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Invocation of the arbitration clause when the said clause is in the agreement but it’s not registered.
Orissa High Court, in the case of Forum Projects Private Limited v. Berhampur Development Authority[1], discusses the issue related to the presence of an arbitration clause in the agreement but not registered or executed.
The facts of the case are such that a ‘Request for Proposal’ (RFP) by the Respondent – Berhampur Development Authority (BDA) for development of Integrated Commercial – cum – Residential Complex in Berhampur, the Appellant had participated in the bid and became the highest bidder having quoted an amount of Rs 9.40 crore for a project based on the PPP model, i.e., Public-private partnership. The Appellant Company deposited 25% of the bid amount. Afterward, an LOI was issued to favor the remaining amount and execution of the project within 180 days, failing which the LOI was canceled. Assailing the same, the petition was filed wherein the Court directed the petitioners to pay the remaining bid amount within two weeks and in the meanwhile restricted the respondent company to not issue any work order to anybody because of the said payment, failing which the order will stand vacated. The Appellant was unable to make the payment, after which she filed a petition under Section 9 of the Arbitration Act, which disposed of stating non-maintainability. Aggrieved by this order, the present appeal has been filed.
Counsel for the appellants submitted an arbitration clause to resolve the dispute between the parties arising out of the contract in question. It was further submitted that W.P. (C) No.8653 of 2015 had been filed assailing the Respondent's action in canceling the LOI unilaterally. Thus, the pendency of the writ petition does not affect in any way the maintainability of the petition under Section 9 of the Arbitration Act, as the cause of action for filing of both the petitions is entirely different.
Counsel for the respondent submitted that neither any agreement could be executed between the parties nor could it be registered as required under Section 17 of the Registration Act, 1908 to make the draft agreement a concluded contract between the parties. Hence Clause- 32.2 of the Part-II of the draft agreement cannot confer any right on the Appellant to invoke the arbitration clause.
The Court relied on National Highways and Infrastructure Development Corporation v. BSPL Infrastructure Limited, (2019) 15 SCC 25 and P.S.A. Mumbai Investments PTE. Limited v. Jawaharlal Nehru Port Trust, (2018) 10 SCC 525 wherein it was observed that the Appellant had not filed any written agreement. In the absence of any concluded contract, no right can be conferred on the parties to invoke the arbitral clause.
The relevant para is stated below:
“14. Under Section 7 of the Indian Contract Act, 1872 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.”
The Court observed, “The object of Section 9 is to make interim arrangement to protect the lis before or during the arbitral proceeding or at any time after making of the arbitral award. Since interim protection has already been granted by this Court on 11.05.2015 in W.P.(C) No.8653 of 2015, a proceeding under Section 9 of the Arbitration Act is not maintainable. It is a different issue that the Appellant did not respect the interim protection granted by this Court, by complying with the condition to make it operative. Even otherwise, the demeanor of the Appellant does not entitle it to protection under Section 9 of the Arbitration Act.”
The Court thus held that because of the ratio decided in the judgments relied upon. It is crystal clear that to invoke the arbitration clause and make it operational. There must be a concluded contract between the parties as envisaged under Section 7 of the Contract Act, 1872, conspicuously absent in the case at hand.
[1] 2020 SCC OnLine Ori 925.
This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts made to ensure the accuracy and correctness of the information published, White Code VIA Mediation and Arbitration Centre shall not be responsible for any errors caused due to human error or otherwise.
- arbitration clause in a contract
- validity of the agreement if not registered
- will the arbitration clause be valid
