INDIA METERS LTD., MADRASversusPUNJAB STATE ELECTRICITY BOARD AND ORS.

                  INDIA METERS LTD., MADRAS                                   A
                                    v.
       PUNJAB STATE ELECTRICITY BOARD AND ORS.

                          SEPTEMBER 2, 1992
                                                                              B
           (N.M. KASLIWAL AND K. RAMASWAMY, JJ.]


     Arbitration Act, 1940:

       Section 3rArbitration clause provided in the purchase order-cum-con-
tract-Terms and conditions regarding payment not mentioned-Supplier in-       C
sisting on its own term?-l'urchaser not agreeing-Subsequent comspon-
dence-Effect of-Whether contract concluded between parties-rlrbitration
cluase-Whether could be enforced.

       In response to a tender notice issued by tbe Respondent-Electricity D
Board, the appellant offered to supply tbeir standard electricity meters
and stipulated their own terms of payment. It also Indicated tbat it will
not submit a bank guarantee as demanded in the tender notice. Sub-
sequently tbe appellant sent a telegram reiterating the offer, keeping all
tbeir terms and conditions unaltered.
                                                                              E
      The Respondent-Board sent a purchase order-cum-contract for
supply of 75,000 meters. In tbe order, tbere was no reference to the terms
and conditions or payment including tbe furnishing of bank guarantee. It
was stipulated that tbe meters supplied. by the appellant would be ac·
cepted subject to furnishing or sampies. It was also stipulated tbat dis· F
pules, if any, would be. referred to the sole arbitration or a nominee of the
Board. After exchange or series of correspondence, the Respondent-Board
did not agree to tbe original offer of the appellant, as also its requests
regarding acceptance of a bank guarantee or Rs. 1 lakh towards 100%
payment and security deposit. Thereafter, the appellant informed tbe
Board tbat it was not In a position to take furtber action in the tender and G
tbe production planning had been dropped.

      The Board appointed an arbitrator, and filed its claim towards
damages on account of tbe alleged breach or contract made by the appel-
lant.                                                                   H
                                    309
    310                  SUPREME COURT REPORTS[1992] SUPP. 1 S.C.R.

A         The appellant Died an application under section 33 of the Arbltra·
    lion Act before the Sub-Judge alleging that there was no completed con·
    tract between the parties. The Sub-Judge allowed the application and
    restrained the Arbitrator from proceeding further in the arbitration.

          The Respondent-Board preferred an appeal under section 39 of the
B Arbitration Act before the High Court. Treating it as a Revision Petition,
    the High Court held that the appellant bad accepted the offer of the Board
    and thereafter the Board by their letter dated 27.7.1978 had placed the
    purchase order. It further held that the subsequent correspondence
    regarding the security deposit, mode of payment and samples were merely
C   consequential steps taken in furtherance of the implemeutation of the
    contract aud they do not in any manner undermine the contract which
    othenrise stood concluded between the parties. Against this order of the
    High Court the appellant filed the present appeal.

         On the question as to whether there was any concluded contract
D   between the parties:

          Allowing the appeal, this Court,

            HELD: 1. There was no concluded contract between the parties and
E   as such the respondent-Board was not entitled to enforce the arbitration
    clause. The High Court was not correct in holding that the subsequent
    correspondence regarding the security deposit, mode of payment and
    samples were merely consequential steps taken in furtherance of the
    implementation of the contract and the contract already stood concluded
    between the parties. The mode of payment which included the furnishing
F   of bank guarantee was an important term and condition of the contract as
    ...,11 as the furnishing of the samples. The appellant by its letter dated
    24.3.1978 made its offer and had clearly put its own terms and conditions
    as regards the furnishing of bank guarantee and the Board never con·
    curred on those terms, rather in their letter dated 30.8.1978 clearly turned
G   down the request of the appellant. Thus there was no concluded contract
    between the parties. [315 G·H; 316 A·B]

        2. The appellant at the relevant time was a sick unit and steps were
  being taken to revive the same through a Government undertaking. Under
  these circumstances if the appellant was insisting on giving exemption
H from furnishing bank guarantee, it cannot be said that its action was
        INDIA METERS v. ELECTRICITY BOARD [KASLIWAL, J.]               311

unjustified. [316 B·CJ                                                        A
        CIVIL APPELLATE JURISDICTION :-Civil Appeal No. 3496 of
1992.

     From the Judgment and Order dated 23.4.91 of the Madras High
Court in C.M.P. No. 2111 of 19S4.                                             B
    R.F. Nariman, Ms. V.S. Rekha, H.S. Anand and Hardeep Singh
Anand for the Appellant.

        Sarup Singh and Arun Madan for the Respondents.
                                                                              c
        The Judgment of the Court was delivered by

        KASLIWAL, J. Special Leave granted.

     This appeal by Mis India Meters Ltd., hereinafter referred to as the
Appellant is directed against the Judgment of the High Court of Judicature    D
at Madras dated 23.4.1991.

       The Punjab State Electricity Board issued a tender notice by publi-
cation in the newspaper Indian Express dated 24.2.1978, inviting sealed           ·· ·
tenders form supply of house service electricity meters and Amps. The         E
appellant offered to supply their standard meier type OB-7 and stipulated
their own terms of payment and indicated that they would not submit a
bank guarantee as demanded in the tender notice. The appellant also ser.t
a telegram on 3.6.1978, reiterating the offer to supply the meters, keeping
all their terms and conditions unaltered.
                                                                              F
      The Board vide their communication dated 27.7.1978 sent a purchase
order-cum-contract for supply of 75000 meters. In this purchase order no
reference was made to the terms and condition of ·payment and the inability
to furnish bank guarantee by the apppellant. In clause 20 of the purchase
order the Board further mentioned that the meters supplied by the appel-
lant would be accepted subject to the furnishing of samples. In Clause 26 G
it was mentioned that disputes, if any, would be referred to the sole
arbitration of a nominee of the Board. The appellant by letter dated
19.8.1978 informed the Board that samples had already been sent, and that
fresh samples could not be insisted upon and called upon the Board to
send their acceptance of the offer made by the appellant on the basis of H
    312                  SUPREME COURT REPORTS[1992] SUPP. 1 S.C.R.

A the terms laid down by the appellant. The Board by its letter dated
    30.8.1978 sent a reply stating that exemption from bank guarantee was not
    acceptable to them and called upon the appellant to send the samples
    again. The appellant then vide their letter dated 7.11.1978 informed the
    Board that they had been granted exemption from furnishing security
B   deposit and bank guarantee for the various purchase orders placed by
    Tamil Nadu Electricity Board and Haryana State Electricity Board. It was
    also stated that the factory of the appellant was under revival and it had
    been declared as a relief undertaking by Government of Tamil Nadu. It
    was further mentioned that inspite of explaining special circumstances that
    appellant is a sick industry and· is striving to revive with the support from
C   Government institutions, it was understood that the Punjab State
    Electricity BC1ard was unable to agree to the original offer of the appellant
    and repeated requests made regarding acceptance of a bank guarantee of
    rupees one lakh toward 1(10% payment and security deposit and in the
    absence of such concurrence the appellant was not in a position to take
D   further action in the tender and production planning had been dropped.
    Thereafter the Board by letter dated 23.12.1979 informed the appellant that
    the Board and appointed Sh. A.N. Sharma, Suprintending Engineer(f &
    MR Punjab State Electricity Board (respondent No.2) as an arbitrator. On
    25.1.1980 the appellant received a copy of the claim made by the Board
    before the arbitrator claiming Rs.48,61,458 as damages for the alleged
E   breach of contract made by the appellant.

          The appellant then filed a application under Section 33 of the Arbitra-
    tion Act alleging that there was no completed contract between the parties.
    The offer made by the appellant was subject to their own terms and condi-
F   tions which were not accepted by the Board. The terms and conditions for the
    supply of the meters as made by the Board were not accepted by the
    appellant at any time. There was no consensus ad-idem and there was no
    completed contract. Since there was no completed contract between the
    appellant and the Board, there was no arbitration agreement between the
    parties. The appellant in these circumstances prayed for an order declaring
G   that there was no arbitration agreement between the appellant and the
    Board. It was also prayed that a permanent injunction may be granted
    restraining the arbitrator from proceeding with the arbitration.

          The Learned Subordinate Judge by his order dated 5.9.1981 allowed
H the application filed under Section 33 of the Arbitration Act (hereinafter
      INDIA METERS v. ELECTRICITY BOARD [KASLIWAL, J.]                  313

referred to as to 'Act') and restrained the arbitrator, respondent no.2 from A
further proceedings in the arbitration. The Board aggrieved against the
order of the Learned Subordinate Judge filed an appeal before the High
Court under Section 39 of the Act. The High Court though agreed with
the objection raised on behalf of M/s India Meters Ltd., that appeal under
Section 39(1) of the Act was not maintainable, but took the view that the
matter could be considered as a revision under Section 115 of the Civil B
Procedure Code. The High Court accepted the plea of the Board in this
regard and ordered that the appeal filed in the case may be converted and
treated as revision filed under Section 115 C.P.C and thereafter examined
the merits of the case. The High Court allowed the revision after holding
that the appellant had accepted the offer of the Board and thereafter the C
Board vide their letter dated 27.7.1978 had placed the purchase order cum
contract for the supply of 75000 meters. The High Court further held that
the subsequent correspondence regarding the security deposit, mode of
payment and samples were merely consequential steps taken in furtherance
of the implementation of the contract and· they do not in any manner D
undermine the contract which otherwise stood concluded between the
parties as could be seen from Ell. A-7 (dated 27.7.78) and Ex. A-8 (dated
7.11.78). The High Court ultimately set aside the order of the Subordinate
Judge and directed that the arbitrator shall be at liberty to proceed with
the matter after giving sufficient and effective opportunity to the appellant.
Mis India Meter Ltd. aggrieved against the Judgment of the High Court E
has filed the above appeal

      We have heard learned counsel for the parties and have thoroughly
perused the record. The parties have placed on record the entire cor-
respondence which took place between the parties necessary for resolving       F
the controversy. The appellant in their letter dated 24th March, 1978 itself
in Clauses 10 artd 12 mentioned as under:

      Clause 10: PAYMENT:

       We request you to make 100% payment along with full payment of          G
sales-tax and Excise duty etc., against R/R or L/R through Bank. We
further request that the requirement of furnishing a Bank guarantee
equivalent to 1% value of the order valid for two months from the date of
last despatch may please be waived of a special case. Messrs. Bharat Heavy
Electricals Limited, a Govt. of India Undertaking, have come forwara to        H
     314                  SUPREME COURT REPORTS[l992] SUPP. 1 S.C.R.

A revive this "Sick Unit" and in the present Financial position of the company,
     this requirement may not be insisted upon.

         Clause 12: EARNEST MONEY DEPOSIT AND SECURITY
     DEPOSIT:

B           Mis Bharat Heavy Electricals Limited a Government of India Un-
     dertaking has since taken over the management of India Meters Limtied,
     being a sick unit, Earnest Money Deposit has already been exempted by
     all the other Electricity Boards like Tamil Nadu Electricity Board, Madhya'
     Pradesh Electricity Board, Haryana State Electricity Board, etc. It is
C    requested that you may kindly exempt us from making the above mentioned
     payment as a speacial case. In this connection, we invite your kind attention
     to our letter No.SD/PSEB/632178 dated 7.3.1978 requesting you to exempt
     us from making the payment.

           The appellant while agreeing to supply the meters had clearly men-
D tioned though in the form of request, that the appellant was a sick unit and
  Mis Bharat Heavy Electricals Ltd., a Government of India undertaking
     have come forward to revive the sick unit and as such in the present
     financial position of the company the requirement of furnishing a bank
     guarantee may not be insisted upon. The Board without settling the above-
E    mentioned condition placed a puchase order cum contract vide their letter
     dated 27.7.1978 reiterating their own terms of payment which included
     furnishing of bank guarantee. The appellant then vide their letter dated
     19.8.1978 again requested the Board for consideration and favourable
     action in the following terms:-
F
              'We had also vide our offer No.SD/PS&Bn18/D/243.1978
              requested you for 100% payment through bank against
              railway receipt, exempting us from fumsihing a separate
              deposit towards the same. Further we had agreed to furnish
              the necessary security deposit, as required by you. Hence,
G             we may now request once again to kindly exempt us from
              furnishing a Bank· Guarantee aginst 100% payment".

           It was further mentioned that the Board may accept a permanent
      bank guarantee for a value of rupees one lakh only which could go a long
 H    way in helping the appellant unit. As regards sample it was clearly men-
      INDIA METERS v. ELECTRICITY BOARD [KASLIWAL, J.]              315

tioned in this letter that the appellant had submitted samples already A
against the tender and as such requested the Board not to insist on fresh
samples again. The Chief Engineer of the Board then vide letter dated
30.8.1978 clearly mentioned that as regards the terms of payment the
request of the appellant regarding the exemption from furnishing a guaran-
tee against 100% payment and furnishing a permanent bank guarantee of B
rupees one lakh towards 100% payment etc., had been considered and
rejected. As regards the samples it was mentioned in this letter that the
appellant had submitted only one sample meter of 2.5 Amps rating against
 tender enquiry No.Q-2185, whereas the order had been placed for the
 supply of meters of 5- 10 Amps and 10-20 Amps ratings. It was thus again
 requested to submit the samples of the above capacities at once in accord- C
 ance with Clause 20 as already requested in the earlier letter. The Super-
intending Engineer also by another letter informed the appellant that the
 samples may please be got approved from their office before commencing
 the supply as mentioned under Clause 20 of the purchase order. The
 appellant then vide their letter dated 7.11.1978 addressed to the Chief D
 Engineer again took the stand that the appellant factory was under revival
 and had been declared as a Relief Undertaking by the Government of
 Tamil Nadu and that they had conveyed their acceptance to furnish a
 permanent bank guarantee for a value of rupees one lakh towards 100%
 payment as a security deposit. It was further mentioned that in the absence
 of the concurrence on the above condition the appellant was not in a E
 position to take any further action in the tender and production planning
 has been dropped. As regards the supply of the sample meters, the
 appellant reiterated its earlier stand. Thereafter the Board did not make
 any further correspondence nor agreed to the counter offer made by the
 appellant in respect of the furnishing of the bank guarantee and sending F
 the samples and the Board resorted to the enforcement of the arbitration
 Clause and appointed the respondent No.2 as an arbitrator.

      We have taken into consideration the entire correspondence made
between the parties referred to above and we are clearly of the view that G
there was no concluded contract between the parties and as such the
respondent Board was not entitled to enforce the arbitration clause. The
High Court was not correct in holding that the subsequent correspondence
regarding the security deposit, mode of payment and samples wer merely
consequential steps taken in furtherance of the implementation of the
contract and the contract already stood concluded between the parties. H
    316                   SUPREME COURT REPORTS[1992] SUPP. 1 S.C.R.

A The mode of payment which included the furnishing of bank guarantee was
    an important term and condition of the contract as well as the furnishing
    of the samples. The appellant in the its offer made vide their first letter
    dated 24.3.1978 had clearly put their own terms and conditions as regards
    the furnishing of bank guarantee and the Board never concurred on those
B   terms, rather in their letter dated 30.8.78 clearly turned down the request
    of the appellant. Thus there was no concluded contract between the
    parties. It is not disputed that the appellant at the relev&nl time was a sick
    unit and the steps were being taken to revive the same through Bharat
    Heavy Electricals Limited, a Government of India undertaking and in those
    circumstances if the appellant was insisting on giving exemption from
C   furnishing bank guarantee, it cannot be said that its action was unjustified.
    Thus in the circumstances mentioned above we do not agree with the view
    taken by the High Court.

          In the result we allow this appeal, set aside the Judgment of the High
    Court dated 23.4.91 and affirm the decision of the Subordinate Judge. In
D   the circumstances of the case we direct the parties to bear their own costs.

    G.N.                                                         Appeal allowed.