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Ashapura Mine-Chem L... v. Gujarat Mineral Deve...
Summary of the Opinion (Oral Judgment)
Factual and Procedural Background
The petitioner, Ashapura Mine-Chem Limited (AML), sought appointment of an arbitrator to resolve disputes with the respondent, Gujarat Mineral Development Corporation (GMDC), arising out of a Memorandum of Understanding (MOU) dated 17.8.2007. The MOU contained an arbitration clause and various bilateral obligations, but it was subject to conditions of approval and sanction.
Key features and procedural developments recorded in the opinion:
- The MOU envisaged a joint venture between AML, GMDC and a Chinese party (Qing TongXIa Aluminium Group Co. Ltd. — QTX) to set up an alumina plant in Kutch, and included clauses (notably clause 19 and clause 21) making the MOU subject to board approvals and governmental concurrence for GMDC's equity participation.
- GMDC's Board (29.10.2007) approved the MOU only with significant modifications (including specification and pricing of bauxite and deletion of transfer of certain leases), and communicated those modifications to AML on 17.12.2007.
- AML repeatedly complained that the Board's modifications would render the project unviable and requested GMDC to revert to the original terms; correspondence between the parties continued over several years concerning ratification by government, change of JV partners, bank guarantees and other matters.
- GMDC's Board later took steps (in 2008–2010) to seek fresh MOUs, to consider replacement JV partners, and in March–April 2010 decided not to extend the validity of the proposed MOU and to invite fresh expressions of interest; subsequently GMDC formally communicated cancellation of the MOU to AML on 25.4.2011 citing AML's failure to comply with terms and conditions.
- AML claimed entitlement to arbitral reference under the arbitration clause in the MOU; GMDC's principal contention was that the MOU never became a completed contract and therefore the arbitration clause could not be enforced.
Legal Issues Presented
- Did the MOU dated 17.8.2007 between AML and GMDC result in a completed (concluded) contract?
- If there was no concluded contract, did an arbitration agreement exist that could be enforced to appoint an arbitrator?
Arguments of the Parties
Petitioner's (AML) Position — as recorded in the opinion
- AML sought enforcement of the arbitration clause in the MOU and appointment of an arbitrator to resolve disputes arising under the MOU.
- At various points, AML's counsel argued that AML had eventually accepted the modified terms proposed by GMDC and that GMDC had accepted AML's acceptance, implying a binding agreement existed.
- AML asserted continued engagement between the parties and subsequent conduct indicating that the parties treated the MOU as alive (e.g., requests for NOCs, follow-up on approvals and bank guarantees), which AML relied upon to contend that a concluded agreement (and hence an arbitration clause) existed.
Respondent's (GMDC) Position — as recorded in the opinion
- GMDC's principal and sole strong contention was that the MOU never resulted into a completed contract because the MOU was expressly subject to approvals (board and governmental concurrence) which were not obtained in the form required for a concluded contract.
- GMDC pointed to the Board's modifications (29.10.2007) and subsequent steps (including seeking fresh MOUs, decisions regarding JV partners and ultimately not extending validity) to show there was no meeting of minds and no concluded contract including a binding arbitration agreement.
- GMDC relied on correspondence and Board minutes showing ongoing negotiations and changes rather than a finalized and accepted contractual document converting the MOU into a binding agreement.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| U.P. Rajkiya Nirman Nigam Ltd. v. Indure Pvt. Ltd., (1996) 2 SCC 667 (Supreme Court) | The Supreme Court held that the existence or validity of an arbitration agreement is a matter for the Court to decide; an arbitration agreement must be part of a concluded contract (parties must be ad idem); correspondence and drafts do not necessarily constitute a concluded agreement. | The court relied on this precedent to emphasize that where the original contract is not a concluded contract, there is no arbitration agreement for reference; the opinion applied the precedent to hold that because the MOU never became a concluded contract, the arbitration clause could not be enforced and the petition for appointment of an arbitrator must fail. |
Court's Reasoning and Analysis
The court proceeded by examining the text of the MOU, the conditions attached to it, the subsequent corporate approvals and correspondence, and relevant provisions of the Indian Contract Act to determine whether the MOU had attained the status of a concluded contract that could support an arbitration agreement.
1. Legal provisions considered: The court referred to provisions of the Indian Contract Act:
- Section 10 — definition of contract (free consent, competence, lawful consideration and object).
- Section 3 — mode of communication, acceptance and revocation (mentioned as relevant to interpreting correspondence).
- Section 4 — when communication of proposal and acceptance is complete (quoted in the opinion).
- Section 5 — revocation of proposal before acceptance is complete.
2. Interpretation of the MOU's conditional clauses: The court closely read clause 19 and clause 21 of the MOU:
- Clause 19 made the MOU subject to approval of the Boards of both GMDC and AML, and to governmental concurrence regarding GMDC's equity participation; it expressly provided that upon necessary approvals the MOU "will be converted into an agreement between GMDC and AML."
- Clause 21 provided that if governmental concurrence for equity participation was not forthcoming within six months, the MOU would be construed instead as a long-term supply contract for bauxite.
3. Board action and subsequent conduct: The GMDC Board did not simply ratify the MOU as originally drafted; it approved the MOU only with substantial modifications (29.10.2007). Those modifications — notably to bauxite specifications, pricing, and deletion of transfer of leases — were conveyed to AML. AML reacted by communicating that such changes would adversely affect project viability and demanded reversion to the original terms; the court interpreted AML's communications as a rejection of the Board's proposed modifications.
4. Meeting of minds and effect of rejection: The court found that AML's clear rejection of the modifications (and insistence on the original MOU) amounted to a completed rejection of GMDC's proposal; the parties were not ad idem. Any subsequent correspondence and efforts by the parties to continue negotiations did not convert the MOU into a concluded contract — at best they constituted fresh negotiations which would require a fresh MOU or a newly concluded agreement. No fresh agreement embodying accepted modified terms was signed.
5. Supplementary factual points: The court observed additional, reinforcing facts: there was no financial closure, and AML lost its originally envisaged Chinese JV partner and did not procure an immediate substitute. The court treated these as supplementary to the prime conclusion that no binding contract emerged.
6. Application of precedent: The court applied the principle from U.P. Rajkiya Nirman Nigam Ltd. v. Indure Pvt. Ltd. that whether an arbitration agreement exists is for the Court to decide and that an arbitration clause cannot be enforced where the underlying contract itself was not a concluded contract. The court concluded that the arbitration clause was part of an MOU that never became a binding agreement.
Holding and Implications
Holding:
ARBITRATION PETITION DISMISSED
Implications:
- Direct effect on the parties: The petitioner (AML) cannot seek appointment of an arbitrator under the arbitration clause in the MOU because, on the facts before the court, the MOU never became a concluded contract and thus did not give rise to an enforceable arbitration agreement.
- The court declined to treat subsequent correspondence or conduct between the parties as sufficient to show that the parties had reached agreement on modified terms or that a fresh concluded contract had come into existence.
- No new legal principle or precedent was created by this decision; the court applied established contract law principles (including those articulated in the cited Supreme Court authority) to the specific factual matrix before it. The decision's consequence is confined to the facts of this case: the arbitration clause in a conditional MOU that never converted into a concluded agreement is not enforceable to compel arbitration.
This summary is compiled strictly from the content of the provided opinion. No facts, arguments or holdings beyond what is contained in the opinion have been added or inferred.
ORAL JUDGMENT
1. The petitioner seeks appointment of an arbitrator to resolve the disputes between the petitioner and the respondent arising out of an agreement dated 17.8.2007 Such agreement titled as Memorandum of Understanding (“MOU” for short) did contain an arbitration clause. Such arbitration clause is not seriously in dispute. Nor the respondent has disputed satisfaction of other formalities necessary for securing appointment of an arbitrator, such as, giving notice for appointment. The sole but strong contention of the respondent is that the MOU never resulted into a completed contract. Both sides have referred to and relied upon several documents which formed part of rather lengthy and detailed correspondence between the parties. Counsel for two sides have made detailed submissions on this central issue.
2. The facts are somewhat complex. It would therefore, be necessary to notice facts emerging from the correspondence between the parties as far as possible chronologically. The petitioner Ashapura Mine-Chem limited, (here-in-after referred to as “AML”), a company registered under the Companies Act and the respondent Gujarat Mineral Development Corporation(here-in-after referred to as “GMDC”) signed the MOU dated 17.8.2007 Under such MOU parties agreed to certain bilateral obligations. The MOU was subject to conditions of approval and sanction.
3. We may take note of salient features of this MOU. The MOU records that the AML proposed to constitute a joint venture along with one M/s. Qing TongXIa Aluminium Group Co. Ltd., Ningxia of China (here-in-after referred to as “QTX”) and GMDC to set up an Alumina plant of appropriate capacity in the Kutch District of Gujarat. The GMDC agreed to supply on priority basis, medium grade bauxite to the said plant from its 10 existing and 18 expected bauxite mining leases in the Kutch district. Some of the important terms of the said MOU read as under:
“19. This MOU is subject to the approval of the Board of Directors of both GMDC and AML. In addition to the provisions relating to investment in the equity of Joint Venture by GMDC shall be subject to the concurrence of the Government of Gujarat and the investment by AML shall be subject to approval of its shareholders. Both GMDC and AML shall endeavour to obtain necessary approvals within a period of 3 months from the date of execution of this MOU. On getting necessary approvals by both sides, this MOU will be converted into an agreement between GMDC and AML.
21. In case the concurrence of the Government of Gujarat is not forthcoming for equity participation in the project within 6 months of signing of this MOU, this MOU will be construed as one relating to long term supply of medium grade bauxite to the Joint Venture by GMDC from its Kuch mines.
26. In the event of difference/disputes arising between the parties in respect of any matter arising out of and relating to this MOU, such dispute/difference shall, in the first instance be resolved amicably by mutual consultations within 45 days of the reference of disputes by either Party.
27. If amicable settlement is not reached between the parties then such unresolved dispute or difference of opinion concerning or arising from this MOU and its implementation, breach or termination whatsoever, including any difference or dispute as to the interpretation of any of the terms of this MOU, shall be referred to the arbitration of a sole arbitrator appointed by GMDC and AML. The Arbitrator shall give reasoned award. The Arbitration shall be governed by Arbitration and Conciliation Act 1996 (India) and conducted in the city of Ahmedabad. The language of Arbitration shall be English. The parties shall share the cost of Arbitration equally. Arbitration clause to be acceptable to the Financing Sources.”
4. Pursuant to the said MOU, the respondent GMDC in its Board meeting dated 29.10.2007, passed the following resolution:
“4277 MOU for setting up of Alumina Project in Joint venture with M/s. Ashapura Minechem Limited, Mumbai in Kutch District
The Board was apprised about the background of the proposal contained in agenda. After considering the agenda note the Board-of-Directors passed the following resolutions:
:Resolutions:
1. RESOLVED THAT the Board of Directors accords its approval to the Memorandum of Understanding executed on 17.8.2007 by and between GMDC and M/s. Ashapura Minechem Ltd. subject to the following modifications:
Article 6 of the MOU shall be substituted by the following:
Article 6
The specification of medium grade bauxite to be supplied to the joint venture shall be as follows:
Al2O3 * 47%(but not less than 45%)
SiO2(total) 6% (Max)
Fe2O3 21% (Max)
Free Moisture 6.00%(8% during monsoon period)(Max)
LoI(Loss on Ignition)30%(Max)
Physical Size Upto 150 mm
Monohydrate 3%(Max)
*On dry basis
Article 8 shall be substituted by the following:
Article 8:
GMDC shall supply bauxite of the agreed specification as per article 6 of the ex mines price equivalent to 0.55% of the LME aluminum price (monthly average) during the month immediately preceding the month during which supplies are made and revised every month accordingly, subject to the condition that there shall be a bonus or penalty at the rate of US$ 1.00 per percentage increase or decrease in the alumina content compared to the prescribed minimum of 47% on dry basis and provided further that there shall be a bonus on penalty at the rate of US$0.50 per percentage variation in Silica content compared to the prescribed limit of 6%.
II RESOLVED FURTHER THAT in view of provision contained in Rule 37 of Mineral Concession Rules, 1960, article 25 of the MOU relating to the provision for transfer and/or grant of 14 baxite mine leases to the proposed joint venture be deleted from the MOU, as the retention of the same can jeopardize the resources expected to be available to GMDC as per the MOUI and since the interest of the proposed joint venture in so far as it relates to timely availability of raw material is already protected through other provisions in the MOU.
III “RESOLVED FURTHER THAT subject to the approval of Govt. of Gujarat, the Board of Directors hereby accords its approval to participate in the equity of the proposed joint venture with M/s. Ashapura Minechem Ltd./QTX to the extent of 26% of the paid up equity capital of the joint venture.
IV “RESOLVED FURTHER THAT the Chairman and Managing Director be and is hereby authorised to take all necessary steps to give effect to the above resolutions.”
5. The gist of decision of the Board of Directors of the GMDC was conveyed by the GMDC to the petitioner under communication dated 17.12.2007 in which it was stated as under:
“2) In the 224th meeting of the Board of Directors of GMDC held on 29/10/2007, the MOU dated 17/08/2007 executed by and between GMDC and AML was placed for approval and it was decided to revise the bauxite specifications(article 6) as well as selling price of the bauxite (article 8) to be supplied to the proposed JV. The revised specifications as well as pricing formula approved by the board are given hereunder:
Bauxite Specifications (Article 6)
Al2O3 * 47%(but not less than 45%)
SiO2(total) 6% (Max)
Fe2O3 21% (Max)
Free Moisture 6.00%(Max)(8% during monsoon period)
LoI(Loss on Ignition)30%(Max)
Physical Size Upto 150 mm
Monohydrate 3%(Max)
*On dry basis Selling price (Article 8)
GMDC shall supply bauxite of the agreed specification as per article 6 of the ex mines price equivalent to 0.55% of the LME aluminum price (monthly average) during the month immediately preceding the month during which supplies are made and revised every month accordingly, subject to the condition that there shall be a bonus or penalty at the rate of US$ 1.00 per percentage increase or decrease in the alumina content compared to the prescribed minimum of 47% on dry basis and provided further that there shall be a bonus on penalty at the rate of US$0.50 per percentage variation in Silica content compared to the prescribed limit of 6%.
In addition, the Board also decided that no leases (existing/applied for) shall be transferred to the proposed Joint Venture and that the JV should secure the material from GMDC as per the other provisions of the MOU.
Kindly confirm that tee revised terms are acceptable to you.”
6. On 6.5.2008, AML wrote to GMDC and conveyed that:
“…..Hence all working arrangements of Ashapura with Ms./QingTongXIa Aluminum Group Company Ltd., including the Memorandum of Understanding dt. Sep 19, 2005, containing the objectionable clause referred to in the Agreement between GMDC and Ashapura hereby stand cancelled”
7. On 21.5.2008, AML wrote to GMDC and conveyed as under:
“As you are aware, the final clearance for the Alumina Refinery Project was granted to us on October 27, 2006. Following which, after a series of meetings and negotiations, the Memorandum of Understanding was signed with GMDC on August 17, 2007. On December 17 ‘07 we were intimated of the changes, suggested by the Board of Directors of GMDC, to the terms and conditions of the MOU as agreed on Aug 17 ‘07.
We wish to bring to your notice that these changes in the terms and conditions shall have an adverse impact on the viability of the Project. At the same time it will cause undue strain on the natural resources and a burden on the disposal of the waste products.
The additional cost of Bauxite per annum shall amount to Rs. 73 crores, whereas the additional cost of Caustic soda shall amount to Rs. 205 crores. This will adversely affect the viability of the project. In order to make the project bankable, 14 leases as mentioned in Annexure-A of the above mentioned MOU should be made available to the Joint Venture Company as agreed in the MOU. Otherwise without leases in the name of Joint Venture Company, Project will not be bankable and it will be impossible to raise funds.
Hence we sincerely request you to look into the matter and revert to the terms and conditions as agreed on August 17, 2007 and confirm your acceptance immediately.”
8. On 10.6.2008, AML wrote to GMDC and represented as under:
“Having fulfilled all conditions set out to us, we now once again request you for the following:
1. Ratification and acceptance of the MOU by the Board of Directors of GMDC, as per terms and conditions agreed on August 17, 2007.
2. Issuance of NOC for land in order to enable us to complete the land procurement formalities.
The Basic Engineering for our Project has been completed. Further we are expecting the Environmental Clearance shortly. With this we shall be able to commence construction of the Project by the third quarter of this year.
Hence we sincerely request you to issue the NOC for the land expeditiously so as to enable us to complete the transfer formalities in time to start the construction.”
9. On 11.6.2008, Board of GMDC took note of withdrawal of the Chinese partner of AML and representation of AML and resolved as under:
“Status of MOU for setting up of Alumina Project by M/s. Ashapura Minechem Ltd. in Kutch District.
The Board was apprised about the agenda item. The Board discussed in details about the Memorandum of Understanding(MOU) entered into between Ashapura Minichem and GMDC and approval granted by the Board to the same in its 224 Meeting held on 29.10.2007 subject to modifications in (I) Bauxite Quality (ii) Price to be charged (based on LME aluminum) and (iii) Non allocation of mining leases to JVC, the non compliance of terms of the MOU by M/s. Ashapura Minichem Ltd. and intimation submitted to the Govt of Gujarat with respect to such non compliance.
The Board took note of the representation made by M/s. Ashapura Minechem Ltd. to GMDC and GMDC's comments on the respective representation. The Board also took note of the statement comparing the conditions of MOU between GMDC and M/s. Ashapura and that between GMDC and M/s. Aluchem Inc., USA.
The Board was informed that apparently, the Chinese partner of M/s. Ashapura Minechem Ltd. has backed out from the arrangement and there is not certainty of the third JV partner who will be partnering with M/s. Ashapura Minechem Ltd.
The Board after detailed discussed on the agenda note, passed the following resolution:
:RESOLUTION:
(i) To seek legal closure of the MOU between M/s. Ashapura Minechem Ltd. and its Chinese partner M/s. Quing TongXIa Aluminium Group Co. Ltd(M/s. QTX)
(ii) A confiscation from M/s. TTX with respect to their withdrawal from the JV Partnership from Kutch Alumina Project be obtained by GMDC.
(iii) M/s. Ashapura Minechem Ltd. be asked to submit the details including financial of its new JV partner for the Kutch Alumina Project.
(iv) To have parity in terms and conditions of MOU between GMDC and M/s. Ashapura Minechem Ltd. and that between GMDC and M/s. Aluchem Inc., USA and fresh MOUs be entered with the respective party.
(v) Bauxite leases of GMDC to be transferred to the proposed JVs in a phased manner and only after the project has come up.
(vi) The fresh MOU's to be entered into between GMDC and M/s. Ashapura Minechem Ltd. and M/s. Aluchem Inc., USA respectively be referred to the Govt. of Gujarat for a suitable decision.”
10. On 16.7.2008, GMDC wrote to AML and conveyed the decision dated 11.6.2008 as under:
“GMDC in its 228 meeting of Board of Directors held on 11/6/2008 had decided as follows:
i) To seek Legal closure of the Memorandum of Understanding executed between you and your Chinese partner QTX.
ii) To seek confirmation regarding the withdrawal of QTX thoroughly by a letter from them from JV Partnership with you for setting up of said proposed alumina project.
iii) Ashapura Minechem Ltd. to submit the details including financial of new JV partner for the Kutch Alumina project.
iv) Bauxite leases of GMDC shall be transferred to the proposed JV in a phased manner only after the project is fully commissioned based on actual requirement vis-a-vis capacity.
v) Fresh MOU to be entered into by and between GMDC and Ashapura Minechem Ltd. and referred to Govt. of Gujarat for suitable decision.”
11. In the Board meeting dated 12.8.2008, of GMDC following decision was taken:
“4361 Setting up of Alumina Project - M/s. Ashapura Minechem Limited.
The Board was informed about background of the agenda item and also apprised about the decision taken in its 228 Meeting held on 11.6.2008 This decision of the Board was conveyed to M/s. Ashapura Minechem Limited (M/s. AML). In response to this, M/s. AML has furnished the information conveying about M/s. Adani Enterprise Ltd. as their new JV partner, indicating their financial capability (unauthenticated) without furnishing legal closure of the MOU executed by them with M/s. QingTongXIa Aluminium Group company Limited(QTX) by a letter from QTX withdrawing from JV Partnership with M/s. AML for setting up of said proposed alumina project. M/s. AML has, in response, given an indemnity bond indemnifying GMDC that there are no legal implications on the alumina project and thus M/s. AML shall indemnify and keep indemnified and hold harmless GMDC from and against such costs/expenses sustained by GMDC, in connection with, or relating to or arising out of the terms and conditions, agreements and provisions contained in the MOU dated 19/9/2005 or any agreement for carrying out its obligations under the Agreement which M/s. AML proposes to execute with GMDC. Simultaneously M/s. AML have indicated that M/s. QTX are not going ahead or showing interest in the project.
The Board was informed that earlier, decision regarding change of partner by AML was taken and approved in the meeting chaired by Hon'ble Minister for Industries & Mines. No letter in this regard was taken from the original partner. It was based on the views of M/s. AML.
The Board was informed that the new JV partner of M/s. AML viz. M/s. Adani Enterprises Limited, though financially competent, the technical competency for the Alumina project now has to be ensured. The Board desired that a written undertaking for ensuring technical competency for the proposed JV be obtained from M/s. AML as also the complete documentation on the financials of the new partner be taken.
The Board was also informed that M/s. AML has been requesting for a “No Objection Certificate” for the land for the proposed project which is presently pending with the Revenue Department. It was felt that this can be given with a condition that it will be in the joint name of GMDC and AML.
The Board after due deliberation on the agenda note, decided as under:
:RESOLUTION;
RESOLVED THAT the Board hereby accords its approval to send the proposal of M/s. AML to Govt of Gujarat for approval for the following:
a) The MOU between GMDC and M/s. AML for the alumina project with the following changes:
(i) Removal of M/s. QTX (Chinese partner) from proposed JV and inclusion of new partner M/s. Adani Enterprise Limited in place of m/s. QTX.
(ii) Transfer of Bauxite mining Leases in phased manner as agreed in MOU dated 17.8.2007 to the JV on commissioning of the Joint Venture Project.
(iii) No change in equity - GMDC will continue with 26% equity stake in the JV.
(iv) No change in pricing-it will remain the same as decided by the Board vide Resolution No. 4277 in its 224 meeting held on 29.10.2007 i.e 0.55% of the LME aluminium price.
(v) To have parity in terms and conditions'so as to be at part with M/s. Aluchem particularly to remove the signature bonus clause and bank guarantee clause.”
12. On 12.9.2008, GMDC wrote a letter to the Government of Gujarat with a copy to the AML in which it was stated as under:
“With a view to accelerate the progress in implementation of the project, M/s. Ashapura Minechem Ltd. requested GMDC to forward its NOC to Revenue Deptt. as well as the Industries Commissioner, Govt. of Gujarat, so that allocation of land for the project could be expedited by the Govt.
In this context, GMDC hereby conveys its no objection to said land allocation for the project subject to condition that GMDC and M/s. Ashapura Minechem Ltd. will be the co-owners of the land till such time the Joint Venture to implement the project is formed. The land shall then be transferred in the name of the Joint Venture.”
13. On 17.9.2008, GMDC wrote to the Government of Gujarat and submitted a revised MOU to the Government for its approval. It was pointed out that the MOU dated 17.8.2007 was placed before the Board of Directors of GMDC on 29.10.2007 and the Board had approved it with certain modifications. Letter also pointed out that in subsequent meeting dated 12.8.2008, further changes were suggested. In view of the Board's meeting dated 12.8.2008, it was therefore, necessary to sign a fresh MOU.
14. On 5.1.2009, AML wrote to the Government of Gujarat and conveyed as under:
“We understand that GMDC has sent final MOU Draft for approval to Government of Gujarat since last 3 months. We request you to approve immediately sos that it can be signed. The project cannot proceed without having MOU in place.”
15. On 2.4.2009, the AML wrote to GMDC in connection with the extension of the bank guarantee given by AML and conveyed that thejprocess of approval of draft MOU by Government of Gujarat is not yet completed and is likely to take some more time. If the bank guarantee is extended, the same may again expire, if MOU is not approved within the validity of such instrument. It was therefore, conveyed that “In view of the above, it is requested that the process for finalization of MOU may kindly be expedited. We will extend the BG and submit fresh cheque as per MOU within fifteen days of signing of MOU.”
16. On 9.7.2009, GMDC wrote to AML and stated as under:
“Please recall the meeting held by PS I&MD in his chamber on 9/6/2009 on the above subject wherein you were requested to furnish following information to Government:
1. What would be the final product of your project, alumina or aluminium.
2. Who will be your new JV partner.
3. Financial details of the project including means of finance keeping in view no participation of GMDC in the project.
4. To furnish an undertaking for use of bauxite for the project from your Jamnagar District bauxite lease.
You are requested to let us know whether you have furnished the above information to Government or not and if yes, kindly send us a copy thereof. It not, please expedite submission thereof with a copy marked to us, so that further necessary action in furtherance of the project could be taken.”
17. On 13.7.2009, AML wrote to GMDC and conveyed as under:
“Kindly refer to your letter No. GMDC/PRED/623/09-10 dated 8 July 2009, regarding extension of Bank Guarantee (BG) for Rs. 10,00,00,000/- and issue of fresh cheque for Rs. 3,94,00,000/- towards direct expenses incurred by GMDC for setting up of Alumina Plant.
In this regard, it may kindly be noted as mentioned in our previous letter dt. April 2, 2009, we once again reiterate that we are committed to extend the Bank Guarantee and submit the cheque amounting to Rs. 3,94,00,000/- as per MOU. However, the process of approval of draft MOU by Government of Gujarat is yet to be completed. If we extend the BG and submit the fresh cheque now they will again expire, if the approval of MOU is not granted within the validity of these instruments. Moreover, our bankers would also like to see the copy of duly signed MOU for extending BG.”
18. On 15.9.2009, AML wrote to the Government of Gujarat. Besides other, requested for expeditious ratification of the modified MOU. Relevant portion of the said letter reads as under:
“Ratification of MOU by the Government of Gujarat.
This MOU was discussed, modified, agreed and then signed between GMDC and Ashapura on Aug, 17, 2007. Several changes have been made in this MOU which we have accepted. However the MOU remains yet to be ratified by the Government.
This has stalled our progress on the-financial closure front and also proceeding further on with the Detailed Engineering.
We request your kindself to look into the matter at the earliest. Considering the size of the project as well as the Investment involved, this project is bound to bring prosperity to the Kutch region of Gujarat as well as earn revenues to the Gujarat Government. And as mentioned in our earlier correspondence we are committed for the same.”
19. On 18.3.2010 in its Board meeting GMDC took into account the various developments in connection with the said project and resolved as under:
“4577 Change of JV Partner by M/s. Ashapura Minechem Limited for setting up of Alumina Plant in Kutch.
The Board was apprised about the background of the agenda note. It was informed that -
(1) An MOU was executed with M/s. Ashapura Minechem Limited. (AML) on 17/8/2008 for setting up of 1 million tonnes per annum of Alumina plant based on Kutch bauxite, with equity participation of M/s. Qing TongXIa Aluminium Group Company Limited, Ningxia, China.
(2) Vide letter dated 6/2/2008 AML informed about M/s. Qing TongXIa Aluminium Group Company Limited, Ningxia, China that they were no more interested in the proposed project.
(3) Board of Directors in its 228 meeting held on 11/6/2008 decided to enter into fresh MOU with Ashapura and Aluchem to have parity in terms and conditions.
(4) Vide letter dated 21/7/2008 AML informed about M/s. Adani Enterprise Ltd. as their new JV partner in place of M/s. Qing TongXIa Aluminium Group Company Limited, Ningxia, China having withdrawn.
(5) Accordingly the matter was placed in the 230 meeting of the Board of Directors to accept M/s. Adani Enterprise Limited as new partner. The Board had approved the proposal. Hence vide letter dated 17/09/2008 we had requested Govt of Gujarat to accord approval to the draft MOU to be executed with the party. Government approval in this regard has not been given. M/s. Adani Enterprise Limited subsequently withdrew from the project.
(6) During a follow up meeting with AML held on 9/6/2009 under the chairmanship of PS, I&MD, AML was requested to furnish the following:
i) The final product of the project shall be alumina or aluminium.
ii) Name of the new JV partner.
iii) Financial details of the project including means of finance, keeping in view no participation of GMDC in the project.
iv) An undertaking for the use of Jamnagar bauxite from their existing leases.
(7) The party was constantly requested to supply the information about identifying new JV partner. Finally, on 3/3/2010 the party informed about M/s. Mobadala Development Co., Abu Dhabi as prospective partner who have invested in Emirates Aluminium Company Limited, Beni Saf Aluminium Smelter.
The Board discussed at length the issue under consideration and noted that adequate constructive steps have not been taken by AML in furtherance of the project since award to them by Govt. of Gujarat on 27/10/2006. The JV partner, M/s. Ashapura Minechem has not been able to tie up clear and sound financial arrangements.
The Board also discussed in details about the new mineral policy announced by the State Government in November, 2009. In the said policy major changes have been made in case of bauxite also. In light of the new mineral policy and also the facts mentioned above, it was decided not to extend the validity of the proposed MOU. It was decided to invite fresh EOI in bauxite for higher value addition beyond alumina.”
20. On 10.6.2010, GMDC wrote to the Government of Gujarat and inter-alia conveyed as under:
“5. During discussion on an agenda on the project status placed in the 243rd meeting of Board of Directors of GMDC held on 18/3/2010, the Board decided not to extend the validity of the proposed MOU and to invite fresh EOI in bauxite for higher value addition beyond alumina in view of major changes made in case of bauxite in the new mineral policy promulgated by Govt. of Gujarat in November, 2009 as well as no adequate constructive steps taken by AML in 27/10/2006 as also inability of AML to tie up clear and sound financial arrangements (Copy of Board resolution enclosed).
6. In this context, we also append hereto copy each of three letters (all dated 20/4/2010) received from Ashapura Minechem Ltd., requesting furtherance of the project. Since setting up of Alumina project was awarded to AML at Govt. level in view of foregoing Govt. may kindly take suitable decision based on the decision taken by GMDC Board.”
21. While thus on one hand the GMDC had decided not to pursue the project with AML, perhaps on the premise that even such decision shall have to be ratified by the Government, on 26.7.2010, GMDC wrote to AML as under:
“To acquire land for the proposed project, vide letter dated 12/9/2009 GMDC has already issued NOC to the Revenue Department, Govt of Gujarat. In the meantime during the meeting held on 9/6/2009 under the Chairmanship of Principal Secretary, Industries & Mines Department, Govt. of Gujarat, wherein you were also present, as directed, you were requested to firm up the new JV partner and confirm. On receipt of your confirmation towards firming up of new JV partner, the same shall be conveyed by us to Govt. and thereafter Government will take suitable decision in the matter. In view of this, you are requested to kindly expedite your confirmation in this regard.”
22. On 23.8.2010, AML wrote to GMDC and stated as under:
“We are in receipt of your letter dated August 10, 2010.
As you are aware, last 2 years were not very good for business organisations & institutions due to the global financial crisis. A lot of business and investment had their financial turmoil as well as the country’ economic status was also affected. Due to these reasons many business houses & institutions were not investing in any upcoming projects.
As the situation is gradually improving some of the reputed business houses have expressed their interest in investing in our project.
We are putting constant efforts in order to firm up with a JV partner for this project and we are confident that we shall get a partner in place for this project, nevertheless, the due diligence and the completion of the various formalities will take some time.
As mentioned earlier we are finding it difficult to answer the queries of our prospective partners related to MOU and land status. Therefore, we once again request you to give us conditional clearance immediately which will speed up the process.”
23. On 25.4.2011, GMDC stated thus:
“This has reference to the Memorandum of Understanding (‘MOU for short) dated 17.8.2007 executed between Gujarat Mineral Development Corporation (GMDC for short) and Ashapura Minechem Ltd. (‘AML’ for short) for setting up an Alumina Plant of appropriate capacity in the Kutchh District subject to various terms and conditions as laid down therein.
2. This is to inform you that it has been decided to forthwith cancel the aforesaid MOU in view of the failure on your part in having complied with various terms and conditions of the said MOU including (i) for not arranging for equity participation from the third party and not forming a joint venture with the same; (ii) in not achieving a financial closure of the proposed project to be undertaken by the proposed joint venture. (iii) in not paying Rs. 6.25 crore towards signature bonus;(iv) in not submitting fresh Bank Guarantee or fresh cheque for Rs. 3.94 crore, etc. Thus you have failed to initiate adequate steps to take up the proposed project seriously despite having been informed time and again in that behalf, which has ultimately compelled the Board of Directors of GMDC to decide for not extending the validity of the said MOU in its 243 meeting, held on 18.3.2010”
24. On 11.7.2011, AML wrote to GMDC and it is a fairly length communication. It is not necessary to reproduce the entire letter. Portions relevant for our purpose read as under:
“4. Accordingly, an MOU was executed on 17.08.2007 between GMDC and AML subject to the terms and conditions contained therein, to which, both the executing parties were committed. We regret to bring to your notice that even thereafter, the GMDC kept varying the terms and conditions of the MOU as a result whereof the said action resulted in increasing the financial burden on the joint venture.
5. As it appears that the Board of Directors of GMDC in the meeting held on 29.10.2007 accorded its approval to the said MOU with certain modifications, which was communicated to AML vide letter dated 17.12.2007 Though the modifications suggested were major and likely to affect the viability of the ARP-Project and were likely to have an adverse effect for a few hundred crores on the Joint Venture Agreement entered into by the AML with the third party, yet, after due deliberations and discussions on the said suggested modifications in the MOU, AML accepted the same as communicated vide letter dated 06.05.2008 wherein, with regard to signature bonus, AML agreed to pay the sum on immediate ratification of the MOU by the Government of Gujarat.
6. However, in view of the delay and the repeated modification in the MOU as suggested by the government of Gujarat, the Joint Venture Partner namely, Qing Tong XIa Aluminum Group Company Limited, a Chinese company, withdrew the participation vide its communication dated 14.08.2008 on the ground that the promises for the mining right being granted to the project by the Gujarat Government were not being confirmed finally, and that the Gujarat Government request that the project to be constructed as a one-million ton Alumina Refinery and a five hundred thousand ton Aluminum Smelter in one phase, which changes according to the said company, were not in conformity with the basic terms in the Joint Venture Agreement and the investment purpose. As a matter of fact, the said JV partner was also disappointed with the GMDCs unilateral decision of enhancing its original participation of 6 to 11% to 26%. the JV partner therefore had no option to withdraw from the said deal due to the repeated changes in the terms and conditions of the GMDC. This action of GMDC created an element of distrust and insecurity with the JV partner and an embarrassing position for our company. The AML had in view of the withdrawal of the Joint Venture Company above, no option but to issue an indemnity bond in favour of the GMDC.”
25. Having taken note of such detailed correspondence, the sole question that calls for consideration is whether there was any completed contract between the partes. Only if the answer is in the affirmative, then the question of reference to arbitrator would arise since the arbitration clause is contained in this agreement. If on the other hand answer is in the negative, it would imply that there was no completed contract between AML and GMDC. If there was no completed contract, the question of valid arbitration agreement would not arise. We have also noticed arbitration clause contained in the MOU dated 17.8.2007 It is this arbitration clause which the AML seeks to enforce for appointment of an arbitrator. Central controversy therefore, is did this MOU result into a completed contract between the parties?
26. Section 10 of the Indian Contract Act, 1872 provides that all agreements are contracts, if they are made by the free consent of the parties competent to contract for a lawful consideration and with a lawful object, and are not expressly declared to be void.
Section 3 of the Indian Contract Act, pertains to mode of communication, acceptance and revocation of proposals. Section 4 of the Indian Contract Act pertains to communication when complete and reads as under:
“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
The communication of a revocation is complete, - as against the person who makes it, when it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the person who makes it; as against the person to whom it is made when it comes to his knowledge.”
Section 5 of the Indian Contract Act provides that a proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards.
27. One would have to bear in mind these provisions while interpreting the correspondence between the parties and various developments which took place with and after signing the MOU dated 17.8.2007
28. Said MOU, as already noted contained various clauses of bilateral obligations which the parties undertook to perform. The MOU was subject to two conditions. As per clause 19, the same was subject to approval of the Board of Directors of both GMDC and AML and secondly, the provisions relating to investment in the equity joint venture by GMDC was subject to concurrence by the Government of Gujarat and investment by AML was subject to approval of its shareholders. Clause specifically provided that GMDC and AML shall endeavour to obtain necessary approvals within three months from the date of commencement of MOU and further “on getting necessary approvals by both sides, this MOU will be converted into an agreement between GMDC and AML.”
29. Clause 21 further provided that in case the concurrence of the Government of Gujarat was not forthcoming for equity participation in the project within six months of signing of the MOU, the same shall be construed as one relating to long term supply of medium grade bauxite to the joint venture by GMDC from its Kutch mines.
30. Combined reading of clauses 19 and 21 of the MOU would establish that the MOU was subject to approval of the Board of Directors of GMDC and equity participation in its joint venture by GMDC was subject to concurrence by Government of Gujarat. Terms approval and concurrence have not been used synonymously. This would be further clear from clause 21 which provides that if the concurrence of the Government is not available within six months, the MOU would be construed as one relating to long term supply of medium grade bauxite to the Joint venture. The approval of the Board of Directors of the GMDC to the MOU was thus a condition precedent. Concurrence of the Government in equity participation was a condition required to be fulfilled within six months and failing which, existence of MOU would not be threatened, but the agreement would take a different shape from what was initially envisaged. However, insofar as approval of Board of Directors of GMDC was concerned, it was a condition necessary to be fulfilled before the MOU could come into existence as a concluded contract. This was clearly specified in clause 19 which provides that on getting necessary approvals by both sides, the MOU will be converted into an agreement between GMDC and AML. In other words, in absence of necessary approvals, the MOU would be a still born agreement.
31. With this understanding of the terms of MOU, we may take stock of the developments which took place after signing of the MOU. As noted, such MOU was placed before the Board of Directors of GMDC for its approval. The Board did not approve the MOU with all its terms and conditions. The Board instead, in its resolution dated 29.10.2007, suggested multiple changes. Some of these changes were fundamental and significant. Terms on which bauxite was to be supplied to joint venture were materially altered. The rate at which same would be supplied was also under a proposal for change. It was further resolved that clause relating to provision for transfer and/or grant of 14 bauxite mine leases to the joint venture be deleted as retention of same would jeopardize the resources expected to be available to GMDC. It was also resolved that subject to approval of Government of Gujarat, the Board of Directors accorded its approval to participate in the equity of the proposed joint venture with AML and QTX to the extent of 26% of the paid up equity share capital.
32. Such modifications suggested by the Board of Directors of GMDC to the MOU were duly conveyed to the AML. These proposed changes in MOU suggested by the GMDC were conveyed to the AML under communication dated 17.12.2007 AML however, had strong reservations to such large scale changes and thought that such changes would render the project unviable. In its communication dated 21.5.2008, AML conveyed to the GMDC that the changes suggested by the Board of Directors in terms and conditions shall have adverse impact on the viability of the project and it would cause undue strain on the natural resources and a burden on the disposal of waste products. It was pointed out that due to such change, additional cost of bauxite per annum would be Rs. 73 crores and additional cost of caustic soda shall amount to Rs. 205 crores. This will adversely affect the viability of the project. It was therefore, conveyed that GMDC should look into the matter and revert to the terms and conditions agreed on 17.8.2007 and confirm the acceptance immediately.
33. What thus emerges is that the MOU dated 17.8.2007 was subject to approval by the Directors of GMDC and AML. Only upon such approval, the MOU would attain the status of an agreement. The Board of Directors of GMDC did not approve the MOU as it is. It instead suggested major changes. Such changes were conveyed to AML. AML found the changes in condition too onerous. It conveyed that such changes would render the project unviable due to heavy additional cost for procurement of bauxite and caustic soda. It therefore, specifically conveyed that issues be reconsidered and the MOU in the original form be approved. To my mind, this communication must be seen as the AMLs rejection of the proposal of GMDC. Contrary to what was contended on behalf of the petitioner, the matters were not under negotiation. AML did not in any manner leave any room for doubt about the proposal for changes made by GMDC. In simple terms, AML rejected such changes and insisted that the MOU be approved in its original form. The offer and the rejection of the offer was thus complete. If despite this, the parties continued their efforts to conceptualise the project, it must be seen as fresh negotiations which would require a fresh MOU. It was perhaps because of this that in subsequent correspondence, the parties made reference to fresh MOU to be signed. Thus the MOU which started of with the requirement of approval by the Board of Directors of both the sides, never saw the light of the day in view of the intrinsic mechanism envisaged in the MOU and the subsequent developments which unfolded after signing of the MOU. In that view of the matter no completed contract came into existence to bind the parties. If there was no completed contact, question of an arbitration agreement being part of such contract would not arise. In other words, the arbitration agreement on which the petitioner seeks to fall back for seeking an arbitral reference was part of MOU, an agreement which never became a concluded contract between the parties. Since much stress has been laid on subsequent correspondences and emerging conduct of the parties from such correspondence by the counsel for the petitioner, it would be necessary to refer to such documents at this stage.
34. It is true that subsequently the parties did continue to make their efforts to save the project and in the process entered into detailed correspondence sometimes suggesting that they saw the MOU as still alive. It was in this context perhaps that learned counsel Shri Thakore contended that AML eventually did accept the modified terms of MOU and GMDC also accepted such acceptance of the AML. To my mind however, there are two serious impediments to this contention. Firstly, if we accept, as already we have concluded that the letter of AML dated 11.7.2011 must be seen as rejection of offer to accept modified terms in the MOU, thereafter, there was no further question of AML accepting such terms. I am unable to accept the contention of the counsel that under such communication AML merely requested GMDC to reconsider its position and that AML did not reject the modified terms. In clear terms AML conveyed its position and its inability to accept such major changes in the MOU. In fact detailed reasons were cited why such drastic changes were not acceptable, primarily, since the higher procurement cost of the materials would render the project unviable according to the AML. In that view of the matter, any subsequent change in the position by the AML to accept modified terms of MOU cannot give rise to a concluded contract of an MOU with modified conditions. No such fresh agreement was ever signed, no fresh terms were accepted by the parties. Nor the conduct between the parties would enable me to hold that the fresh MOU did come into existence, also cannot be accepted. If we revisit the different communications exchanged between the parties, it would emerge that both sides had taken at times rather comically contrary stands. AML initially rejected the GMDC's proposal for changes in the MOU. Subsequently, in the letters, AML referred to the acceptance of the changes. No letter has been produced showing when such terms were accepted. GMDC insisted on making changes in the MOU and also on signing by the parties a fresh MOU with modified conditions. Still, subsequently conveyed its decision to “cancel” the MOU. On mere conduct of the parties, in the present case, at-least it would not be possible to hold that further fresh agreement with modified conditions was treated to have come into existence.
35. One can also not lose sight of the fact that quite apart from no fresh MOU with changed conditions having been signed, consequent financial closure also had not been brought about. AML also did not find any substitute for third equity partner of the joint venture after the Chinese company M/s. Qing TongXIa Aluminium Group Co. Ltd. withdrew from the scene. Be that as it may, these are only supplementary issues. Prime issue being that in my understanding, there was no completed contract between the parties ever brought into existence. The arbitration agreement sought to be pressed in service being part of MOU which in my view never resulted into completed contract, the petitioner cannot seek enforcement of such a contract so as to seek reference to an arbitrator.
36. Such an issue was considered in somewhat similar factual background by Supreme Court in case of U.P Rajkiya Nirman Nigam Ltd. v. Indure Pvt. Ltd. reported in (1996) 2 SCC 667. A draft agreement was prepared by the parties. Respondent sent revised draft. Instead of signing the revised draft, the appellant submitted a tender to Electricity Board unilaterally. Respondent desired to invoke arbitration clause in the draft agreement. It was held and observed that:
“10. Section 31 [2] of the Act provides that notwithstanding anything contained in any other law for the time being in force and save as otherwise provided in the Act, all questions regarding the validity, effect or existence of an award or an arbitration agreement between the parties to the agreement or persons claiming under them shall be decided by the Court in which the award under the agreement has been or may be, filed, and by no other Court. Section 33 envisages that any party to an arbitration agreement or any person claiming under him desiring to challenge the existence or validity of an arbitration agreement or an award or to have the effect of either determined shall apply to the Court and the Court shall decide the question on affidavits. Under the proviso, if the Court deems it just and expedient, it may set down the application for hearing on other evidence also and may pass such orders for discovery and particulars as it may do in a suit.
11. In “Law of Arbitration” by Justice Bachawat [2nd Edn.] at page 19 of Chapter II it is stated that “to constitute an arbitration agreement, there must be an agreement, that is to say, the parties must be ad-idem. The parties are not ad-idem if there is an arbitration clause in the bought note while there is none in the sold note. To be enforceable, the agreement must be made by the free consent of the parties”.
15. The clear settled law thus is that the existence or validity of an arbitration agreement shall be decided by the Court alone. Arbitrators, therefore, have no power or jurisdiction to decide or adjudicate conclusively by themselves the question since it is the very foundation on which the arbitrators proceed to adjudicate the disputes. Therefore, 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 under Section 33 of the Act. We find no force in the contention. As seen, the appellant is claiming adjudication under Section 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 under section 33 through the Court. In our considered view the remedy under Section 33 is the only right royal way for deciding the controversy.
18. As found earlier, there is no signed agreement by a duly competent officer on behalf of the appellant. The doctrine of “indoor management” cannot be extended to formation of the contract or essential terms of the contract unless the contract with other parties is duly approved and signed on behalf of a public undertaking or the Government with its seal by an authorised or competent officer. Otherwise, it would be hazardous for public undertakings or Government or its instrumentalities to deal on contractual relations with third parties.
19. In view of the fact that Section 2 [a] of the Act envisages a written agreement for arbitration and that written agreement to submit the existing or future differences to arbitration is a pre-condition and further in view of the fact that the original contract itself was not a concluded contract, there existed no arbitration agreement for reference to the arbitrators. The High Court, therefore, committed a gross error of law in concluding that an agreement had emerged between the parties, from the correspondence and from submission of the tenders to the Board. Accordingly it is declared that there existed no arbitration agreement and that the reference to the arbitration, therefore, is clearly illegal. Consequently arbitrators cannot proceed further to arbiter the dispute, if any. The conclusion of the High Court is set aside.”
37. Under the circumstances, the Arbitration Petition is dismissed.
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