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2006 (1) TMI 653 - SC - Indian LawsSuit for grants temporary injunction - condition (relating to furnishing of Bank Guarantee) for temporary injunction - Validity of Arbitration agreement - the purchase order - Letters of Intent - 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 were in the process of jointly appointing an arbitrator? - rejection of the applications u/s 3 of the Foreign Awards Act - HELD THAT - 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 of Intent by KGK 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 subject to which a contract will be governed, when made, is not the same as entering into the contract itself. Similarly, agreeing upon the terms which will govern a purchase when a purchase order is placed, is not the same as placing a purchase order. A prelude to a contract should not be confused with the contract itself. The purpose of Revision No. 4 dated 10.6.1991 was that if and when a purchase order was placed by BINDAL, that would be governed by the general conditions of purchase of BINDAL, as modified by Revision No. 4. But when no purchase order was placed, neither the 'general conditions of purchase' nor the arbitration clause in the 'General Conditions of Purchase' became effective or enforceable. The purchase order is the agreement entered into between BINDAL and the prospective supplier as recorded in the purchase order form (prepared in the form of Attachment-VII to the General Conditions of Purchase) signed by the parties, 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. 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. 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 Conditions of Purchase. Therefore, we hold that the letters of intent, even if assumed to result in any binding contract, did not provide for arbitration. 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. 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 u/s 33 of the Act. We find no force in the contention. As seen, the appellant is claiming adjudication u/s 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 u/s 33 through the Court. In our considered view the remedy u/s 33 is the only right royal way for deciding the controversy. We, therefore, do not find any reason to interfere with the decision of the Division Bench of the High Court. The appeals are, therefore, dismissed. Parties to bear their respective costs.
Issues Involved:
1. Whether there is an arbitration agreement between DR and BINDAL. 2. Whether there is an arbitration agreement between DR and KGK. 3. 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 were in the process of jointly appointing an arbitrator. Issue-wise Analysis: 1. Whether there is an arbitration agreement between DR and BINDAL: The court analyzed the applicability of Section 3 of the Foreign Awards Act, which requires the existence of an arbitration agreement for the stay of legal proceedings. The court referenced the Renusagar Power Co. Ltd. v. General Electric Company case, which outlined six conditions for invoking Section 3. The court concluded that the "General Conditions of Purchase" and "Revision No. 4" dated 10.6.1991 did not constitute an arbitration agreement between DR and BINDAL. It was determined that the modifications to the general conditions of purchase were only preparatory steps and not binding contracts. The court emphasized that agreeing on terms subject to which a contract will be governed is not the same as entering into a contract itself. 2. Whether there is an arbitration agreement between DR and KGK: The court examined the Letters of Intent dated 12.6.1991 issued by KGK and countersigned by DR. It was found that these letters were not purchase orders but rather expressions of intent to place future orders. Clause 'C' of the Letters of Intent indicated that any purchase order would be subject to the General Conditions of Purchase, including the arbitration clause, but the Letters of Intent themselves were not subject to these conditions. The court concluded that the Letters of Intent did not incorporate the arbitration clause from the General Conditions of Purchase, and thus, no arbitration agreement existed between DR and KGK. 3. Whether BINDAL and KGK are estopped from contending that there is no arbitration agreement: DR argued that BINDAL and KGK's conduct, including their counsel's telex dated 11.4.1993 stating they were in the process of jointly appointing an arbitrator, indicated an acceptance of an arbitration agreement. However, the court held that acquiescence does not confer jurisdiction. The court referenced U.P. Rajkiya Nirman Nigam Ltd. v. Indure Pvt. Ltd., which established that the existence or validity of an arbitration agreement must be decided by the court, not by the parties' conduct or statements. Therefore, BINDAL and KGK were not estopped from denying the existence of an arbitration agreement. Conclusion: The court affirmed the decisions of the learned Single Judge and the Division Bench of the High Court, holding that there was no arbitration agreement between DR and BINDAL or DR and KGK. The appeals were dismissed, and the parties were ordered to bear their respective costs. The court emphasized that the Letters of Intent and the General Conditions of Purchase did not create binding arbitration agreements, and any suggestion of arbitration by the parties' counsel did not override the need for a formal arbitration agreement.
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