M/S. NATIONAL HIGHWAYS AND INFRASTRUCTURE DEVELOPMENT CORPORATION LTD.versusM/S. BSCPL INFRASTRUCTURE LTD.

636                       [2019]
               SUPREME COURT     10 S.C.R. 636
                              REPORTS                      [2019] 10 S.C.R.


A         M/s. NATIONAL HIGHWAYS AND INFRASTRUCTURE
                 DEVELOPMENT CORPORATION LTD.
                                       v.
                   M/s. BSCPL INFRASTRUCTURE LTD.
B                       (Civil Appeal No. 6168 of 2019 )
                               AUGUST 7, 2019
                [R. F. NARIMAN AND SURYA KANT, JJ.]
             Arbitration: Arbitration clause – Whether an arbitration
      clause would spring into being at the stage of Letter of Award (LOA)
C
      acceptance or whether it would be necessary to sign the ultimate
      agreement which would then bring in the arbitration clause
      contained therein – In the instant case, Request for Proposal (RFP)
      was sent out by the appellant for road construction – In the LOA,
      the Government of India made reference to the bid document and a
D     request to return signed copy of duplicate LOA as its
      acknowledgment and to execute contract agreement within 15 days
      from date of issue of LOA – Respondent accepted the bid proposal
      and enclosed copy of LOA received by fax duly signed with an
      acknowledgment – After 2 years, appellant decided to withdraw
      the LOA due to non-availability of NOC from District council which
E
      was sine qua non for the land for the project – High Court held
      that the arbitration clause is contained in the standard form of the
      draft agreement and that general reference to it was sufficient to
      appoint arbitrator – On appeal, held: A perusal of the clauses
      contained in the RFP would only show that a bidder is liable for
F     disqualification and forfeiture of bidding security at all stages of
      the agreement, notwithstanding that there may not be execution of
      the agreement between the parties – The schedule of bidding process
      begins with the last date for receiving queries and ends with the
      signing of concession agreement, LOA being Item No. 7 and part
      and parcel of this bidding process – The moment this is so, then
G
      under clause 6.1, dispute resolution can only take place by the
      Courts of Delhi – It is not possible to say that a standard form
      arbitration clause contained in a draft agreement would then oust
      clause 6.1 and disturb the entire scheme of the schedule of bidding

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                                      636
        M/s. NHID CORPORATION LTD. v. M/s. BSCPL                         637
                 INFRASTRUCTURE LTD.

process – This being the case, even at the stage of acceptance of        A
LOA, if disputes arose between the parties, they could only be
resolved by the Courts of Delhi and not by arbitration – Jurisdiction.
      Allowing the appeal, the Court
      HELD : 1. A perusal of the clauses contained in the RFP
would only show that a bidder is liable for disqualification and         B
forfeiture of bidding security at all stages of the agreement,
notwithstanding that there may not be execution of the agreement
between the parties. The expression “shall be liable to be
terminated...” in clause 2.1.14 is only in this context, thereby
making it clear that even after the LOA may have been accepted,          C
such disqualification and forfeiture of bid security, if the other
conditions exist, can be done by the appellant. The same
interpretation goes for clauses 2.6.3 and clause 2.20.7.
[Paras 14 and 15] [645-D-F]
      2. The schedule of bidding process begins with the last date       D
for receiving queries and ends with the signing of concession
agreement, LOA being Item No. 7 and part and parcel of this
bidding process. The moment this is so, under clause 6.1, dispute
resolution can only take place by the Courts of Delhi. It is not
possible to say that a standard form arbitration clause contained
in a draft agreement would then oust clause 6.1 and disturb the          E
entire scheme of the schedule of bidding process. This being the
case, it is clear that even at the stage of acceptance of LOA, if
disputes arise between the parties, they can only be resolved
by the Courts of Delhi and not by arbitration. [Paras 17 and 18]
[645-G-H; 646-A]                                                         F
      PSA Mumbai Investments PTE. Limited v. Board of
      Trustees of the Jawaharlal Nehru Port Trust and
      Another (2018) 10 SCC 525 – relied on.
      Inox Wind Ltd. v. Thermocables Ltd. (2018) 2 SCC
      519 : [2018] 1 SCR 86 – referred to.                               G
                       Case Law Reference
[2018] 1 SCR 86                 referred to             Para 5
(2018) 10 SCC 525               relied on               Para 6
                                                                         H
638            SUPREME COURT REPORTS                         [2019] 10 S.C.R.


A           CIVIL APPELLATE JURISDICTION : Civil Appeal No. 6168
      of 2019.
            From the Judgment and Order dated 26.10.2018 of the High
      Court of Delhi at New Delhi in Arbitration Petition No. 278 of 2018.
          Debal Banerjee, Sr. Adv., Prasenjit Keswani, Abhishek Singh,
B     Upmanyu Tewari, Kabir Shankar Bose, Advs. for the Appellant.
           Ms. Kiran Suri, Sr. Adv., Abhay N. Das, S. J. Amith, Satish Kumar,
      Vishnu Shankar Jain, K. V. Kharlyngdoh, Advs. for the Respondent.
            The Judgment of the Court was delivered by
C           R. F. NARIMAN, J. 1. Leave granted.
             2. The present case involves the question as to whether an
      arbitration clause would spring into being at the stage of Letter of Award
      (referred to as ‘LOA’ for brevity) acceptance, or whether it would be
      necessary to sign the ultimate agreement which would then bring in the
D     arbitration clause contained therein.
              3. The skeletal facts necessary to appreciate the controversy in
      the present case is that a Request for Proposal (referred to as ‘RFP’ for
      brevity) was sent out by the appellant for road construction in the State
      of Meghalaya. The LOA so far as the RFP is concerned, is by a letter
E     dated 31.10.2014, in which the Government of India referred to the bid
      document and requested for return of a signed copy of duplicate LOA
      as its acknowledgment within seven days of the receipt of the LOA. It
      was clearly stated therein that “Thereafter, you are required to execute
      the Contract Agreement within 15 days from the date of issue of LOA
      as per clause 1.3 of the RFP……….”
F
             4. In answer to this letter, on 05.11.2014, the respondent accepted
      the bid proposal and enclosed a copy of the LOA received by fax duly
      signed with an acknowledgment. By a further communication dated
      08.11.2014, the respondent then wished to sign the contract agreement
      for the above work on 13.11.2014. Nothing happened until August, 2016,
G     except that the guarantees that were required under the RFP were kept
      alive by the respondent. Finally, on 04.08.2016, the appellant decided to
      withdraw the LOA due to non-availability of No Objection Certificate
      from the Khasi Hill Autonomous District Council, which was a sine qua
      non for the land for the project. It is in this factual scenario that the
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         M/s. NHID CORPORATION LTD. v. M/s. BSCPL                               639
         INFRASTRUCTURE LTD. [R. F. NARIMAN, J.]

controversy has arisen in this case, which is, as to whether the LOA is a       A
binding contract, and further that, if it is found to be a binding contract,
whether the arbitration clause of the draft agreement between the parties
would kick in.
       5. The Delhi High Court, by its judgment dated 26.10.2018, went
through various clauses of the draft agreement which is part of the RFP,        B
and after referring to this Court’s judgment in Inox Wind Ltd. v.
Thermocables Ltd. (2018) 2 SCC 519 found that, contained in the
standard form of the draft agreement, is an arbitration clause, and that a
general reference to it is good enough, so that an arbitrator could be
appointed. The Court then went on to appoint Justice Shiavax Jal Vazifdar,
former Chief Justice, Punjab and Haryana High Court, after which two            C
other arbitrators would then be appointed by the International Centre for
Alternate Dispute Resolution.
       6. According to Shri Debal Banerjee, learned senior counsel,
events have overtaken the respondent. This Court’s judgment in PSA
Mumbai Investments PTE. Limited v. Board of Trustees of the                     D
Jawaharlal Nehru Port Trust and Another (2018) 10 SCC 525 would
squarely cover this case. He prepared for our perusal a chart in which
he pointed out the similarity of this case with the facts in PSA Mumbai
Investments PTE. Limited’s case - the disclaimer clause referred to by
us in the said judgment; the schedule of bidding process; the signing of        E
the LOA; and most importantly the fact that the entire bidding process
shall be governed by and construed in accordance with the laws of India
and that the Courts at Mumbai shall have exclusive jurisdiction over all
disputes arising under, pursuant to or in connection with the bidding
process; and the fact that the authority may, in its own discretion, cancel
the bidding process at any stage prior to entering into the ultimate contract   F
agreement.
       7. According to him, the minor difference between the PSA
Mumbai Investments PTE. Limited’ judgment containing a reference to
the formation of a Special Purpose Vehicle, which is absent in the facts
of this case, would be entirely immaterial for the purpose of discovery         G
as to whether an agreement exists in this case and whether an arbitration
clause contained in a standard form would, therefore, govern the parties.
       8. Ms. Kiran Suri, learned senior counsel appearing on behalf of
the respondent, has taken us through the impugned judgment as well as
                                                                                H
640             SUPREME COURT REPORTS                          [2019] 10 S.C.R.


A     our judgment, and has pointed out various differences which according
      to her should conclude the matter in her favour. Most importantly,
      according to her, what is important is contained in clause 2.1.14, which
      makes it clear that in the facts of the present case, the moment the stage
      of LOA of the agreement is reached, the agreement between the parties
      “shall be liable to be terminated...” thereby indicating that at the stage of
B
      the LOA, an agreement has, in fact, been reached between the parties.
             9. She also relied upon clause 2.6.3 and clause 2.20.7 to indicate
      that, on the facts of the present case, since an agreement had been
      entered into at the stage of acceptance of the LOA, the arbitration clause
      contained in the standard form would definitely kick in.
C
             10. Having heard learned counsel for the both the parties, it is
      important to set out some of the important clauses contained in the RFP
      in the present case. These clauses are as follows:
            ‘Disclaimer
D           This RFP is not an Agreement and is neither an offer nor invitation
            by the Authority to the prospective Bidders or any other person.
            The purpose of this RFP is to provide interested parties with
            information that may be useful to them in making their financial
            offers (BIDs) pursuant to this RFP. This RFP includes statements
E           which reflect various assumptions and assessments arrived at by
            the Authority in relation to the project.
            ...The issue of this RFP does not imply that the Authority is bound
            to select a Bidder or to appoint the Selected Bidder JV or
            Contractor, as the case may be, for the Project and the Authority
F           reserves the right to reject all or any of the Bidders or Bids without
            assigning any reason whatsoever.
            Clause 1.3:
            Schedule of Bidding Process
            The Authority shall endeavour to adhere to the following schedule:
G
            Event Description:
            1. Last date of receiving queries: 09.06.2014
            2. Pre-bid meeting: 16.06.2014
            3. Authority response to queries latest by: 04.07.2014
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  M/s. NHID CORPORATION LTD. v. M/s. BSCPL                              641
  INFRASTRUCTURE LTD. [R. F. NARIMAN, J.]

4. Last date of sale of BID document: 25.07.2014                        A
5. Bid Due Date: 28.07.2014 up to 1100 Hrs.
6. Opening of Bids: 28.07.2014 upto 1100 Hrs
7. Letter of Award (LOA) : Within 30 days of Bid Due Date
8. Validity of Bids: 120 Days of Bid Due Date                           B
9. Signing of Concession Agreement: Within 15 days of award of
LOA.
Clause 3.3.5
After selection, a Letter of Award (the ‘LOA’) shall be issued, in      C
duplicate, by the Authority to the Selected Bidder and the Selected
Bidder shall, within 7 (seven) days of the receipt of the LOA, sign
and return the duplicate copy of the LOA in acknowledgement
thereof. In the event the duplicate copy of the LOA duly signed
by the Selected Bidder is not received by the stipulated date, the
                                                                        D
Authority may, unless it consents to extension of time for submission
thereof, appropriate the BID Security of such Bidder as Damages
on account of failure of the Selected Bidder to acknowledge the
LOA, and the NOI inconformity with 3.3.3.
Clause 3.3.6
                                                                        E
After acknowledgement of the LOA as aforesaid by the Selected
Bidder, it shall cause the bidder to execute the Agreement within
the period prescribed in Clause 1.3. The Selected Bidder shall
not be entitled to seek any deviation, modification or amendment
in the Agreement.
                                                                        F
Clause 2.20.5
The Selected Bidder’s BID Security will be returned, without any
interest upon the bidder signing the Contract Agreement and
furnishing the Performance Security in accordance with the
provisions thereof. The Authority may, at the Selected Bidder’s         G
option, adjust the amount of BID Security in the amount of
Performance Security to be provided by him in accordance with
the provisions of Agreement.
Clause 6.1
The Bidding Process shall be governed by, and construed in              H
642            SUPREME COURT REPORTS                          [2019] 10 S.C.R.


A           accordance with, the laws of India and the Courts at Delhi shall
            have exclusive jurisdiction over all disputes arising under, purusant
            to and/or in connection with the Bidding Process.
            Clause 6.2(a)
            The Authority, in its sole discretion and without incurring any
B           obligation or liability, reserves the right, at any time, to;
            (a) suspend and/or cancel the Bidding Process and/or amend and/
            or supplement the bidding Process or modify the dates or other
            terms and conditions relating thereto;...”

C            11. Even a cursory look at the aforesaid clauses will show that
      barring one or two small differences, these clauses are virtually identical
      with the clauses contained in the PSA Mumbai Investments PTE. Limited
      case.
           12. After setting out some of these clauses, this Court in its
D     judgment in PSA Mumbai Investments PTE. Ltd.’s case, held:
            12) On a conjoint reading of the aforesaid clauses, a few things
            become clear -
            (i) first and foremost a Disclaimer at the forefront of the RFP
            makes it clear that there is only a bid process that is going on
E           between the parties and that there is no concluded contract
            between the same,
            (ii) it is equally clear that such bid process would subsume a Letter
            of Award to be issued by the Respondent No.1 with two further
            steps under the schedule to be gone into before the draft
F           Concession Agreement finally becomes an agreement between
            Respondent No.1 and the Special Purpose Vehicle that is
            constituted by the Consortium for this purpose,
            (iii) that through out the stage of the bid process, the forum for
            dispute resolution is exclusively with the Courts at Mumbai, and
G           (iv) that right uptil the stage of the entering into the Concession
            Agreement, the bid process may be annulled without giving any
            reason whatsoever by the Respondent No.1.
            14) Under Section 7 of the Indian Contract Act, 1872 in order to
            convert a proposal into a promise, the acceptance must be absolute
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        M/s. NHID CORPORATION LTD. v. M/s. BSCPL                                643
        INFRASTRUCTURE LTD. [R. F. NARIMAN, J.]

      and unqualified. It is clear on the facts of this case that there is no   A
      absolute and unqualified acceptance by the Letter of Award –
      two or three very important steps have to be undergone before
      there could be said to be an agreement which would be enforceable
      in law as a contract between the parties.
      19) Mr. Dave also strongly relied upon the judgment in INOX               B
      Wind Limited v. Thermocables Limited, (2018) 2 SCC 519. This
      judgment in paras 17-19 thereafter made it clear that an exception
      to the general rule laid down in M.R. Engineers and Contractors
      Private Limited (2009) 7 SCC 696 as to standard forms of practice
      containing arbitration clauses would be extended also to standard
      forms between individual persons and not merely standard forms            C
      of professional assessments.
      20) We may hasten to add that this judgment in INOX Wind Ltd.
      case would have no manner of application on the facts of this
      case for the reason that it has been found by us that there is no
      agreement between the parties at all in the facts of the present          D
      case, making it clear, therefore, that the arbitration clause contained
      in the draft Concession Agreement would not apply.
      13. However, learned senior counsel for the respondent relied
heavily upon clause 2.1.14, which reads as follows:
                                                                                E
      “2.1.14 A Bidder shall be liable for disqualification and forfeiture
      of BID Security, if any legal, financial or technical adviser of the
      Authority in relation to the Project is engaged by the Bidder, its
      Member or any Associate thereof, as the case may be, in any
      manner for matters related to or incidental to such Project during
      the Bidding Process or subsequent to the (I) issue of the LOA or          F
      (ii) execution of the Agreement. In the event any such adviser is
      engaged by the selected Bidder or Contractor, as the case may
      be, after issue of the LOA or execution of the Agreement for
      matters related or incidental to the project, then notwithstanding
      anything to the contrary contained therein or in the LOA or the           G
      Agreement and without Prejudice to any other right or remedy or
      the Authority, including the forfeiture and appropriation of the BID
      Security or Performance Security, as the case may be, which the
      Authority may have there under or otherwise, the LOA or the
      Agreement, as the case may be, shall be liable to be terminated
                                                                                H
644         SUPREME COURT REPORTS                       [2019] 10 S.C.R.


A     without the Authority being liable in any manner whatsoever to
      the Selected Bidder or Contractor for the same. For the avoidance
      or doubt, this disqualification shall not apply where such adviser
      was engaged by the Bidder, its member or Associate in the past
      but its assignment expired or was terminated 6 (six) months prior
      to the date of issue of this RFQ. Nor will this disqualification
B
      apply where such adviser is engaged after a period of 3 (three)
      years from the date of commercial operation of the Project.”
      She also relied upon clauses 2.6.3 and 2.20.7:
      “2.6.3 In case it is found during the evaluation or at any time
C     before signing of the Agreement or after its execution and during
      the period of defect liability, subsistence thereof, that one or more
      of the pre-qualification conditions have not been met by the Bidder,
      or the Bidder has made material misrepresentation or has given
      any materially incorrect or false information, the Bidder shall be
      disqualified forthwith if not yet appointed as the contractor either
D     by issue of the LOA or entering into of the Agreement, and if the
      Selected Bidder has already been issued the LOA or has entered
      into the Agreement, as the case may be, the same shall,
      notwithstanding anything to the contrary contained therein or in
      this RFP, be liable to be terminated, by a communication in writing
E     by the Authority to the selected Bidder or the Contractor, as the
      case may be, without the Authority being liable in any manner
      whatsoever to the Selected Bidder or the Contractor. In such an
      event, the Authority shall be entitled to forfeit and appropriate the
      BID Security or Performance Security, as the case may be, as
      Damages, without prejudice to any other right or remedy that
F     may be available to the Authority under the Bidding Documents
      and/or the Agreement, or otherwise.”
      2.20.7 The BID Security shall be forfeited and appropriated by
      the Authority as damages payable to the Authority for, inter-alia,
      time cost and effort of the Authority without prejudice to any
G     other right or remedy that may be available to the Authority under
      the bidding documents and / or under the Agreement, or otherwise,
      under the following conditions:
      (a)     If a Bidder submits a non-responsive BID as defined in
              3.2.
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         M/s. NHID CORPORATION LTD. v. M/s. BSCPL                                 645
         INFRASTRUCTURE LTD. [R. F. NARIMAN, J.]

       (b)    If a Bidder engages in a corrupt practice,                          A
              fraudulent practice, coercive practice, undesirable practice
              or restrictive practice as specified in Section 4 of this RFP;
       (c)    If a Bidder withdraws its BID during the period of Bid
              validity as specified in this RFP and as extended by mutual
              consent of the respective Bidder(s) and the Authority;              B
       (d)    In the case of Selected Bidder, if it fails within the specified
              time limit -
              (i) to sign and return the duplicate copy of LOA;
              (ii) to sign the Agreement; or                                      C
              (iii) to furnish the Performance Security within the period
                  prescribed therefor in the Agreement; or
       (e)    In case the Selected Bidder, having signed the Agreement,
              commits any breach thereof prior to furnishing the
              Performance Security.                                               D
       14. A perusal of the aforesaid clauses would only show that a
bidder is liable for disqualification and forfeiture of bidding security at all
stages of the agreement, notwithstanding that there may not be execution
of the agreement between the parties.
      15. The expression “shall be liable to be terminated...” in clause          E
2.1.14 is only in this context, thereby making it clear that even after the
LOA may have been accepted, such disqualification and forfeiture of
bid security, if the other conditions exist, can be done by the appellant.
The same interpretation goes for clauses 2.6.3 and clause 2.20.7.
      16. What really puts paid to this agreement is the schedule of              F
bidding process which is identical to the schedule of bidding process in
the PSA Mumbai Investments PTE. Ltd.’s case.
      17. This schedule of bidding process begins with the last date for
receiving queries and ends with the signing of concession agreement,
LOA being Item No. 7 and part and parcel of this bidding process. The             G
moment this is so, then what is clear is that under clause 6.1, dispute
resolution can only take place by the Courts of Delhi.
      18. It is not possible to say that a standard form arbitration clause
contained in a draft agreement would then oust clause 6.1 and disturb
                                                                                  H
646              SUPREME COURT REPORTS                        [2019] 10 S.C.R.


A     the entire scheme of the schedule of bidding process. This being the
      case, it is clear that even at the stage of acceptance of LOA, if disputes
      arise between the parties, they can only be resolved by the Courts of
      Delhi and not by arbitration. This being the case, it is clear that the PSA
      Mumbai Investments PTE. Ltd.’s judgment is, in fact, on all fours and
      would govern the facts of the present case.
B
            19. In this view of the matter, we set aside the impugned judgment
      dated 26.10.2018 and allow the appeal.


      Devika Gujral                                                Appeal allowed.
C




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