The trial Court and the first Appellate Court, however, committed patent error while entertaining the suit without payment of ad-volaram court fees. The suit merely seeking declaration from immunity to pay the amount under the Bank Guarantee cannot be treated as a mere suit for declaration. The suit is susceptible to monetary evaluation. Obviously, the respondent No. 1 (plaintiff) was required to pay the entire court fees on ad-volaram basis and the valuation of the suit is defective. So also, it would be in the interest of justice to secure payment of interest amount/compensation in case the suit fails because the dispute arose out of commercial transaction.
Citation;2010 (4) MHLJ759
Print Page
Bombay High Court
M/S Great Eastern Energy vs M/S Jain Irrigation Systems Ltd on 17 February, 2010
Bench: Shri V.R. Kingaonkar
Citation;2010 (4) MHLJ759
1. Rule. By consent of learned counsel for the parties, the petition is heard finally.
2. Challenge in this petition is to judgement and order rendered by learned District Judge, Jalgaon in Misc. Civil Appeal No. 31/2008 whereby and whereunder interim injunction is clamped on petitioner from encashment of Bank Guarantee until disposal of suit (R.C.S. No. 138/2007), reversing dismissal order of application (Exh-6) for interim injunction passed by learned Civil Judge (S.D.).
Facts :
3. The petitioner is a Corporation. The petitioner needed MDPE pipes worth Rs. 4,15,00,000/-. For procurement of the MDPE pipes, the petitioner invited competitive bidding through tenders. The tenders were (3)
called from domestic as well as intra-country suppliers. The domestic bidder was required to furnish bid security of Rs. 13,00,000/- (rupees thirteen lacs) vide a Bank Guarantee or demand draft in favour of the petitioner. The respondent No. 1 is manufacturer of MDPE and other pipes. The respondent No. 1 participated in the bidding process. The respondent No. 1 submitted tender document alongwith the Bank Guarantee through its banker i.e. the respondent No. 3. The Bank Guarantee was enforceable till 15th May, 2007. The petitioner sent Letter of Intent (LoI) by fax dated 14th March, 2007. The petitioner informed that the offer expressed in the Tender Document was accepted on the conditions shown in the Letter of Intent. The Bank Guarantee was irrevocable and encashable without providing any reason to the Bank. The respondent No. 1, in response to the Letter of Intent, communicated to the petitioner that the terms of the original bid floated by the petitioner were not in conformity with the Letter of Intent and it was not possible to supply the goods due to deviation of the original terms of the proposed contract. The respondent No.1, however, informed that the supply of (4)
the MDPE pipes will be undertaken by it, in case the subsequent variations are rectified and original terms are restored. The petitioner informed the respondent No. 2 Bank on 9th May, 2007 to allow encashment of the Bank Guarantee. On the very next day, the respondent No. 1 informed the Bank that the petitioner had not placed the order as per the terms of the notice inviting the tenders and there were variations in the terms and as such, the Bank Guarantee may not be encashed. The respondent No.1, on the day the validity of the Bank Guarantee was to come to an end, filed suit (R.C.S. No. 138/2007) for perpetual injunction. The learned Civil Judge initially passed status quo order on interim application (Exh-6) filed by the respondent No.1 for interim injunction sought under Order-XXXIX Rules 1 and 2 of the Civil Procedure Code. The application was dismissed after hearing the parties. The respondent No.1 preferred appeal (Misc. Civil Appeal No. 31/2008) against the order of dismissal of the application (Exh-6). The learned District Judge allowed the appeal and clamped interim injunction restraining the petitioner from encashing the Bank Guarantee till (5)
disposal of the suit. The learned District Judge also directed the trial Court to dispose of the suit within period of six (6)months. This order of the learned District Judge is impugned by the petitioner. Issues :
4. The questions involved in this petition are as follows :
(i) Whether the parties entered into a concluded contract, prima facie, and as such, there was privity of the contract between them soon after the petitioner issued Letter of Intent or that it was unconcluded contract as such ?
(ii) Whether in the teeth of arbitration clause in the Tender Document, the exercise of jurisdiction by the Civil Court was barred and, therefore, the civil Court was required to refer the dispute between the parties to the Arbitrator as contemplated under section 8 of the Arbitration and Conciliation Act, 1996 ? (6)
(iii) Whether interim injunction against encashment of the Bank Guarantee could be validly clamped in the fact situation of the present case ?
(iv) Whether the petition falls outside pale of Article 227 of the Constitution of India, having regard to disputed questions of facts and in view of challenge to the discretionary order rendered by the learned District Judge ?
Submissions at the Bar :
5. Mr. P.M. Shah, learned Senior Counsel would submit that the terms of the Tender Document clearly indicated that it was to be treated as concluded contract during the interngum no sooner Letter of Intent was received by the respondent No.1 and, therefore, it could not be said that the Bank Guarantee was not encashable when the respondent No. 1 committed breach. He invited my attention to term in the bid form which shows that till formal document of contract is executed, the tender bid alongwith the written acceptance would (7)
constitute a binding contract between the parties. He contended that when there is specific arbitration clause (30.4) in the Tender Document, which is transformed into contract due to acceptance of the Bid, the civil Court has no jurisdiction to entertain the suit. He contended that the dispute ought to have been referred, under section 8 of the Arbitration and Conciliation Act. He submitted that the learned District Judge did not appreciate the terms of the agreement and, therefore, exceeded the jurisdiction. He contended that as per the agreement, the territorial jurisdiction was unavailable to the trial Court and, therefore, the suit could not have been entertained by the learned Civil Judge. He would submit that the Bank Guarantee could be invoked within the validity period which was available upto 15th May, 2007 in view of the terms of the Bank Guarantee dated 6th November, 2006. He argued that the impugned judgement and order of the learned District Judge suffers from vice of perversity and, therefore, is liable to be interfered with. He contended further that no prima facie case was made out by the respondent No. 1 and the discretion used by the trial Court should not (8)
have been interfered with by the appellate Court. Hence, he urged to allow the petition.
6. Per contra, learned Senior Counsel Mr. Mandlik P.V. supports the impugned judgement. He would submit that the validity period of the Bid was over prior to the so called communication of the Letter of Intent by fax. He contended that after the validity period of the Bid was over, mere Tender Form cannot be treated as a concluded contract. He contended that the petitioner effected several changes in the original terms of the invitation for the offers from tenderers. He argued that the respondent No. 1 was likely to be duped due to variations in the earlier terms and, therefore, the contract could not be finalized. He points out that there was no written documents signed by both the parties. He submits that the petitioner cannot unilaterally assume that the Tender and the acceptance letter by fax became effective as binding contract, without execution of any document by the parties. He submitted that there was no contract in existence and as such, the arbitration clause remained on paper without (9)
any legal impact. He contended that the respondent No. 1 demonstrated a prima facie case and likelihood of irreparable injury which factors have been considered by the learned District Judge. Hence, he urged to dismiss the petition.
Law (i) :
7. So far as interim injunction is concerned, no doubt, the application filed by the respondent No. 1 is governed by Order-XXXIX Rule-1 and Rule-2 of the Civil Procedure Code, yet, basically, the power to grant injunction is offspring of section 94 (c) of the C.P. Code. The interim injunction can be granted by invoking section 151 of the C.P. Code when it is found that there exists a good case and on equitable principles, the plaintiff is entitled to such remedy, though the application is not covered by Order-XXXIX Rules 1 and 2. It is well settled that interim injunction can be granted when there exists a prima facie case in favour of a party, there is material to infer irreparable ( 10 )
injury which may be caused to such a party and when the balance of convenience lies in his favour.
8. In "Billimoria Jehan Bux Tehmuras v. Indian Institute of Architects" 2005 (2) Mh.L.J. 206, this Court held that the Court has to see whether the claim is bonafide and whether there is a fair and substantial question to be tried. It is further observed that for grant of interim injunction, it is not necessary to have a iron cast case. The prima facie case means the case for enquiry.
9. In "Ajay Mittal Industrial Premises Co- operative Society v. Raj Publicity" 2004 (4) Mh.L.J. 305, this Court observed that interim injunction can be granted if it is shown that there is a fair and substantial question to be decided between the parties and that there is a bonafide dispute between the parties. It is further observed that the duty of the Court is to consider the material placed on record in order to find out whether prima facie case exists in ( 11 )
favour of a party seeking such interim relief.
10. The expression "prima facie case" does imply existence of an arguable case. It also means that there must be some material which on the face of it tends to show that triable issues are involved. At the stage of considering interim application, the Court is not required to render any finding on merits. The material placed on record is required to be examined at horizontal level. In-depth scrutiny so as to render final finding of fact is not called for.
Effect of Tender (ii) :
11. A tender submitted in response to an invitation is merely an offer put forth by the tenderer. Unless the offer is accepted by the party inviting such tenders, the tenderer will not be bound by a bilateral contract. So, if it is explicit that the Invitor committed himself to buy the goods as per terms of the Tender Document, it cannot be said that there is ( 12 )
concluded contract between the parties. The tender furnished by the party will be valid offer only until expiry of the Bid period.
Acceptance (iii) :
12. A contract is incomplete until the offer is accepted by the offeree indicating his unequivocal assent to its terms and, therefore, his willingness to be bound by those terms. In the case of a bilateral contract, acceptance is crucial, for it contains the offeree's promise requested by the offeror as the price of his promise. Acceptance, like offer,involves a manifestation of intention to be bound, but as in the case of an offer, the offeree's intention is generally assessed objectively so that if it would appear to a reasonable person that he is assenting to the offeror's terms, he will be bound.
13. The offeror's intention in making his offer is to undertake an obligation only to the offeree to whom ( 13 )
it is addressed. Therefore, an offer can only be accepted by the person to whom it is addressed and on conditions enumerated in the Tender Document and as per terms of the proposed invitation. The indiscriminate deviation from the terms at the time of acceptance of the offer by the invitor will not create mutual obligations.
14. Section 126 of the Indian Contract Act, 1872 reads as follows :
"Sec.126. "Contract of guarantee", "surety", "principal debtor" and "creditor". - A "contract of guarantee" is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the "surety", the person in respect of whose default the guarantee is given is called the "principal debtor", and the person to whom the guarantee is given is called the "creditor". A guarantee may be either oral or written."
( 14 )
15. In case of "Bank Guarantee", the bankers bind themselves to a particular maximum limit of the amount which is tendered as security for due performance of the contract. Where the Bank Guarantee is unconditional and payment is to be made on demand, the Bank is obliged to pay on demand without reference to any question of breach of contract or default by contractor. The Bank Guarantee is valid only till the period shown in the Deed of Guarantee.
Case-law on Bank Guarantee :
16. In "Vintec Electronics Private Ltd. v. HCL Infosystems Ltd." (2008) 1 SCC 544, the Apex Court took survey of catena of case-law on the subject pertaining to beneficiary's right to enforce the Bank Guarantee and liability of the Bank. The Apex Court observed that the Bank Guarantee which provided that they are payable by the guarantor on demand, is considered to be an unconditional Bank Guarantee. It is observed further that when in the course of commercial dealings, ( 15 )
unconditional guarantees have been given or accepted, the beneficiary is entitled to realize such a Bank Guarantee in terms thereof irrespective of any pending disputes. It is held :
"It is equally well settled in law that bank guarantee is an independent contract between bank and the beneficiary thereof. The bank is always obliged to honour its guarantee as long as it is an unconditional and irrevocable one. The dispute between the beneficiary and the party at whose instance the bank has given the guarantee is immaterial and of no consequence."
17. In "BSES Ltd. (now Reliance Energy Ltd.) v. Fenner India Ltd. and another" (2006) SCC 728, the Apex Court held that it was neither the function of the bank nor of the Court to examine the actual performance position in such a case where the bank guarantee is sought to be enforced. The Apex Court observed : "There are, however, two exceptions to this rule. The first is when there is a clear fraud ( 16 )
of which the bank has notice and a fraud of the beneficiary from which it seeks to benefit. The fraud must be of an egregious nature as to vitiate the entire underlying transaction. The second exception to the general rule of non-intervention is when there are "special equities" in favour of injunction, such as when "irretrievable injury" or "irretrievable injustice" would occur if such an injunction were not granted. The general rule and its exceptions has been reiterated in so many judgements of this Court, that in U.P. State Sugar Corpn. v. Sumac International Ltd. (hereinafter "U.P. State Sugar Corpn.") this Court, correctly declared that the law was "settled".
18. In "Himadri Chemicals Industries Ltd. v. Coal Tar Refining Co." (2007) 8 SCC 110, the Apex Court held that injunction restraining encashment of bank guarantee may be granted under two exceptional circumstances, namely, (i) fraud, and (ii) irretrievable harm or injury to the plaintiff. In "Global Aviation Services Pvt. Ltd., Mumbai v. Malaysia Airlines System Berhad and another" 2008 (2) Mh.L.J. 401, a Division Bench of this ( 17 )
Court held that the Bank Guarantee, has to be honoured in accordance with its terms. It is observed further that the law contemplates an exception to this principle when there is a clear fraud on the part of the beneficiary of which the Bank has notice and the second exception is in a situation where the intervention of the Court is warranted on the ground that there are special equities in favour of the grant of injunction such as when an irretrievable injustice would occur if an injunction were not to be granted.
Case-law on the Arbitration
and Conciliation Act, 1996 :
19. In "Aurohill Global Commodities Ltd. v. Maharashtra STC Ltd." (2007) 7 SCC 120, the Apex Court held that whether there was a concluded contract between the parties, (in which the arbitration clause was contained), whether the contract was non-est and whether necessary and property party had been not joined, were the questions that could be decided by the arbitrator. The relevant observations are thus :
( 18 )
"...Under the said Act, the Arbitral Tribunal has very wide powers. The powers of the courts have been curtailed. The Arbitral Tribunal's authority under Section 16 of the said Act is not confined to the width of its jurisdiction, but goes to the very root of its jurisdiction (see Secur Industries Ltd. v. Godrej & Boyce Mfg. Co. Ltd.). In the present case, therefore, the question as to whether the draft purchase order acquired the character of a concluded contract or not and the question as to whether the contract was non est can only be decided by the arbitrator. Therefore, the aforestated question have got to be decided by arbitration proceedings."
20. In "Hindustan Petroleum Corpn. Ltd. v. Pinkcity Midway Petroleums" (2003) 6 SCC 503, the Apex Court held that where arbitration clause exists, the Court has a mandatory duty to refer dispute arising between the contracting parties to arbitrator. It is held that civil Court has no jurisdiction to continue with the suit once an application under section 8 has been filed. It is observed :
( 19 )
"14. This Court in the case of P. Anand Gajapathi Raju v. P.V.G. Raju has held that the language of Section 8 is peremptory in nature. Therefore, in cases where there is an arbitration clause in the agreement, it is obligatory for the Court to refer the parties to arbitration in terms of their arbitration agreement and nothing remains to be decided in the original action after such an application is made except to refer the dispute to an arbitrator. Therefore, it is clear that if, as contended by a party in an agreement between the parties before the civil Court, there is a clause for arbitration, it is mandatory for the civil Court to refer the dispute to an arbitrator. In the instant case the existence of an arbitral clause in the Agreement is accepted by both the parties as also by the courts below but the applicability thereof is disputed by the respondent and the said dispute ( 20 )
is accepted by the courts below. Be that as it may, at the cost of repetition, we may again state that the existence of the arbitration clause is admitted. If that be so, in view of the mandatory language of Section 8 of the Act, the courts below ought to have referred the dispute to arbitration.
"15. The question then would arise : what would be the role of the civil court when an argument is raised that such an arbitration clause does not apply to the facts of the case in hand ? Learned counsel for the appellant contends that it is a matter which should be raised before the arbitrator who is competent to adjudicate upon the same and the civil court should not embark upon an inquiry in regard to the applicability of the arbitration clause to the facts of the case. While learned counsel appearing for the respondent contends that since the applicability of the arbitration clause to the facts of the case goes to the very root of the jurisdiction of the reference to arbitration, this question will have to be decided by the civil court before referring the matter to arbitration even in cases where there ( 21 )
is admittedly an arbitration clause. The answer to this argument, in our opinion, is found in Section 16 of the Act itself. It has empowered the Arbitral Tribunal to rule on its own jurisdiction including rule on any objection with respect to the existence or validity of the arbitration agreement. That apart, a Constitution Bench of this Court in "Konkan Rly." with reference to the power of arbitrator under Section 16 has laid down thus : (SCC p. 405, para 21)
"21. It might also be that in a given case the Chief Justice or his designate may have nominated an
arbitrator although the period of thirty days had not expired. If so,
the Arbitral Tribunal would have been
improperly constituted and be without
jurisdiction. It would then be open to the aggrieved party to require the
Arbitral Tribunal to rule on its jurisdiction. Section 16 provides for
this. It states that the Arbitral Tribunal may rule on its own
jurisdiction. That the Arbitral
Tribunal may rule `on any objections with respect tot he existence or validity of the arbitration agreement'
( 22 )
shows that the Arbitral Tribunal's authority under Section 16 is not confined to the width of its
jurisdiction, as was submitted by learned counsel for the appellants, but goes to the very root of its jurisdiction. There would, therefore, be no impediment in contending before
the Arbitral Tribunal that it had been
wrongly constituted by reason of the fact that the Chief Justice or his designate had nominated an arbitrator
although the period of thirty days had
not expired and that, therefore, it had no jurisdiction."
21. In "Agri Gold Exims Ltd. v. Sri Lakshmi Knits & Wovens and others" (2007) 3 SCC 686, the Apex Court held that provision of section 8 is peremptory in nature. It is held that where arbitration agreement exists, Court is obliged to refer the parties to arbitration.
22. A Division Bench of this Court, in "Rajesh Construction Co. Ltd. Mumbai and another v. Ravilal Nanji Dedhia and others" 2009 (1) Mh.L.J. 950, held that ( 23 )
where there is no valid arbitration agreement, duly executed by the parties, there is no question of invoking section 9 for granting relief. It ha been held further that where there was no sufficient proof to establish that there is an arbitration agreement entered into between the parties, there is no question of invoking jurisdiction under section 11 (6) of the Arbitration and Conciliation Act.
Documents, prima facie inferences and findings:
23. The respondent No. 1 responded to the general call for submitting tenders to supply MDPE pipes to the petitioner Corporation. The bid document (Ex-C) purports to show that validity of the bid was for period of four months from the bid due date. This aspect is prima facie clear from term Nos. III (VI-A and VI-B) enumerated in Section-I of the Tender Document. The bid due date is shown as 07-11-2006 at 15.00 Hrs. and the bid validity is shown as four months from bid due date. Coupled together, it may be prima facie gathered that ( 24 )
the bid validity was upto 6th March, 2007. This is significant because the invocation of the Bank Guarantee was attempted on 9th May, i.e. exfacie after the bid validity period. the petitioner heavily relied on Section III-B (F-2) which is in the form of letter addressed to the petitioner and shows following last term.
"Until a formal contract is prepared and executed, this bid, together with your written acceptance thereof in your notification of award (Fax of Intent) shall constitute a binding Contract between us."
The trial Court also relied on the above term which is in the form of an undertaking contained in the proforma of a letter addressed to the petitioner and signed by the respondent No. 1.
24. There appears arguable question and case as regards interpretation of the terms of the contract. Whether the undertaking that the bid document alongwith ( 25 )
letter of Fax Intent dated 14th March, 2007 could be treated as binding contract between the parties or that after the bid validity period i.e. 6th March, 2007, the petitioner could not have validly issued the acceptance letter (Fax of Intent) on 14th March, 2007 is the crux of the problem. The intention of the parties will have to be gathered from the attending circumstances and the manner in which there were actions and re-actions, corresponding responses reflected from the letter correspondence and the commercial dispute raised by the respondent No. 1.
25. True, the Bank Guarantee (Ex-D) was liable to be forfeited on the happening of any contingencies shown in the Tender Document. The Bank also undertook the responsibility of payment to the petitioner irrespective of any dispute or differences raised by the Tenderer. The Guarantee is irrevocable and was agreed to be treated as valid upto 15th May, 2007. The Bank Guarantee could be invoked "on the happening of any contingencies" mentioned in the Tender Document. The triable issue in the present case is :
( 26 )
"Whether any of the contingencies shown in the Tender Document did occur ?"
26. Clause No. 41.1 of the Tender Document may be reproduced, for ready reference, as follows : "41.1 Prior to the expiration of period of bid validity, the PURCHASER will notify the successful bidder in writing, by fax or e-mail to be confirmed in writing that his bid has been accepted. The notification of award/Fax of Intent will constitute the formation of the Contract". (Emphasis supplied)
The above term, in my opinion, is of significance in order to reach prima facie conclusion about the legality of contract interse the parties. It is prima facie explicit that the petitioner was under obligation to notify to the respondent No. 1, in writing, by Fax or e- mail to be confirmed in writing, regarding acceptance of the Bid. Obviously, the petitioner ought to have informed the respondent No. 1 by Fax of Intent prior to 6th March, 2007 i.e. the last date of bid validity period ( 27 )
and in such a case, there was no scope for argument that the contract was inconclusive. However, the Letter of Intent was sent by the petitioner on 14th March, 2007 by fax (Ex-3/6, P-251). Therefore, it is explicit that the question whether such a letter of intent could constitute the formation of contract is most significant issue. It prima facie appears that after the bid validity period the letter of intent could not have made the contract complete one.
27. Term No. 30.1.3 of the Tender Document shows that no deviation whatsoever, could be permitted in the bidding documents. The Bid Document prima facie shows that the Bid was to remain valid for acceptance for four (4) months from the bid due date. The term No. 16.2 is as follows :
"16.2 In exceptional circumstances, prior to expiry of the original bid validity period, the PURCHASER may request that the bidder extend the period of bid validity for a specified additional period. The requests and the responses thereto shall be made in writing (by ( 28 )
fax/post e-mail). A bidder may refuse the request without forfeiture of his bid security. A bidder agreeing to the request will not be required or permitted to modify his bid, but will be required to extend the validity of its bid security for the period of the extension and in accordance with ITB Clause 17.0 in all respects."
28. In the present case, there is no tangible material on record to infer that the petitioner requested the respondent No. 1 to extend the period of bid validity for a specified additional period, nor there is any record to show that the respondent No. 1 agreed to extend such bid validity period beyond 6th March, 2007. The term No. 17.3 shows that the bid security was to remain valid for two months beyond the validity of the Bid as specified in Clause 16.0 of ITB. In other words the bid security amount, in the shape of the Bank Guarantee, was validly available by way of security till 6th May, 2007. The invocation of the said Bank Guarantee after such period, prima facie, was impermissible. Clause 17.7 indicates that the bid security could be forfeited in the eventualities shown ( 29 )
in sub-clauses (a) to (c). One of such conditions was in case of withdrawal by the bidder of his bid during the period of bid validity. The respondent No. 1 did not withdraw the bid during such period. Another condition was that if he would fail to accept the Purchase Order in accordance with the ITB clause No. 42 or to furnish the Performance Guarantee in accordance with ITB Clause-43 or to accept correction of errors pursuant to ITB Clause 32.0. It prima facie appears that neither of contingencies did occur. The last contingency enumerated in sub-clause (c) is that if the bidder would change the proposed manufacturer after submission of his bid, then also forfeiture could be effected. That also had not appeared. Needless to say, it is prima facie explicit that the contingencies under which the bid security may be forfeited did not occur and, therefore, the invocation of the Bank Guarantee, in terms of the said contract, which specifically envisages that the amount could be forfeited "on the happening of any contingency mentioned in the Tender Document" did not arise.
( 30 )
29. What prima facie appears is that the petitioner indicated that the sales tax and excise duty exemption was available and on such basis of concession, the rates were quoted by the respondent No. 1. However, lateron, dispute arose as regards the payment of such taxes. The petitioner was informed, vide letter dated 16th March, 2007, by the respondent No. 1, about the non- acceptability of the Purchase Orders without exemption from the excise duty and the customs duty. The petitioner informed the Banker vide letter dated 9th May, 2007 to pay the amount as per Bank Guarantee. It is important to note that before issuance of such letter , the respondent No. 1 had disputed the terms, including the alleged deviations made by the petitioner. As stated earlier, the bid validity had come to an end on 6 th March, 2007 and the bid security was valid only upto 6th May, 2007.
30. The respondent No. 1 informed the Bank i.e. the respondent No. 2 vide letter dated 10-05-2007 that the bank security could be forfeited only if the contingencies like the refusal to accept the Purchase ( 31 )
Orders cold have occurred. It was made clear that the respondent No. 1 did not refuse any Purchase Order nor Purchase Order was issued. It was pinpointed that the petitioner had not declared the respondent NO. 1 as a successful bidder within the parameters of the Tender Document. It was due to such reasons that the Bank Guarantee could not be enforced and the Bank refused to honour the Guarantee.
31. Much argument of learned Senior Counsel Mr. Shaha centres around jurisdiction of the civil Court in the teeth of arbitration clause contained in the Bid/Tender Document. It is prima facie clear that the Tender Document contains arbitration clause. The relevant arbitration clause (Section III-A, Clause 30.4) is thus :
"30.4 Arbitration
All disputes, controversies, or claims between the parties (except in matters where the decision of the Engineer-in-Charge is deemed to be final and binding) which cannot be mutually ( 32 )
resolved within a reasonable time shall be referred to Arbitration by a sole arbitrator.... Vice President (CORP Finance) GEECL shall act as `Sole Arbitrator' for all disputes arising out of the contract shall be referred to him. The award of the Sole Arbitrator shall be final and binding on the parties and unless directed/awarded otherwise by the Sole Arbitrator, the cost of arbitration proceedings shall be shared equally by the parties. The arbitration proceeding shall be in English language and the venue shall be at Kolkatta, India.
Subject to above, the provisions of (Indian) Arbitration & Conciliation Act, 1996 and the rules framed thereunder shall be applicable. All matters relating to this contract are subject to the exclusive jurisdiction of the Courts situated at Kolkatta, West Bengal (India.)".
32. Basically, when the petitioner did not issue any Fax of Intent so as to inform the respondent No. 1 regarding acceptance of the Bid, declaring him as a successful bidder vide Letter of Intent (by fax or e- mail), there is no prima facie material to infer any concluded contract interse the parties. The contract, it ( 33 )
prima facie appears, was yet at the executory stage. The tender offer was still under consideration before the bid validity period had elapsed. In the case of "Aurohill Global Commodities Ltd. v. Maharashtra STC Ltd." (supra), the Apex Court noticed that the parties had entered into the alleged contract "with open eyes" and, therefore, the arbitration clause was treated to exist. In "Hindustan Petroleum Corpn. Ltd. v. Pinkcity Midway Petroleums" (supra), the Apex Court noticed that the dispute was regarding stopping of supply to the dealer and exercise of power was conferred under the agreement. The existence of agreement between the parties was thus prima facie explicit in both the cases. So also, in "Agri Gold Exims Ltd. v. Sri Lakshmi Knits & Wovens and others" (supra), the Apex Court held that where the arbitration agreement exists, the Court is obliged to refer the parties to arbitration. In the present case, it is seriously debatable issue whether the arbitration agreement exists between the parties. The civil Court need not blindly refer the dispute to the arbitration if there is material to show that there ( 34 )
was no agreement as such between the parties. The Division Bench of this Court, in "Rajesh Construction Co. Ltd., Mumbai and another v. Ravilal Nanji Dedhia and others" (supra), held that when there is absence of valid arbitration agreement duly executed by the parties so as to invoke relief under section 9 of the Arbitration and Conciliation Act as well as relief under section 11 (6) of the Act, there is no question of appointment of arbitrator.
33. The present case does not come within ambit of first exception which permits non-invocation of Bank Guarantee, namely, the existence of alleged fraud in connection with the Bank Guarantee which could vitiate the very foundation thereof. The respondent No. 1 agreed to give the Bank Guarantee. The respondent No.2 Bank executed the Bank Guarantee without any false representation made by either of the party. The second exception relates to the cases where allowing the encashment of an unconditional Bank Guarantee would result in irretrievable harm or injustice to one of the ( 35 )
parties concerned or that it would be a case of "special equities" in favour of granting injunction. No Purchase Order was issued by the petitioner. The petitioner did not suffer any financial loss. It prima facie appears that there was no concluded contract within bid validity period under the terms of the Tender Document. In such a case, it will have to be said that "special equities" are with the respondent No. 1 because the amount shown under the Bank Guarantee would be taken away by the petitioner and that the respondent No. 1 will be dragged to further litigation for recovery thereof. There will be multiplicity of litigation in such a case. The balance of convenience lies in favour of the respondent No. 1. There appears likelihood of legal injury caused to the respondent No. 1 if the relief of prohibitory injunction is refused.
34. The civil dispute involves seriously debatable issues and questions of facts and law. The first Appellate Court has issued direction to decide the suit within a particular frame of time. It appears, however, that the schedule of final hearing is not adhered to by ( 36 )
the trial Court. It would be appropriate to direct the expeditious disposal of the suit within a particular time-frame by emphasizing significance of such early disposal in the peculiar fact situation of the present case. The trial Court and the first Appellate Court, however, committed patent error while entertaining the suit without payment of ad-volaram court fees. The suit merely seeking declaration from immunity to pay the amount under the Bank Guarantee cannot be treated as a mere suit for declaration. The suit is susceptible to monetary evaluation. Obviously, the respondent No. 1 (plaintiff) was required to pay the entire court fees on ad-volaram basis and the valuation of the suit is defective. So also, it would be in the interest of justice to secure payment of interest amount/compensation in case the suit fails because the dispute arose out of commercial transaction. In such a case, blanket order of injunction is uncalled for. Conclusions :
( 37 )
35. There was no concluded contract, is prima facie manifest from the letter correspondence exchanged between the parties. The petitioner may, ofcourse, be able to prove that the contract was concluded, after leading evidence during course of the trial. The only prima facie case is required to be considered at this juncture. As a matter of law, when there is variance between the offer and the acceptance in respect of any material term, acceptance cannot be said to be absolute and unqualified and the same will not result in the formation of a legal contract. The respondent No. 1 seems to have made out a prima facie arguable case regarding absence of concluded contract. It follows that the forfeiture of the security amount after the bid validity period was over, could not be resorted to by the petitioner.
36. The scope of Article 227 of the Constitution is rather restrictive. Interference in the interim orders is permissible by invoking writ jurisdiction, only when it is demonstrated that such order is invalid due to perversity, arbitrariness or lack of inherent ( 38 )
jurisdiction. The impugned order does not put final curtain on the lis between the parties. It can not be termed as perverse. Hence, the petition falls outside the pale of Article 227 of the Constitution.
37. To conclude, it may be stated that the respondent NO. 1 did make out a prima facie case containing some substance and the lis is shown to contain potential material for full-fledged trial. It also appears that the civil Court's jurisdiction is not ousted though the Tender Document consists the arbitration clause in as much as the acceptance of such offer in the Tender Document was not communicated within the bid validity period as required under other terms of the Tender Document. It will have to be said further that the impugned order does not suffer from vice of perversity, arbitrariness or absolute lack of legal foundation.
38. Considering the foregoing reasons and the fact situation of the present case, I am inclined to hold that the impugned order does not call for interference ( 39 )
though minor modifications are necessary. Hence, the petition is dismissed. The impugned order is confirmed, subject to condition that the respondent No. 1 shall pay the deficit court fees in the trial Court within period of two (2) weeks and shall also furnish letter addressed to the Bank to extend the period of Bank Guarantee by one more year alongwith execution of the Bank Guarantee to the tune of rupees two lacs more in order to ensure payment of interest amount, if ultimately the case of the petitioner will be found acceptable and the respondent No. 1 will fail in the suit. The extension of the Bank Guarantee and the further Bank Guarantee of rupees two lacs shall be done by the respondent No. 1 within period of four (4) weeks and it will be condition precedent for continuation of the interim prohibitory relief granted by the first Appellate Court. The petition is accordingly disposed of. Rule discharged. No costs.
[ V.R. KINGAONKAR ]
JUDGE
NPJ/wp502.09
( 40 )
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