed to them, and both parties initialled Revision No. 4 containing the modifications to the General Conditions of Purchase, on 10.6.1991, no contract or agreement came into existence as it did not involve either an offer or acceptance or performance of any promise. Revision No. 4 dated 10.6.1991 only consisted of the modifications to the General Conditions of Purchase, subject to which it was willing to enter into a contract with BINDAL for sale of machinery. Parties merely agreed that when an order was placed or contract was entered for supply of a machinery by DR to BINDAL, it will be subject to the 'General Conditions of Purchase' stipulated by BINDAL as modified by Revision No. 4 dated 10.6.1991 agreed by both parties. Parties agreeing upon the terms subjec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchase Orders were placed and LCs were opened by 31.8.1991, DR would be bound to effect supply within 151/2 months, at the prices stated in the Letter of Intent. Therefore, it may not be possible to treat the Letters of Intent as Purchase Orders. Even if we assume that the Letters of Intent were intended to contracts for supply of machinery in accordance with the terms contained therein, it may only enable DR to sue for damages or sue for the expenses incurred in anticipation of the order and opening of LC. But that will not be of any assistance to contend that there was an arbitration agreement between the parties. It is now admitted by DR that there is no document (Revision No. 4 or otherwise) modifying the general conditions of purchase, which is initialled by DR and KGK. The Revision No. 4 was initialled only by DR and BINDAL. Therefore, the general conditions of purchase containing the arbitration clause, never became a term of the letters of intent dated 12.6.1991. Clause (C) of the letters of intent made it clear that it is only the purchase orders which were to be placed in future on or before 31.8.1991 (along with opening of LC) that was to be subject to the General Condit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in FOA (OS) Nos. 94, 113, 136 and 137 of 2002 dated 04.3.2003 affirming the order dated 14.2.2002 passed by a learned single Judge of High Court of Delhi in I.A. Nos. 5795/93, 9246/93 in Suit No. 1362/93 and I.A. Nos. 5819/93, 9355/93 in Suit No. 1380 of 1993. 2. For convenience, Dresser Rand S.A. [Appellant in both the appeals], BINDAL Agro Chem. Ltd., [Respondent No. 1 in both appeals] and K.G. Khosla Compressors Ltd. [Respondent No. 2 in both appeals] will also be hereinafter referred to as DR, BINDAL and KGK respectively. 3. BINDAL has filed Suit Nos. 1363/1993 in the Delhi High Court, for a declaration that there exists no arbitration agreement between itself and DR and for a consequential injunction restraining DR from proceeding with the arbitration before the International Chamber of Commerce, Paris. KGK has also filed Suit No. 1380/1993 in the said court for similar relief. 4. BINDAL and KGK have filed IA Nos. 5795/93 and 5819/1993 respectively in their respective suits, under Order 39 Rules 1 and 2 CPC seeking a temporary injunction to restrain DR from proceeding with the arbitration. 5. DR has filed I.A. No. 9246/1993 in Suit No. 1363/1993 and I.A. No. 9355/1993 in Suit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 4.3.2003 dismissed the appeals filed by DR and allowed the appeals filed by BINDAL and KGK. The Division Bench affirmed the finding of the learned single Judge of the High Court that there was no arbitration agreement and consequently, upheld the rejection of the applications under Section 3 of the Foreign Awards Act. The Division Bench while affirming the temporary injunction granted by the learned Single Judge restraining DR from proceeding with the Arbitration, deleted the requirement imposed by the learned Single Judge relating to furnishing of bank guarantee by BINDAL and KGK. 8. Feeling aggrieved, DR has filed these civil appeals by special leave [CA No. 8357/2003 and CA No. 8358/2003] challenging the rejection of FAO (OS) No. 136/2002 and FAO (OS) No. 137/2002. On the contentions urged, the following questions arise for consideration in these appeals :- (i) Whether there is an arbitration agreement between DR and BINDAL; (ii) Whether there is an arbitration agreement between DR and KGK; (iii) Whether BINDAL and KGK are estopped from contending that there is no arbitration agreement, in view of their counsel having stated in his telex dated 11.4.1993, that his clients ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imports only to moving machinery, cutting out static equipment. DR sent a reply dated 16.5.1991, quoting its price for Syn. Gas compressor and proposed to discuss the modalities of DR having overall responsibility for various compressor turbines/auxiliaries not included in the scope of supplies, as also commercial points. This was followed by a meeting between the representatives of DR and BINDAL wherein the technical details in regard to performance of the syn. gas compressor discussed. 11. Thereafter, DR gave its comments/modifications to the terms and conditions of BINDAL termed as Revision 4 (Attachment IV) dated 10.6.1991 wherein it set out the amendments/modifications it required to BINDAL's 'General Conditions of Purchase'. The said Revision 4 was initialled by the representatives of DR and BINDAL, presumably in token of the changes agreed in the standard General Conditions of Purchase of BINDAL. 12. We extract below relevant portions of Clauses 1 and 27 in the BINDAL's 'General Conditions of Purchase' and the modifications thereto by DR (Note : We are not referring to other clauses of 'General Conditions of Purchase' or the modifications ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e with the Uniform Customs and Practices for Documentary Credits of the International Chamber of Commerce. Draft of such Letter of Credit is provided for in Attachment II of this Letter of Intent and is subject to changes proposed by KGK or its bankers and prior written agreement by DR or its bankers. The said Letter of Credit shall be valid for a period of 15 months from its notification to DR and shall be extendable by two (2) months period at DR's request in order to allow complete drawings of the said Letter of Credit. x x x D. DELIVERY DATE The delivery date (last shipment) shall be 15-1/2 (Fifteen One Half Months) after DR's receipt of this Letter of Intent. For the purpose of assessing liquidated damages for delivery, delivery time shall be calculated on the basis of issuance of DR's Certificate of readiness to ship, after inspection by KGK or its authorized agents and in the event of their failure to do so, a declaration by DR that one month's notification of readiness to ship and invitation to inspect was given. The time lag between the first and the last shipment will not exceed 12 weeks. G. OPTIONAL PERFORMANCE TEST KGK has an option of asking DR to carry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ters of Credit before making major financial commitments for castings etc. and requested DR to wait till 31.10.1991. BINDAL also stated that it was confident to open the Letters of Credit before 31.10.1991 and will accept a corresponding delay in the delivery schedule. 14.1) Thereafter, DR by communication dated 24.10.1991, after referring to the discussions with BINDAL (wherein the Commercial Director of BINDAL had assured that all approvals from the Government were received and the Letter of Credit was likely to be opened before the end of November, 1991) advised BINDAL that in view of the delay, there will be a price increase of 4.5% (provided the LOC was established by 30.11.1991) apart from the corresponding delay in supply. 14.2) By communication dated 9.12.1991, BINDAL informed DR that it was not possible to accept the Syn. Gas Compressor turbine manufactured by DR as it found after a visit to DR's works at France that DR did not have any experience in manufacturing large mechanical turbines, and therefore it was proposing to obtain the drive turbine for Syn. Gas Compressor from an alternative source who has supplied similar turbines. By a subsequent letter dated 23.12.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay determine; 2. delivery to DR, of the documents enumerated in Appendix I thereto (with all copies thereof made by BINDAL and KGK); 3. an injunction restraining BINDAL/KGK by themselves, their agents or contractors from using any of the said documents for any purposes; and 4. for interest, costs etc. ICC issued a notice dated 10.3.1993 to BINDAL and KGK in regard to lodgment of the said claim by DR. 16. One Bishwajit Bhattacharyya, Advocate, acting under instructions from BINDAL and KGK sent a telex dated 11.4.1993 to ICC in reply to the notice of Lodgment dated 10.3.1993 stating that BINDAL and KGK were in the process of jointly nominating an arbitrator and that his clients were not agreeable for appointment of a sole arbitrator. This was, however, followed by two different communications from different counsel. Mr. R. S. Gill, Advocate sent a communication dated 27.4.1993 to ICC stating that he had been instructed to represent BINDAL in place of Mr. Bhattacharyya. Similarly, one Mr. J.S. Sinha, Advocate sent a communication dated 28.4.1993 to ICC stating that he had been instructed to represent KGK in place of Mr. Bhattacharyya. The written replies of BINDAL and KGK were enclose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of defined legal relationship, whether contractual or not, concerning a subject-matter capable of settlement by arbitration. 2. The term agreement in writing shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams. 3. The Court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. 19. In Renusagar Power Co. Ltd. v. General Electric Company [1985]1SCR432 , this Court considered the scope of Section 3 of Foreign Awards Act and formulated the following six conditions required to be fulfilled for invoking Section 3: (i) there must be an agreement to which Article II of the Convention set forth in the Schedule applies; (ii) a part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Court under Section 3 and will have to be finally decided by the Court. 20. It is clear from Clause (2) of Article II that an 'agreement in writing' includes not only an arbitral clause in a contract or a separate arbitration agreement, signed by the parties, but a term contained in an exchange of letters or telegrams agreeing to submit their differences to arbitration. The question, therefore, is whether there is an agreement in writing under which parties have agreed to submit their differences to arbitration. 21. The principle as to how to find out whether the correspondence shows consensus ad idem, was stated by this Court in Rickmers Verwaltung Gmbh v. Indian Oil Corporation Ltd.: AIR1999SC504 : The submission of Mr. Nariman that an agreement, even if not signed by the parties, can be spelt out from correspondence exchanged between the parties admits of no doubt. In fact, various judgments cited by him at the bar unmistakably support this assertion. The question, however, is can any agreement be spelt out from the correspondence between the parties in the instant case? In this connection the cardinal principle to remember is that it is the duty of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BINDAL to DR provided that the purchase order shall be subject to the 'general conditions of purchase' included in inquiry and as amended by DR's comments thereto, Revision No. 4 dated 10.6.1991 initialled by DR and KGK separately ; (c) The Letters of Intent are the purchase orders and they have been accepted by DR by counter-signing them. Therefore, there are concluded contracts between DR on the one hand and KGK representing BINDAL on the other, for supply of the machinery mentioned in the Letters of Intent which are governed by BINDAL's 'general conditions of purchase' which contain an arbitration clause. Thus there is an arbitration agreement between the parties in terms of Clause 27.4.2 of the 'General Conditions of Purchase. 23. We find that the said submission of DR is based on two premises. The first is that there is an 'arbitration agreement' between 'DR' on the one hand and 'BINDAL' on the other as per Clause 27.4.2 of the 'General Conditions of Purchase'. The second is that even if Clause 27.4.2 of General Conditions of Purchase itself may not operate as an arbitration agreement between the parties, the Letters ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchase act as a common denominator for all tenderers to base their offers and for evaluation of such offers. Further, the said General Conditions stipulated by the purchaser enable the tenderer to assess his obligations and calculate the offer price accordingly. For example, there will be a marked difference in the responsibility of a supplier and the pricing, if the purchaser seeks a three year warranty instead of one year warranty, or seeks delivery of machinery at site instead of at supplier's factory, or seeks delivery to be expedited instead of the normal period. Many a time the supplier is able to persuade the purchaser to agree for modification of the 'conditions of purchase' stipulated by the purchaser, particularly where a supplier is in a position of strength and the purchaser is keen to purchase a particular product of that supplier. There are also several suppliers who stipulate their own 'conditions of sale' and refuse to go by the conditions of purchase stipulated by the purchaser. The intending purchaser and the intending supplier are at liberty to negotiate and agree upon the terms subject to which offers will be made and accepted. As contrasted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned by the terms set out in the letters but until an order was placed and accepted there was no contract. In Rickmers Verwaltung (supra), the appellant contended that though the agreement drawn up on 11.11.1993 was not formally signed by the parties, the contemporaneous correspondence between them showed that a binding contract came into existence between the parties in terms of such draft dated 11.11.1993 and Clause 53 of the said 'agreement' provided for arbitration and therefore, the claim raised by the appellant had to be settled by reference to arbitration. The first Respondent (Indian Oil Corporation Ltd) on the other hand contended that no arbitration agreement had been executed between the parties and the correspondence between the parties did not bring about any enforceable contract between the parties, because the fundamental conditions of the terms of the bargain were neither agreed upon nor fulfilled by the parties. This Court accepted the contention by the first respondent that there was no 'arbitration agreement' on the following reasoning: From a careful perusal of the entire correspondence on the record, we are of the opinion that no concluded barga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ext examine whether any arbitration agreement came into existence by issue of Letters of Intent dated 12.6.1991 by KGK countersigned by DR and if so who are the parties to such arbitration agreement. 30. The circumstances in which the Letters of Intent dated 12.6.1991 by KGK 'surfaced' is strange and illogical if not mysterious. It is admitted by DR that at no point of time, it held any negotiation or discussion or exchanged correspondence with KGK in this matter. The case of DR is that BINDAL was corresponding and negotiating with it for purchase of certain types of compressors for its Shahjahanpur Fertilizers Project; that neither BINDAL nor KGK ever informed DR that KGK was the agent/consultant of BINDAL; and that the modifications to 'General Conditions of Purchase' were discussed and finalized on 10.6.1991, as per Revision No. 4 initialled by the representatives of DR and BINDAL. In the circumstances, there appears to be no logical reason for two letters of intent being prepared and issued on the letterhead of KGK on 12.6.1991 out of the blue, particularly when no representative of KGK was present during discussions on 12.6.1991 nor were the Letters of Intent s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the Letters of Intent dated 12.6.1991, there was no denial either by BINDAL or KGK iv) When DR lodged a request for arbitration with ICC making a claim jointly against BINDAL and KGK specifically alleged that KGK acted as agent of BINDAL in issuing of Letters of Credit, and when copies of such request for arbitration were forwarded by ICC to BINDAL and KGK, significantly, BINDAL and KGK sent a common reply through a common counsel (Mr. Bishwajit Bhattacharyya) stating that both (BINDAL and KGK) were proposing to jointly nominate an Arbitrator. v) Even when BINDAL and KGK subsequently decided to challenge the arbitration agreement and issued separate notices dated 27.4.1993 and 28.4.1993 though different counsel, such notices were sent through two counsel who shared the same office and telephones. The conduct of BINDAL subsequent to 12.6.1991 leads to an inescapable inference that letters of intent issued by KGK on 12.6.1991 were on behalf of BINDAL. In fact, even otherwise, we will assume for the purpose of this case that KGK was acting on behalf of BINDAL as its agent or consultant in issuing the letters of intent dated 12.6.1991. The question is whether that will take DR any f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, including all Attachments and annexures thereto and all documents incorporated by reference therein together with any subsequent modifications thereof in writing. Admittedly, no such purchase order was placed by either BINDAL or any one authorized by BINDAL. It is also evident from Clause (I) of the Letters of Intent that the purchase order was to be issued simultaneously with the Letter of Credit. Clause (M) made it clear that the Letters of Intent were being issued subject to necessary approvals being given by the Authorities of the Indian Government. These provisions clearly indicate that the Letters of Intent were only a step leading to purchase orders and were not, by themselves, purchase orders. Therefore, issue the Letters of Intent by KGK, assuming that it was done on behalf of BINDAL, did not mean that the General Conditions of Purchase which contains the provision for arbitration became a part of the Letters of Intent or became enforceable. 34. It is now well-settled that a Letter of Intent merely indicates a party's intention to enter into a contract with the other party in future. A Letter of Intent is not intended to bind either party ultimately to enter into an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated that this Letter of Intent shall serve as DR's authorization to proceed with this order . Clause (L) stated that 'This contract will come into force upon receipt of this letter of intent by supplier'. DR contends that as the Letters of Intent were referred to as this order and 'this contract' in Clauses (F) and (L), and as Clause (F) authorized DR to proceed with the order, the Letters of Intent were, in fact, purchase orders. 36. When all the terms of the Letter of Intent are harmoniously read, what is clear is that Letters of intent merely required the supplier to keep the offer open till 31.8.1991 with reference to the price and delivery schedule. They also made it clear that if the purchase orders were not placed and Letter of Credit was not opened by 31.8.1991, DR was at liberty to alter the price and the delivery schedule. In other words, the effect of Letters of intent was that if the Purchase Orders were placed and LCs were opened by 31.8.1991, DR would be bound to effect supply within 151/2 months, at the prices stated in the Letter of Intent. Therefore, it may not be possible to treat the Letters of Intent as Purchase Orders. 37. Even if we assum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Purchase was not inappropriate. It should be remembered that the General Conditions of Purchase, in entirety, were intended to be treated as a part to the purchase order as and when the purchase order was placed. Therefore, when the General Conditions of Purchase were read as part of the purchase order, use of the words 'this purchase order' in the 'General Conditions of Purchase' would be appropriate. Therefore, it is impermissible to read the words 'the purchase order' in Clause (C) of Letters of Intent as 'this purchase order. 40. Thus, neither the General Conditions of Purchase forming part of Invitation of Bid nor Revision No. 4 dated 10.6.1991, nor the Letters of Intent dated 12.6.1991 contain any arbitration agreement. There is also no other document or correspondence which can be read as containing a provision that can be interpreted as an agreement to resolve disputes by arbitration. We are, therefore, of the view, though for slightly different reasons, that the decision of the learned Single Judge and the Division Bench of the High Court holding that there is no arbitration agreement, does not suffer from any infirmity. Re: Point No. (iii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 throu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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