Progressive Constructions Ltd. v. Bharat Hydro Power Corpn. Ltd.

R.C Lahoti, J.:— This is a petition under Section 20 of the Arbitration Act. The petitioner is a construction company having its registered office at Hyderabad, Andhra Pradesh and administrative office at New Delhi. The respondent is a company having its head office at Calcutta. On 27-5-1993, the respondent published a notice inviting tenders for the construction of balance work of concrete gravity dam at Karvi—Langpi for 2 × 50 MW Lower Borpani Project Assam'. The petitioner submitted its tender in the respondent's office at Calcutta accompanied by earnest money of Rs. 10 lakhs by way of a bank guarantee. Then commenced in exchange of letters between the parties seeking variations, negotiations and review of the terms and conditions of the contract. A final discussion was held on 31-3-1994 at Calcutta and the respondent agreed to issue a letter of intent for the construction of the concrete gravity dam and the associated works to the petitioner. Vide this letter of intent dated 6-5-1994, the respondent awarded the work to the petitioner.

2. According to the petitioner a binding contract had come into existence between the parties on 6-5-94 with the issuance of the letter of intent Annexure-14. However, the letter of intent requested the petitioner to reach Calcutta on 20-3-1994 for finalising and signing the formal contract, on 16-5-94, the respondent sent updated version of Volume-I of the tender documents stated to be incorporating all the changes agreed upon between the parties. The petitioner found some minor discrepancies therein to which the attention of the respondent was invited vide petitioner's letter dated 28-5-1994. Again a few letters were exchanged. The contract documents could not be signed as the discrepancies left over could not be sorted out between the parties. On 29-7-94 the respondent has cancelled the contract.

3. According to the petitioner, there was a concluded contract between the parties. The respondent is guilty of committing a breach of the contract. The claims and disputes raised by the petitioner are therefore liable to be referred for arbitration consistently with the arbitration clause.

4. The arbitration clause, which is clause 67 contained in Vol-I of the tender document, is the usual arbitration clause for settlement of disputes. It also provides that the venue of arbitration shall be at Guwahati/Calcutta. It further provides:—

“If any dispute is referred to court, the jurisdiction will be the court within the State of Assam.”

5. The petitioner relies for his contention of the contract between the parties having been concluded, on the following factors:—

(1) It was one of the conditions of the tender document that acceptance of bid will be intimated to the successful bidder through an award and this award has concluded the contract.

(2) It was also the condition of the tender document that unless and until a formal contract was prepared and executed the bid together with the award thereof shall constitute a binding contract between the parties.

6. The award dated 6-5-1994 is Annexure-14. The opening part thereof refers to respondent's invitation to tender, the tender document Volume I and II, the petitioner's offer dated 27-5-93, several letters exchanged between the parties between 27-5-93 and 18-3-94 and the minutes and discussions in meetings held at Calcutta on 30-11-1993 and 31-3-94. It then proceeds to state:—

“Based, on the abovementioned documents we have the pleasure in issuing this letter of intent to you for placing on item rate order on you for construction of .............

“Next week we shall be sending you the update version of tender documents incorporating all changes as agreed so far. These documents duly signed by both the parties shall constitute the contract agreement. We would request you to kindinly come to Calcutta on 23-5-94 for finalising and signing the contract agreement.”

7. On behalf of the respondents the petition has been contested on the following grounds inter alia (i) that there was no concluded contract between the parties; the contract agreement was yet to be signed; (ii) that inasmuch as there was no contract concluded and signed between the parties the petition under Section 20 is prematurem, misconceived and does not lie; (iii) that the court at Delhi does not have jurisdiction to try the petition inasmuch as court at Guwahati (Calcutta would alone have jurisdiction to hear the petition.

8. It is not disputed that the petitioner's bid was accepted by the respondent and the acceptance was communicated to the peitioner. Earnest money was paid by the petitioner to the respondent and the same has not been returned to the petitioner. The following clause of the tender document (Annexure-15) is relevant:—

“The bid shall be accompanied by an earnest money deposit of Rs. 10 lacs.

This earnest money shall be returned to you if your bid is unsuccessful and if successful the same shall be adjusted towards initial security deposit (page 66).

Acceptance of bid will be intimated to the successful bidder through an award and the award shall conclude the contract. However, the contractor shall be required to execute an agreement in the form prescribed within the time specified in the award. (Page 71).

Award shall mean the acceptance by the Managing Director BHPCL of the bid tendered by the contractor and the grant thereunder of the work to be performed is accordance with the term stated in the award. (Page 103) Effective date of this agrerrement mean the date of issue of letter of intent/award unless otherwise, specified.” (Page 104)

9. The learned counsel for the petitioner has relied on Union Of India v. A.L Rallia Ram, AIR 1963 S.C 1685(1) to contend that a concluded contract including an arbitration agreement could result by tender and acceptance thereof though a formal document signed by both the parties was not executed.

10. In M. M. and M. Refinery Bangalore v. MSSI Corporation (AIR 1974 Madras 39) (2) facts were more or less similar. It was extended that under clause 11 of Ex. B-1 (tender terms) the successful tenderer was required to execute an agreement within ten days of the announcement of acceptance of the tender and till such agrement was executed there was no contract. Rejecting the contention and placing reliance on Von Htazfeldt—Wildenburg v. Alexander (1912) 1 Ch. D. 284(3) and Shankarlal Narayandas v. New Mofussil Co. Ltd. AIR 1946 P.C 97 (4) it was held:—

“It is a question of construction whether the execution of the further contract is a condition or term of the bargain or whether it is a mere expression of the desire of the parties as to the manner in which the transaction already agreed to will in fact go through. In the former case there is no enforceable contract either because the condition is unfulfilled or because the law does not recognise a contract to enter into a contract in the latter case there is a binding contract and the reference to the mere formal document may be ignored.

In this case Ex. B-1 required the tender to quote the rates and make a deposit, and, under clause 9, once the defendant accepted the tender, there would be a concluded contract, because all the material terms would become settled by that stage itself. Clause 11 is therefore a mere formality. The contention of Thiru Vendantham Srinivasan is clearly untenable.”

11. On a perusal of several documents brought on record, I am satisfied that a concluded contract was reached between the parties. A formal contract had remained to be signed because there were minor discrepancies or variations in the terms which were being negotiated between the parties. The finalisation of the details would not adversely effect the conclusion of the contract which had stood arrived at with the acceptance of tender and award/letter of intent issued by the respondent to the petitioner. The arbitration clause as contained in the tender document would bind the parties.

12. A. K. Raha Ltd. v. State of Punjab, AIR 1961 Calcutta 166(5) is a case of formulation of Government contract by acceptance of tender. It was held:

“In the case of Government contracts by acceptance of a tender the contract is complete by acceptance of tender and communication of acceptance is not necessary. The Communication of acceptance at the particular place cannot be considered to be one of the bundle of essential facts to be proved in establishing the making of the contract.”

13. The next is the question of jurisdiction. The acceptance of tender was communicated to the petitioner at Delhi. It is submitted that the cause of action or part thereof would therefore, arise in Delhi. Reliance is placed on an unreported DB decision of Delhi High Court in Bachhan Singh and Sons v. DS&D, Haryana, FAO (OS) 26/94 dated 23-5-1994(6) to contend that a petition under Section 20 of the Arbitration Act can be filed at the place where the acceptance of contract was communicated to the petitioner. The Division Bench has referred to the Supreme Court decision in ABC Laminart Pvt. Ltd. v. A. P. Agencies, Salem, AIR 1989 SC 1239(7).

14. The present one is a case of contract concluded or formulated by acceptance of tender sent in response to a notice inviting tenders. The parties are not at one place but at distant places namely Calcutta and Delhi. It has to be seen in such a case where the contract would be deemed to have taken place. On that would depend the answer to the question whether communication of acceptance of tender made by the offeree from Calcutta and received by the offerer at Delhi provides a cause of action at Delhi.

15. Section 4 of the Contract Act reads as under:

“Section 4. Communication when complete:—The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.

The communication of an acceptance is complete.

as against the proposer, when it is put in a course of transmission to him, so as to be out of the power of the acceptor

as against the acceptor, when it comes to the knowledge of the proposer.”

16. I may with advantage look into a few cases dealing with the contract by correspondence. In American Pipe Co. v. State of U.P AIR 1983 Calcutta 186(8), the contract was by correspondence through post. The acceptance was posted at UP and received by the offerer at Calcutta: A suit complaining of a breach of contract was filed at Calcutta. The Division Bench held:

“In the instant case contract was by correspondence through post. Contract takes place where the acceptance takes place. In the instant case, the acceptance was posted at U.P Thus, the contract was formed in U.P

In the case of a breach of contract offer is no part of the cause of action. Receipt of acceptance in Calcutta within the jurisdiction, does not form part of the cause of action because according to the agreed mode of communication the contract was to be formed through post. An acceptance in the instant case was admittedly posted in U.P The acceptance took place in the instant case as soon as it was posted at U.P Receipt of the same by the appellant in Calcutta within the jurisdiction does not form any part of the cause of action. Thus as no part of the cause of action arose within the jurisdiction of Calcutta Court it has no jurisdiction to entertain and/or try the suit.” (emphasis supplied)

17. In G. Venkatesha v. M/s. Kamlapat AIR 1957 Madras 201(9), it was held:

“If the proposal and acceptance thereof are made in different places, the place of acceptance, will be the place where the contract is made. A contract by correspondence is made at the place where the letter of acceptance is posted.” (emphasis supplied)

18. So is the view taken by a Division Bench of Lahore High Court in Pokhar Mal v. Khanewal Oil Mills, AIR 1945 Lahore 260(10), and by Judicial Commissioner's Court of Nagpur in Mill Stores Trading Co. v. Seth Mathuradas AIR 1921 Nagpur 42(11).

19. It is thus clear that in view of S-4 of the Contract Act when offerer and offeree are not at one place and are exchanging the offer and acceptance through post then the contract would be deemed to have been entered into at the place where the offer was received and the acceptance was posted. The place of delivery of acceptance is irrelevant and does not provide any cause of action. Merely by placing reliance on the delivery of letter of acceptance of offer, suit by reference to S-20 (c) CPC cannot be filed at the place where the letter of acceptance was delivered for delivery of the letter on acceptance is not a part of the cause of action.

20. An illuminating exposition of law by reference to Sections 2, 3 and 4 of the Contract Act, 1872 and S. 20 CPC is to be found in Bhagwan Dass Kedia v. Girdhari Lal, AIR 1966 S.C 543(12). Their Lordship were posed with a case in which the contract was made by conversation on telephone. Their Lordships drew a distinction between a case of negotiations by post (Letters or telegram) and a case of communication by telephone and held:—

“Making of an offer at a place which has been accepted elsewhere does not form part of the cause of action in a suit for damages for breach of contract. Ordinarily it is the acceptance of offer and intimation of that acceptance which result in a contract. By intimating an offer, when the parties are not in the presence of each other, the offerer is deemed to be making the offer continuously till the offer reaches the offeree. The offerer thereby merely intimates his intention to enter into a contract on the terms of the offer. The offerer cannot impose upon the offeree an obligation to accept, nor proclaim that silence of the offeree shall be deemed consent. A contract being the result of an offer made by one party and acceptance of that very offer by the other, acceptance of the offer and intimation of acceptance by some external manifestation which the law regards as sufficient is necessary.”

“By a long and uniform course of decision the rule is well settled and mere making of an offer does not form part of the cause of action for damages for breach of contract which has resulted from acceptance of the offer.”

“...... the contract is complete when acceptance of the offer is put into a course of transmission to the offerer.”

“When by agreement course of conduct, or usage of trade, acceptance by post or telegram is authorised, the bargain is struck and the contract is complete when the acceptance is put into a course of transmission by the offeree by posting a letter of dispatching a telegram.”

Their Lordships made it clear that in case of contract where acceptance is communicated by post of telegram the contract is complete no sooner than the acceptance of the offer is put in the course of transmission the delivery of letter of acceptance of offer being immaterial. It is only in the case of contracts made by conversation on telephone, the contract is complete when the acceptance of the offer reaches the offerer.

21. From the abovesaid principles of law, applied to the case at hand, it is clear that the contract was complete when the letter of acceptance of tender was posted in Calcutta. The contract was entered into at Calcutta. The delivery of letter of acceptance at Delhi is wholly inconsequential. It does not provide accrual, of cause of action or part thereof in Delhi.

22. The Division Bench decision of this Court in M/s. Bachhan Singh and Sons v. DS&D Haryana and Anr. (FAO (OS) No. 26/94, order dated 23-5-94) for the several reasons noted hereinafter and does not help the petitioner.

22.1 In M/s. Bachhan Singh and Sons case the tenders were invited by State of Haryana through Director of Supplies and Disposal. The tenders were submitted at Delhi. The communication of acceptance was made from Chandigarh and received at Delhi. Application under Section 20 of the Arbitration Act was filed at Delhi. However, it was conceded on behalf of the respondent State of Haryana that the cause of action had arisen both at Chandigarh and Delhi. The real question posed before the DB was whether clause 13 of the Contract excluded jurisdiction of Delhi Courts and vested the same in courts at Haryana only. It was this exclusionary clause which was interpreted.

22.2 M/s. Bachhan Singh and Sons's case cannot therefore be held an authority for the proposition that the courts of the place where acceptance of tender is communicated and delivered acquire territorial jurisdiction merely by this event.

23. The case has to be examined from yet another angle. The facts of the case clearly show that the only basis on which the jurisdiction of the court at Delhi is sought to be invoked is the delivery at Delhi of letter of acceptance of tender sent from Calcutta. Barring this, all other events constituting the cause of action, and relevant for determining the territorial jurisdiction of court had taken place either in Calcutta or in Assam. The defendant is at Calcutta. The tenders have been floated therefrom and received there. They were opened there. All the negotiations between the parties culminating into the contract have taken place at Calcutta. Even if an arbitrator is appointed the proceedings shall have to take place at Guwahati/Calcutta, as per the terms of the contract between the parties. The work was to be executed at Kargi Langpi in Assam.

23.1 Though the tenders were floated from Guwahati, the tenders might have been submitted by tenderers situated at different places throughout the country. Only one tender has been accepted. Others might have been rejected. If the delivery of letters of acceptance or rejection of tenders is to be treated as raising a part of the cause of action so as to confer jurisdiction on the courts to entertain a suit relating thereto then in respect of one tender the respondent may come to be sued at different places throughout the country. Entertaining suits at places other than Calcutta would be a sheer abuse of process of court.

23.2 In Words and Phrases, (Permanent End. Vol. 1 at page 187) ‘Abuse of Procoess’ has been defined inter alia as under:

“Abuse of process implies irregular and improper use of process, not merely the regular and proper use with a bad motive.”

24. In passing I may take note of a Division Bench doecisions of this Court in Hakeem Abdul Rehman v. UOI 1995 (33) DRJ 234(13) though it was a case of a writ petition under Art. 226 of the Constitution challenging a detention order under COFEPOSA, yet it sets out relevant considerations governing exercise of territorial jurisdiction by High Court of Delhi.

24.1 A detenue detained in Kerala under a detention order passed in Kerala though a declaration under Section 9 was made at Delhi filed a writ petition in Delhi. The petition was directed to be returned for presentation before the High Court of Kerala though Delhi High Court also had the jurisdiction.

24. Hon'ble M. Jagannath Rao, Chief Justice speaking for the DB expressed entire agreement with the view taken by an earlier DB in Mambram v. UOI 1991 (1) DL 161 (14) wherein the following were considered relevant factors for determining territorial jurisdiction:

(i) The matter cannot be expeditiously disposed of at Delhi because “the notices of longer duration are required to be issued to the State Governments. After the notices are received they engage a lawyer, who appears in this Court and seeks time to file the counter affidavit. For preparation of counter affidavit the officers of the State Government and the record is required to be brought to Delhi or the lawyer goes to the State capital. This results into loss of time in movement of officials and files”.

(ii) The inconvenience of movement of officers and records and avoidable expenses.

(iii) The grounds can be more effectively and quickly disposed of in the respective High Courts where it will save time and be convenient and cheaper to the parties.”

24.3 Vide Pr. 2, the DB has reproduced with approval the following extract from Ebrahim Aboodkar v. L. Achhru Ram, (AIR 1952 Punjab 1) (15):

“In the present case a jurisdiction adequate to the object in view exists in Bombay where the Custodian-General proposes to hold his enquiry and where the property is situate, where the parties reside and where the officials who eventually will deal with the property are functioning. In my opinion the remedy for any wrongs alleged to be done to the petitioners would be more adequate and complete and their grievances better dealt with by the High Court of Bombay than here. I hold accordingly.”

25. For this reason also the present petition does not deserve to be entertained in Delhi.

26. It is held that the petition under Section 20 of the Arbitration Act does not lie within the territorial jurisdiction of this Court. The same is directed to be returned for presentation to proper court.

27. The suit and IA be treated as disposed of in so far as this court is concerned.

11-7-95, A K Petition returned to be presented to proper court.