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Zodiac Electricals Pvt. Ltd v. Union Of India And Others

Supreme Court Of India

May 1, 1985

Judgment

Subsequent
References

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Factual and Procedural Background

The Directorate General of Supplies and Disposals (DGS&D) invited tenders for ACSR conductors. The appellants submitted a tender on 9 June 1979, stipulating, inter alia, that no security deposit would be furnished and that the offer would remain open until 15 August 1979. On 13 August 1979, DGS&D issued two letters:

One sought an extension of the offer’s validity to 15 September 1979.
The other purported to accept the appellants’ offer but imposed a new condition that a security deposit of ₹75,000 be furnished by 15 September 1979.

On 21 August 1979 the appellants sent a telegram—later confirmed by letter—stating that they “accept” the advance order and also extending the validity of their original offer to 15 September 1979. DGS&D treated this as unconditional acceptance, asserted that a contract (containing an arbitration clause) had come into existence, and invoked arbitration. The appellants filed a petition under Section 33 of the Arbitration Act before the High Court, denying the existence of any arbitration agreement. The High Court ruled against the appellants. The present appeal to the Supreme Court was preferred by special leave.

Legal Issues Presented

Whether, on a true construction of the correspondence exchanged between the parties, a concluded contract came into existence.
If no concluded contract existed, whether the arbitration clause relied upon by DGS&D had any legal existence or binding force.

Arguments of the Parties

Respondent (Union of India/DGS&D)

The telegram of 21 August 1979 constituted an unqualified acceptance of the counter-offer set out in DGS&D’s letter dated 13 August 1979.
The request in the appellants’ subsequent letter for issuance of a detailed order merely sought administrative formalities and did not affect the unconditional nature of acceptance.
Consequently, a binding contract—and thus an arbitration agreement—came into being.

Appellants

The 13 August 1979 letter was not an acceptance but a counter-offer because it imposed a security-deposit requirement contrary to the original tender terms.
The telegram of 21 August 1979, when read as a whole, did not unconditionally accept the counter-offer; the second part extended the validity of the original offer, demonstrating ongoing negotiations.
The subsequent request for a detailed order further showed that no final agreement had been concluded.
Accordingly, no contract or arbitration agreement ever came into force.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The Supreme Court conducted a textual analysis of the key documents:

Nature of DGS&D’s letter of 13 August 1979. Although styled as an acceptance, the letter imposed a new obligation—a ₹75,000 security deposit—directly conflicting with the appellants’ tender terms. Hence it amounted to a counter-offer, not an unconditional acceptance.
Content of the appellants’ telegram and confirmatory letter of 21 August 1979. The first sentence (“we accept your advance order”) could appear as acceptance; however, the second sentence extended the validity of the appellants’ original offer, which expressly disavowed any security deposit. The Court held that both sentences must be read together. An extension request would be meaningless if the counter-offer had already been accepted. Therefore, the telegram could only be understood as an acknowledgment of receipt and a continuation of negotiations.
Request for a detailed order. The appellants’ subsequent request that DGS&D issue a detailed purchase order reinforced the inference that no agreement had yet crystallised.

On this reading, the correspondence never achieved the mutual assent required for a concluded contract. Without such a contract, any arbitration clause purportedly embedded within it lacked legal existence.

Holding and Implications

Appeal Allowed; High Court judgment set aside.

The Supreme Court declared that no concluded contract—and therefore no arbitration agreement—existed between the parties. The appellants’ petition under Section 33 of the Arbitration Act succeeds. The only direct consequence is that neither party can compel arbitration on the basis of the disputed correspondence; the decision does not lay down new precedent beyond reaffirming basic principles of offer and acceptance.

Show all summary ...

P.N Bhagwati, J.— This appeal by special leave raises a very short question of construction of certain correspondence between the appellants and the Directorate General of Supplies and Disposals (hereinafter referred to as “DGS&D”). The question is whether as a result of this correspondence a concluded contract came into being between the appellants and the Government of India acting through the DGS&D.

2. The DGS&D invited tenders for ACSR Conductors. The tender forms were issued by the DGS&D along with the Schedule which set out the terms and conditions on which the tenders were invited. clause 4 of the Schedule dealt with the question of delivery while clause 8 provided for giving of security deposit. The appellants by their letter dated June 9, 1979 submitted their tender to the DGS&D for certain quantity of ACSR Conductors on the terms and conditions set out in the Schedule which was submitted by them along with the tender. The appellants stipulated in clause 4 of the Schedule that delivery would commence after 30 days from the date of receipt of commercially and technically clear detailed order from the DGS&D and the ACSR Conductors will be supplied at the rate of 30 m/tonnes to 35 m/tonnes aluminium content per month or one-sixth of the ordered quantity per month whichever was less and under clause 8 of the Schedule the appellants made it clear that since they were registered with DGS&D and National Small Industries Corporation, they should not be required to furnish any security deposit. It is clear from this tender and the Schedule accompanying it that the offer made by the appellants for supply of ACSR Conductors was on the condition that they would not furnish any security deposit and this offer was kept open for acceptance up to August 15, 1979. The DGS&D addressed two letters to the appellants both dated August 13, 1979. It does not appear clear from the record as to which of the two letters was addressed first in point of time. But nothing turns upon it and we need not, therefore, try to ascertain as to which letter was addressed first and which letter was written subsequently on the same day. In one of the two letters dated August 13, 1979, the DGS&D pointed out that it may not be possible for DGS&D to take a final decision by August 15, 1979 up to which the offer was kept open by the appellants and therefore the DGS&D requested the appellants to keep the offer open until September 15, 1979 and added that this request for extension of the offer was being made without prejudice to the purchaser's right of acceptance of the offer of the appellants up to August 15, 1979. This letter showed that the DGS&D wanted the appellants to keep their offer open till September 15, 1979, but they reserved their right to accept the offer up to August 15, 1979. The offer here referred to was obviously the offer as made by the appellants which included a condition that no security deposit shall be required to be made by them. The DGS&D by the other letter dated August 13, 1979 informed the appellants that the offer made by the appellants in the tender submitted by them was accepted on the terms and conditions specified in the Schedule to the tender form. This Schedule contained a term in clause 8 that security deposit shall be required to be made by the tenderer. It was also made clear in clause 9 of the Note set out at the foot of this letter dated August 13, 1979 that in terms of clause 7 of the General Conditions of the Contract, under which the appellants had tendered, the appellants were required to deposit by September 15, 1979 a sum of Rs 75,000 as security deposit for due performance of the contract. It is, therefore, obvious that though in the opening part of this letter dated August 13, 1979 the DGS&D appeared to accept the offer contained in the tender of the appellants, they did not unconditionally accept this offer, because they insisted that the appellants should deposit by September 15, 1979 a sum of Rs 75,000 as security deposit. The DGS&D thus added a condition which was contrary to the stipulation made in the offer of the appellants. This letter dated August 13, 1979 could not possibly, therefore, be regarded as unconditional acceptance of the offer of the appellants and in the circumstances it could not be possibly contended that a concluded contract had been arrived at between the parties by reason of this letter dated August 13, 1979. This letter dated August 13, 1979 was really in the nature of a counter-offer made by the DGS&D to the appellants. The question is whether this counter-offer was accepted by the appellants.

3. The respondent contended, and this contention found favour with the High Court, that the counter-offer made by the DGS&D by their letter dated August 13, 1979 was unconditionally accepted by the appellants by sending a telegram to the DGS&D on August 21, 1979 and addressing a letter to DGS&D confirming the telegram. Since the entire controversy between the parties has arisen on the question whether this telegram and confirmatory letter could be treated as constituting unconditional acceptance of the counter-offer made by the DGS&D, it is necessary to reproduce these two documents in extenso. It will be enough to reproduce only the confirmatory letter because it contains the telegram as well. The confirmatory letter reads as follows :

“We confirm having sent a telegram as under :

Puortnip

New Delhi

We accept your advance Orders Nos. ES-4/201/661 and 801/34/072.PAOS dated August 13, 1979. Further in reference to your letter No. ES-4/201/661 and 801/34/9-10 dated August 13, 1979 we extend the validity of our offer up to September 15, 1979 from August 15, 1979.

Zodiac

We hope you must have received above telegram and found the same in order and as required by you.

We request you to kindly issue the detailed order at your earliest so that we can plan the delivery accordingly.”

Mr Talukdar learned counsel appearing on behalf of the respondents contended that the first part of this telegram made it clear that the appellants were accepting the advance order contained in the letter dated August 13, 1979 and since there was nothing to show that this acceptance was in any manner qualified, it must be read as constituting unconditional acceptance of the counter-offer made by the DGS&D resulting in a concluded contract between the parties. This contention, though it found acceptance with the High Court, is in our opinion not well founded, because it ignores the second part of the telegram by which the appellants extended the period for acceptance of the original offer made by them from August 15, 1979 to September 15, 1979. If the acceptance of the counter-offer made by the DGS&D was unconditional, it is difficult to imagine why the appellants should have extended the period for acceptance of the original offer made by them. The original offer made by the appellants clearly contained the term that no security deposit would be made by the appellants while the counter-offer made by the DGS&D stipulated in so many terms that a sum of Rs 75,000 will be deposited by the appellants as security deposit. If the condition that the security deposit of Rs 75,000 shall be made by the appellants as stipulated in the counter-offer of the DGS&D was accepted by the appellants by sending the telegram, we fail to understand what was the earthly reason for which the appellants extended the period for acceptance of their original offer which provided in so many terms that no security deposit shall be made. The second part of the telegram extending the period for acceptance of the original offer made by the appellants clearly shows that the appellants never intended to send an unqualified acceptance of the counter-offer made by the DGS&D. It is undoubtedly true that in the first part of the telegram the appellants used the expression, “we accept your advance order”, but in the context of the second part of the telegram this expression can only mean that the appellants were acknowledging receipt of the advance order which contained the counter-offer. The telegram could not therefore be construed as amounting to unconditional acceptance of the counter-offer made by the DGS&D.

4. Mr Talukdar then relied upon that part of the letter dated August 21, 1979 which, following upon the confirmation of the telegram, contained a request by the appellants to the DGS&D to issue a detailed order at their earliest so that the appellants could plan the delivery accordingly. But this statement in the letter, far from supporting the contention of Mr Talukdar, goes against it, because it clearly indicates that the matter was still under negotiation between the parties. This statement in the letter cannot possibly helr the respondent, because it is in line with what has been stated in the telegram and it clearly shows that when the appellants extended the period for acceptance of the original offer made by them, they requested the DGS&D to accept their original offer and issue the detailed order at their earliest, so that the appellants could plan the delivery in time. We are, therefore, of the view that the original offer contained in the tender submitted by the appellants, the two letters dated August 13, 1979 addressed by the DGS&D to the appellants and the telegram and the confirmatory letter dated August 21, 1979 sent by the appellants to the DGS&D, did not constitute any concluded contract between the parties.

5. If there was no concluded contract between the parties, then obviously the arbitration clause said to be contained in the contract could have no existence and in that event the appellants must succeed in the petition filed by them in the High Court under Section 33 of the Arbitration Act challenging the existence of the arbitration agreement. We accordingly allow the appeal, set aside the judgment of the High Court and hold that there was no concluded contract between the parties and hence no arbitration agreement binding upon them. There will be no order as to costs throughout.