‘REPORTABLE’

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 6168 OF 2019 (Arising out of SLP (C) No. 32010 of 2018)

M/s. NATIONAL HIGHWAYS AND INFRASTRUCTURE  DEVELOPMENT CORPORATION LTD.   Appellant(s)

VERSUS

M/s. BSCPL INFRASTRUCTURE LTD.                 Respondent(s)

J U D G M E N T

R. F. NARIMAN, J.

Leave granted.

The present case involves the question as to whether

an arbitration clause would spring into being at the stage

of  Letter  of  Award  (referred  to  as  ‘LOA’  for  brevity)

acceptance, or whether it would be necessary to sign the

ultimate agreement which would then bring in the arbitration

clause contained therein.   

The  skeletal  facts  necessary  to  appreciate  the

controversy  in  the  present  case  is  that  a  Request  for

Proposal (referred to as ‘RFP’ for brevity) was sent out by

the  appellant  for  road  construction  in  the  State  of

Meghalaya.  The LOA so far as the RFP is concerned, is by a

letter dated 31.10.2014, in which the Government of India

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CIVIL APPEAL NO. 6168 OF 2019 (Arising out of SLP (C) No. 32010 of 2018)

referred to the bid document and requested for return of a

signed copy of duplicate LOA as its acknowledgment within

seven days of the receipt of the LOA.  It was clearly stated

therein that “Thereafter, you are required to execute the

Contract Agreement within 15 days from the date of issue of

LOA as per clause 1.3 of the RFP……….”

In  answer  to  this  letter,  on  05.11.2014,  the

respondent accepted the bid proposal and enclosed a copy of

the LOA received by fax duly signed with an acknowledgment.

By a further communication dated 08.11.2014, the respondent

then wished to sign the contract agreement for the above

work on 13.11.2014.  Nothing happened until August, 2016,

except that the guarantees that were required under the RFP

were kept alive by the respondent.  Finally, on 04.08.2016,

the  appellant  decided  to  withdraw  the  LOA  due  to  non-

availability of No Objection Certificate from the Khasi Hill

Autonomous District Council, which was a  sine qua non for

the land for the project.  It is in this factual scenario

that the controversy has arisen in this case, which is, as

to whether the LOA is a binding contract, and further that,

if  it  is  found  to  be  a  binding  contract,  whether  the

arbitration  clause  of  the  draft  agreement  between  the

parties would kick in.

The  Delhi  High  Court,  by  its  judgment  dated

26.10.2018,  went  through  various  clauses  of  the  draft

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agreement which is part of the RFP, and after referring to

this Court’s judgment in Inox Wind Ltd. v. Thermocables Ltd.

(2018) 2 SCC 519 found that, contained in the standard form

of the draft agreement, is an arbitration clause, and that a

general  reference  to  it  is  good  enough,  so  that  an

arbitrator could be appointed.  The Court then went on to

appoint Justice Shiavax Jal Vazifdar, former Chief Justice,

Punjab  and  Haryana  High  Court,  after  which  two  other

arbitrators  would  then  be  appointed  by  the  International

Centre for Alternate Dispute Resolution.

According  to  Shri  Debal  Banerjee,  learned  senior

counsel, events have overtaken the respondent.  This Court’s

judgment in PSA Mumbai Investments PTE. Limited v. Board of

Trustees  of  the  Jawaharlal  Nehru  Port  Trust  and  Another

(2018)  10  SCC  525  would  squarely  cover  this  case.   He

prepared for our perusal a chart in which he pointed out the

similarity  of  this  case  with  the  facts  in  PSA  Mumbai

Investments  PTE.  Limited’s case  -  the  disclaimer  clause

referred to by us in the said judgment; the schedule of

bidding  process;  the  signing  of  the  LOA;  and  most

importantly the fact that the entire bidding process shall

be governed by and construed in accordance with the laws of

India and that the Courts at Mumbai shall have exclusive

jurisdiction over all disputes arising under, pursuant to or

in connection with the bidding process; and the fact that

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the authority may, in its own discretion, cancel the bidding

process at any stage prior to entering into the ultimate

contract agreement.

According to him, the minor difference between the PSA

Mumbai  Investments  PTE.  Limited’  judgment  containing  a

reference to  the formation  of a  Special Purpose  Vehicle,

which is absent in the facts of this case, would be entirely

immaterial for the purpose of discovery as to whether an

agreement exists  in this  case and  whether an  arbitration

clause contained in a standard form would, therefore, govern

the parties.

Ms. Kiran Suri, learned senior counsel appearing on

behalf of the respondent, has taken us through the impugned

judgment  as  well  as  our  judgment,  and  has  pointed  out

various differences which according to her should conclude

the matter in her favour.  Most importantly, according to

her, what is important is contained in clause 2.1.14, which

makes it clear that in the facts of the present case, the

moment the stage of LOA of the agreement is reached, the

agreement  between  the  parties  “shall  be  liable  to  be

terminated...” thereby indicating that at the stage of the

LOA, an agreement has, in fact, been reached between the

parties.

She also relied upon clause 2.6.3 and clause 2.20.7 to

indicate that, on the facts of the present case, since an

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CIVIL APPEAL NO. 6168 OF 2019 (Arising out of SLP (C) No. 32010 of 2018)

agreement had been entered into at the stage of acceptance

of the LOA, the arbitration clause contained in the standard

form would definitely kick in.

Having heard learned counsel for the both the parties,

it is important to set out some of the important clauses

contained in the RFP in the present case.  These clauses are

as follows:

‘Disclaimer

This RFP is not an Agreement and is neither an offer nor invitation by the Authority to the prospective Bidders or any other person.  The purpose of this RFP  is  to  provide  interested  parties  with information  that  may  be  useful  to  them  in  making their financial offers (BIDs) pursuant to this RFP. This RFP includes statements which reflect various assumptions  and  assessments  arrived  at  by  the Authority in relation to the project.

...The issue of this RFP does not imply that the Authority is bound to select a Bidder or to appoint the Selected Bidder JV or Contractor, as the case may be, for the Project and the Authority reserves the right to reject all or any of the Bidders or Bids without assigning any reason whatsoever.

Clause 1.3:

Schedule of Bidding Process The  Authority  shall  endeavour  to  adhere  to  the following schedule:

Event Description: 1. Last date of receiving queries: 09.06.2014

2. Pre-bid meeting: 16.06.2014

3. Authority  response  to  queries  latest  by: 04.07.2014

4. Last date of sale of BID document: 25.07.2014

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CIVIL APPEAL NO. 6168 OF 2019 (Arising out of SLP (C) No. 32010 of 2018)

5. Bid Due Date: 28.07.2014 up to 1100 Hrs.

6. Opening of Bids: 28.07.2014 upto 1100 Hrs

7. Letter of Award (LOA) : Within 30 days of Bid Due Date

8. Validity of Bids: 120 Days of Bid Due Date

9. Signing of Concession Agreement: Within 15 days of award of LOA.

Clause 3.3.5

After selection, a Letter of Award (the ‘LOA’) shall be  issued,  in  duplicate,  by  the  Authority  to  the Selected  Bidder  and  the  Selected  Bidder  shall, within 7 (seven) days of the receipt of the LOA, sign and return the duplicate copy of the LOA in acknowledgement thereof.  In the event the duplicate copy of the LOA duly signed by the Selected Bidder is  not  received  by  the  stipulated  date,  the Authority may, unless it consents to extension of time  for  submission  thereof,  appropriate  the  BID Security  of  such  Bidder  as  Damages  on  account  of failure of the Selected Bidder to acknowledge the LOA, and the NOI inconformity with 3.3.3.

Clause 3.3.6

After acknowledgement of the LOA as aforesaid by the Selected  Bidder,  it  shall  cause  the  bidder  to execute the Agreement within the period prescribed in Clause 1.3.  The Selected Bidder shall not be entitled  to  seek  any  deviation,  modification  or amendment in the Agreement.

Clause 2.20.5

The Selected Bidder’s BID Security will be returned, without  any  interest  upon  the  bidder  signing  the Contract  Agreement  and  furnishing  the  Performance Security in accordance with the provisions thereof. The Authority may, at the Selected Bidder’s option,

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CIVIL APPEAL NO. 6168 OF 2019 (Arising out of SLP (C) No. 32010 of 2018)

adjust the amount of BID Security in the amount of Performance  Security  to  be  provided  by  him  in accordance with the provisions of Agreement.

Clause 6.1

The  Bidding  Process  shall  be  governed  by,  and construed in accordance with, the laws of India and the  Courts  at  Delhi  shall  have  exclusive jurisdiction  over  all  disputes  arising  under, purusant to and/or in connection with the Bidding Process.

Clause 6.2(a) The Authority, in its sole discretion and without incurring any obligation or liability, reserves the right, at any time, to;

(a) suspend and/or cancel the Bidding Process and/or amend  and/or  supplement  the  bidding  Process  or modify  the  dates  or  other  terms  and  conditions relating thereto;...”

Even a cursory look at the aforesaid clauses will show

that barring one or two small differences, these clauses are

virtually identical with the clauses contained in the  PSA

Mumbai Investments PTE. Limited case.

After setting out some of these clauses, this Court in

its judgment  in  PSA  Mumbai Investments  PTE. Ltd.’s  case,

held:

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,

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CIVIL APPEAL NO. 6168 OF 2019 (Arising out of SLP (C) No. 32010 of 2018)

(ii) it is equally clear that such bid process would subsume a Letter of Award to be issued by the Respondent No.1 with two further steps under the schedule to be gone into before the draft Concession Agreement finally becomes  an  agreement  between  Respondent  No.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 the Respondent No.1.

14) Under Section 7 of the Indian 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.

19) Mr. Dave also strongly relied upon the judgment in INOX Wind Limited v. Thermocables Limited, (2018) 2 SCC 519.  This judgment in paras 17-19 thereafter made it clear that an exception to the general rule laid down in M.R. Engineers and Contractors Private Limited (2009) 7 SCC  696  as  to  standard  forms  of  practice  containing arbitration clauses would be extended also to standard forms between individual persons and not merely standard forms of professional assessments.  

20) We may hasten to add that this judgment in  INOX Wind Ltd. case would have no manner of application on the facts of this case for the reason that it has been found  by  us  that  there  is  no  agreement  between  the parties at all in the facts of the present case, making it  clear,  therefore,  that  the  arbitration  clause contained in the draft Concession Agreement would not apply.

However,  learned  senior  counsel  for  the  respondent

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CIVIL APPEAL NO. 6168 OF 2019 (Arising out of SLP (C) No. 32010 of 2018)

relied heavily upon clause 2.1.14, which reads as follows:

“2.1.14 A  Bidder  shall  be  liable  for disqualification and forfeiture of BID Security, if any  legal,  financial  or  technical  adviser  of  the Authority in relation to the Project is engaged by the Bidder, its Member or any Associate thereof, as the case may be, in any manner for matters related to or incidental to such Project during the Bidding Process or subsequent to the (I) issue of the LOA or (ii) execution of the Agreement.  In the event any such adviser  is  engaged  by  the  selected  Bidder  or Contractor, as the case may be, after issue of the LOA or execution of the Agreement for matters related or incidental  to  the  project,  then  notwithstanding anything to the contrary contained therein or in the LOA  or  the  Agreement  and  without  Prejudice  to  any other right or remedy or the Authority, including the forfeiture and appropriation of the BID Security or Performance Security, as the case may be, which the Authority may have there under or otherwise, the LOA or the Agreement, as the case may be, shall be liable to be terminated without the Authority being liable in any  manner  whatsoever  to  the  Selected  Bidder  or Contractor for the same.  For the avoidance or doubt, this  disqualification  shall  not  apply  where  such adviser  was  engaged  by  the  Bidder,  its  member  or Associate in the past but its assignment expired or was terminated 6 (six) months prior to the date of issue of this RFQ.  Nor will this disqualification apply where such adviser is engaged after a period of 3 (three) years from the date of commercial operation of the Project.”

She also relied upon clauses 2.6.3 and 2.20.7:

“2.6.3 In case it is found during the evaluation or at any time before signing of the Agreement or after its execution and during the period of defect liability, subsistence thereof, that one or more of the pre-qualification conditions have  not been met by the  Bidder,  or  the  Bidder  has  made  material misrepresentation  or  has  given  any  materially incorrect or false information, the Bidder shall be disqualified forthwith if not yet appointed as the contractor either by issue of the LOA or entering into of the Agreement, and if the Selected Bidder  has already been issued the LOA or has entered into the Agreement,  as  the  case  may  be,  the  same  shall,

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CIVIL APPEAL NO. 6168 OF 2019 (Arising out of SLP (C) No. 32010 of 2018)

notwithstanding  anything  to  the  contrary  contained therein or in this RFP, be liable to be terminated, by a communication in writing by the Authority to the selected Bidder or the Contractor, as the case may be, without  the  Authority  being  liable  in  any  manner whatsoever to the Selected Bidder or the Contractor. In such an event, the Authority shall be entitled to forfeit  and  appropriate  the  BID  Security  or Performance Security, as the case may be, as Damages, without prejudice to any other right or remedy that may be available to the Authority under the Bidding Documents and/or the Agreement, or otherwise.”

2.20.7 The  BID  Security  shall  be  forfeited  and appropriated by the Authority as damages payable to the Authority for, inter-alia, time cost and effort of the Authority without prejudice to any other right or remedy that may  be available to the Authority under the bidding documents and / or under the Agreement, or otherwise, under the following conditions:

(a) If  a  Bidder  submits  a  non-responsive  BID  as defined in 3.2.

(b) If  a  Bidder  engages  in  a  corrupt  practice, fraudulent  practice,  coercive  practice, undesirable  practice  or  restrictive  practice  as specified in Section 4 of this RFP;

(c) If a Bidder withdraws its BID during the period of Bid  validity  as  specified  in  this  RFP  and  as extended  by  mutual  consent  of  the  respective Bidder(s) and the Authority;

(d) In the case of Selected Bidder, if it fails within the specified time limit - (i) to sign and return the duplicate copy of

LOA; (ii) to sign the Agreement; or

(iii) to furnish the Performance Security within the  period  prescribed  therefor  in  the Agreement; or

(e) In case the Selected Bidder, having signed the Agreement,  commits  any  breach  thereof  prior  to furnishing the Performance Security.

A  perusal  of  the  aforesaid  clauses  would  only  show

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CIVIL APPEAL NO. 6168 OF 2019 (Arising out of SLP (C) No. 32010 of 2018)

that a bidder is liable for disqualification and forfeiture

of  bidding  security  at  all  stages  of  the  agreement,

notwithstanding  that  there  may  not  be  execution  of  the

agreement between the parties.

The expression “shall be liable to be terminated...”

in clause 2.1.14 is only in this context, thereby making it

clear that even after the LOA may have been accepted, such

disqualification  and  forfeiture  of  bid  security,  if  the

other conditions exist, can be done by the appellant.  The

same  interpretation  goes  for  clauses  2.6.3  and  clause

2.20.7.

What  really  puts  paid  to  this  agreement  is  the

schedule  of  bidding  process  which  is  identical  to  the

schedule of bidding process in the  PSA Mumbai Investments

PTE. Ltd.’s case.

This schedule of bidding process begins with the last

date  for  receiving  queries  and  ends  with  the  signing  of

concession  agreement,  LOA  being  Item  No.  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.

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

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CIVIL APPEAL NO. 6168 OF 2019 (Arising out of SLP (C) No. 32010 of 2018)

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  the  PSA  Mumbai

Investments PTE. Ltd.’s  judgment is, in fact, on all fours

and would govern the facts of the present case.   

In this view of the matter, we set aside the impugned

judgment dated 26.10.2018 and allow the appeal.

…………………………………………………………………., J. [ R. F. NARIMAN ]

…………………………………………………………………., J. [ SURYA KANT ]

New Delhi; August 7, 2019.

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