Orissa HC: Is it possible to enforce an arbitration clause in a contract that has not been registered or executed, HC took the decision.
Facts of the case
The Appellant participated in a ‘Request for Proposal' (RFP) by the Respondent – Berhampur Development Authority (BDA) for the development of an Integrated Commercial – cum – Residential Complex in Berhampur and was the highest bidder, quoting an amount of Rs 9.40 crore for a project based on the PPP model, i.e. public-private partnership. The Appellant Company paid a deposit of 25% of the bid price, and an LOI was given in its favour for the remaining cash and project execution within 180 days, or the LOI was terminated. In response, a petition was filed in which the Court ordered the petitioners to pay the outstanding bid amount within two weeks. In the meantime, the respondent company was prohibited from issuing any work orders until the money was made, failing to vacate the order. After failing to complete the payment, the Appellant filed a petition under Section 9 of the Arbitration Act, which was dismissed due to non-maintainability. This order has enraged the plaintiff. Therefore he has filed an appeal.
The appellant’s counsel argued that the contract in question included an arbitration clause that will handle any disputes between the parties originating from the contract. It was further claimed that W.P. (C) No.8653 of 2015 had been filed, criticising the Respondent's unilateral cancellation of the LOI. As a result, the writ petition's status has no bearing on the petition's maintainability under Section 9 of the Arbitration Act because the causes of action for both petitions are wholly different.
Counsel for the respondent argued that because no agreement could be executed between the parties or registered as required under Section 17 of the Registration Act, 1908 to turn the draught agreement into a completed contract, Clause 32.2 of Part-II of the draught agreement could not give the Appellant any right to invoke the arbitration clause.
The Court referred to National Highways and Infrastructure Development Corporation v. BSPL Infrastructure Limited and P.S.A. Mumbai Investments PTE. Limited v. Jawaharlal Nehru Port Trust, (2018) 10 SCC 525, in which it was held that the Appellant had not filed any written agreement and that the parties could not invoke the arbitral clause unless they had signed a contract.
Under Section 7 of the Indian Contract Act, 1872, to turn a proposition into a commitment, the acceptance must be unconditional and unequivocal. On the facts of this case, it is evident that the Letter of Award does not provide unconditional acceptance - two or three very significant steps must be completed before there can be claimed to be an agreement that is enforceable in law as a contract between the parties.
“The goal of Section 9 is to make interim arrangements to protect before, during, or after the arbitral action or at any time after the arbitral judgement is made,” the Court stated. A proceeding under Section 9 of the Arbitration Act is not maintainable because temporary protection was granted by this Court on May 11, 2015, in W.P.(C) No.8653 of 2015. The Appellant did not comply with the condition to make the interim protection granted by this Court operative, which is a separate issue. Even so, the Appellant's conduct does not qualify it for protection under Section 9 of the Arbitration Act.”
The Court concluded that in light of the ratio decided in the cited judgments. It is clear that to invoke the arbitration clause and make it operational. There must be a concluded contract between the parties as contemplated by Section 7 of the Contract Act, 1872, conspicuously absent in the case at hand.
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