Holding

No arbitration agreement existed between the parties; the Supreme Court set aside the High Court’s finding and allowed the appeal.

Summary

The U.P. Rajkiya Nirman Nigam Ltd (appellant) and Indure Pvt Ltd (respondent) were negotiating a joint tender for the U.P. State Electricity Board. The appellant sent a draft agreement which it did not sign; the respondent returned a counter‑proposal deleting clause 10 and materially altering clause 12. No consensus ad idem on the material terms was established, and the appellant argued that no concluded contract or arbitration agreement existed. The appellant filed a Section 33 application under the Arbitration Act, 1940, seeking a declaration that no arbitration agreement was valid. The High Court held that an arbitration clause was present and bound the appellant. The Supreme Court allowed the appeal, holding that (i) there was no concluded contract because of the material alterations and lack of acceptance by the appellant; (ii) consequently, no arbitration agreement existed; (iii) arbitrators cannot decide the existence or validity of an arbitration agreement – that is a matter for the court; and (iv) acquiescence or nomination of an arbitrator does not estop a party from invoking Section 33. The appeal was allowed and the High Court’s decision set aside.

Issues considered

The existence of a concluded contract and arbitration agreement between the parties despite the draft agreement and counter‑proposal with material alterations.
Whether arbitrators have jurisdiction to decide the existence or validity of an arbitration agreement or the arbitrability of the dispute.
Whether acquiescence or nomination of an arbitrator estops a party from invoking Section 33 of the Arbitration Act, 1940.
Whether the doctrine of indoor management applies to a government undertaking in the formation of contracts.
Whether a counter‑proposal amounts to acceptance by conduct under the Indian Contract Act.

Legislation cited

Arbitration Act, 1940s. 2(a), s. 33
Indian Contract Act, 1872s. 10, s. 31, s. 32, s. 4, s. 7

Subjects

Arbitration agreementSection 33Arbitration Act 1940Indian Contract ActConsensus ad idemGovernment undertakingIndoor management doctrineAcquiescenceCounter‑proposalTenderContingent contract

Judgment

A U.P. RAJKIYA NIRMAN NIGAM LTD.
v.
INDURE PVT. LTD. AND OTHERS

FEBRUARY 9, 1996

B [K. RAMASWAMY, S. SAGHIR AHMAD AND
G.B. PAITANAIK, JJ.]

Arbitration Ac~ 1940: Sections 2(a) and 33.

C Arbitration agreement-Existence and validity of-Maintainability of
application-Challenge of-Arbitration clause-consensus ad idem between
parties must-Absence thereof-Agreement would be treated as non- existent.

Arbitrator~Not competent to go into the question of existence of .
validity of Arbitration agreement-Court alone compet,ent to decide it con-
D clusively-Acquiscence.of-Did not confer jwisdiction-Would not estop the
party from having remedy under Section 3~Doctrine of EstOppel. _

Draft agreement-Material changes-Making of-Amounted to
counte~Proposal by party-Not accepted by other party Held : no consensus
ad idem and no concluded contract-Hence application under Section 33
E maintainable.

Government undertaking-Articles of Association-Execution of Con-
tract-Must be in accordance therewith-Doctrine of "Indoor Manage-
ment''-Not applicable.
F Contract Act, 1872: Section 32.

Proposal and counter-Proposaf-Submission of tender-Not trans-
! onned into contract-Held : counter-Proposal only a contingent contract and
could not be enforced.
G
Jurisdiction : Acquiescence-could not confer Jurisdiction-Hence
party not estopped from challenging jurisdiction.

The U.P. State Electricity Board had floated tenders for construc-
tion, supply and erection of mechanical equipment and construction work
H including consultancy services. The appellant-Nigam had purchase~
386
U.P. RAJKIYA NIRMAN NIGAM LTD. v. IND URE PVT. LTD. 387

tender documents from the Board. The respondent approached the appel- A
lant for their joint participation to submit the tenders to the Board. In
furtherance thereof, negotiations were set on foot and it was decided to
enter into an agreement in that behalf and ultimately draft agreement was
sent to the respondent for signature. The appellant did not sign the draft
agreement. The respondent sent a counter-proposal deleting clause (10) of B
the agreement suggested by the appellant and materially altered clause
(12) therein after having signed the same.

The appellant disputed the existence of the arbitration agreement
and also asserted that no concluded contract existed between the parties.
It was further stated therein that deletion of material clause (10) of the c
draft agreement and material alteration of clause (12) constituted sub-
stantial modification of the draft agreement and consequently it did not
accept the counter-proposal of the respondent and that, therefore, no valid
agreement came into existence which was admitted by the respondent.
However, they nominated an arbitrator on their behalf.
D
Thereafter, the appellant filed an application under Section 33 of the
Arbitration Act, 1940 for a declaration that there existed no agreement
between the appellant and the respondent on the basis of which a dispute
could be referred for arbitration as tlie agreement set up by the respondent
was non-est. Accordingly, it sought declaration to set aside the said agree- E
ment. Th~ High Court held that the draft agreement contained provision
for arbitration and that the appellant was bound thereby. Aggrieved by the
High Court's judgment the appellant preferred the present appeal.

On behalf of the appellant it was contended that by mistake it had p
agreed for reference and that arbitrators could not decide the existence of
the arbitration agreement or arbitrability of the disputes without prejudice
to its stand that no valid agreement existed.

On behalf of the respondent it was contended that the counter-
proposal made by it amounted to acceptance by conduct of the appellant; G
that the appellant had submitted to the jurisdiction of the arbitrators and
having nominated the arbitrator, they were estopped from going back upon
it; that the appellant had acquiesced to the jurisdiction of the arbitrators;
and that it was an indoor management between the appellant and its
officers. H
388 SUPREME COURT REPORTS [1996] 2 S.C.R.

A Allowing the appeal, this Court

HELD : 1.1 The parties may reach agreement in principle but the
details may be worked out at a later date. There 'is no dispute to this
proposition of law .but two factors have to be kept in mind viz., when was
the counter-proposal made by the respondent and whether the unilateral
B offer amounts to acceptance by submission of the tenders by the appellant
to the Board. It is seen that clause (10) which thrusts responsibility on the
first respondent was deleted in the counter-proposal. In clause (12), for
joint responsibility unilateral liability was incorporated. The respondent
disowned its material responsibilities. Unless there is acceptance by the
C appellant to those conditions no concluded contract can be said to have
emerged. It is seen that the appellant is a Government Undertaking and
unless contract is duly executed in accordance with the Articles of Associa-
tion, the appellant is not bound by any such contract Chitty on Contract,
paragraphs 53 and 99, referred to. [394-D-G]

D 1.2. The material alterations in the contract make a world of dif-
ference to draw an inference of concluded contract. The join liability of the
parities was made unilateral liability of the appellant. Thereby, the respon-
dent sought to absolve itself from the liability of further performance of
the contract with the Board. Similarly clause (10) which contains material
E part of the terms for the performance of the contract with the Board was
deleted. Thereby, there is no consensus ad idem on the material terms of
the contract which contains several clauses. In the absence of any c·onsen-
sus ad idem on the material terms of the contract to· be entered into
between the parties, there emerged no concluded contract. Apart from the
draft agreement and the counter-proposal, there is no independent con-
F tract for reference to arbitration. [395-A-C]

Palmer on Companies Law, referred to.

2.1. It is settled law that the existence of validity of an arbitration
agreement shall be decided by the Court alone. Arbitrators, therefore, have
G 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. The appellant 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
H the appellant's stand that no valid agreement existed. [397-B-C]
U.P.RATKIYANIRMANNIGAMLTD.v. INDUREPVT.LTD. 389

2.2 The appellant claims adjudication under Section 33 of the Ar- A
bitration Act, 1940. The Court alone has jurisdiction and power to decide
whether any valid agreement is existing between the parties. Mere accep-
tance or acquiescing to the jurisdiction of the arbitrators for adjudication
of the disputes as to the existence of the arbitration agreement or ar-
bitrability of. the dispute does not disentitle the appellant to have the
B
remedy under Section 33 through the Court. The remedy under Section 33
is the only right royal way for deciding the contoversy. Acquiscence does
not confer jurisdiction. The appellant, therefore, is not estopped from
challenging the action and to seek a declaration under Section 33.
[397-D-E; A]
"Russel on Arbitration", 19th Edn., P-99 and "Law of Arbitration" by
c
Justice Bachawat, 2nd Edn., PP 19-155, referred to.

2.3. Since the tenders - the source of the contract between the parties-
had not transformed into a contract, even if the proposal and counter-
proposal are assumed to be constituting an agreement, it is a contingent D
contract and by operation of Section 32 of the Contract Act, 1872 the
counter-proposal of the respondent cannot be enforced since the event of
entering into the contract with the Board had not taken place. [397-F]

3.1. There in no signed agreement by a duly competent officer on
E
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 undertaking or Government or its instrumentalities to deal in F
contractual. relations with third parties. [398-F-G]

Ramji Dayawala & Sons (P) Ltd. v. Invest Impmt, AIR (1981) SC 2085,
referred to.

3.2. In view of the fact that section 2(a) of the Act envisages a written G
agreement for arbitration and that written agreement to submit the exist-
ing or future differences t1J 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 ar-
bitrators. [398-H; 399-A] H
,/

-+
390 SUPREME COURT REPORTS [1996] 2 S.C.R.

A CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3226 of
1996.

From the Judgment and Order dated 10.4.92 of the Delhi High Court
in O.M.P. No. 62 of 1987.

B AK. Goel for the Appellant.

R.F. Nariman, E.C. Agrwala and Mahesh Agarwala for the Respon-
dents.

The Judgment of the Court was delivered by
c
K. RAMASWAMY, J. Leave granted.

This appeal by special leave arises from the judgment and order
passed on April 10, 1992 by ~he Delhi High Court in O.M.P. No. 62 of
1992.
D
The appellant filed an application under Section 33 of the Arbitra~
tion Act, 1940 [for short, "the Act"] for declaration that there exist no
agreement between the appellant and the first respondent-Indure Pvt. Ltd.
on the basis of which a dispute for a claim of Rs. 1,68,73,628 could be
E referred for arbitration as the agreement set up by the respondent was
non est and alternatively the dispute was not arbitrable under the agree-
ment. Accordingly it sought declaration to set aside the said agreement.
The learned single Judge of the High Court in the impugned order held
that the draft agreement dated June 22, 1984 contains provision for arbitra-
tion under clause (14) and the appellant is bound thereby; consequently,
F the arbitrators are entitled to arbiter the dispute. ~

The dispute arose in the backdrop of the facts that the U.P. State
Electricity Board had floated tenders for construction, supply and erection
of mechanical equipment and construction work including consultancy
G services. Last date for submission of the tender was June 30, 1984. The
appellant-Nigam, an Undertaking of State of U.P. had purchased tender
documents from the Board on February 6, 1984. The respondent ap-
proaches the appellant for their joint participation to submit the tenders
to the Board. In furtherance thereof, negotiations were set on foot and they
decided to enter into an agreement in that behalf and ultimately draft
H agreement dated June 22, 1984 was sent to the respondent for signature.
U.P. RAJKIYANIRMAN NIGAMLTD. v. INDURE PVf. LTD. [K RAMASWAMY, J.) 391

The appellant did not sign the draft agreement. On June 27, 1984, the A
respondent sent a counter-proposal deleting clause (10) of the agreement
suggested by the appellant and materially altering clause (12) therein after
signing the same. The tenders were submitted on June 30, 1984, i.e., the
last date for submission of tenders; but before negot~ating with the Board
on February 23, 1985 the appellant had withdrawn the tenders. On
B
February 25, 1985, the respondent had offered in its letter to the Board
agreeing to undertake the entire contract by itself and offered to complete
the formalities with the Board. Simultaneously, on March 3, 1985, the
respondent sent a notice through its counsel claiming damages stating
therein that there was no arbitration agreement between the parties. On
January 21, 1986, the respondent had further sent a notice nominating an c
arbitrator an arbitrator on its part and called upon the appellant to

-
nominate its arbitrator. The respondent purported to have exercised that
right under clause (14) of the draft agreement proposed by the appellant
on June 22, 1984 alleging that they had accepted the same by letter dated
June 27, 1984. The appellant by letter dated February 28, 1986 disputed D
the existence of the arbitration agreement and also asserted that no con-
cluded contract existed between the parties. It was further stated therein
that deletion of material clause (10) of the draft agreement and material
alteration of clause (12) constituted substantial modification of the draft
agreement and consequently it did not accept the counter-proposal of the
respondent and that, therefore, no valid agreement came into existence E
which was admitted by the respondent in their letter dated March 5, 1985.
The question of appointing an arbifrator on their behalf did not arise.
However, without prejudice to their right to claim that no valid agreement,
much less arbitration agreement, was in existence, they nominated an
arbitrator on their behalf to arbiter on the question "whether there existed F
any valid or subsisting agreement between the parties and whether there
existed any valid and binding arbitration clause between the parties ?" Since
the arbitrator nominated by them expired, the respondent was called upon
the appellant to nominate another arbitrator. At that stage the appellant
filed above petition under Section 33 of the Act.
G
The High Court found that the respondent returned the agreement
duly signed but after deleting ciause (10) and materially altering clause (12)
thereof. There was no communication by the appellant refusing or negativ-
ing the alternations made in the draft agreement. Tenders were submitted
on June 30, 1984 after receipt of the modified agreement. Till March 1, H
392 SUPREME COURT REPORTS [1996] 2 S.C.R.

A 1986, the respondent had not received any communication disowning the
contract between it and the appellant. Clause (14) of the agreement
contained an arbitration clause for adjudication of the disputes. The
withdrawal of the tenders by the appellant caused damages as claimed by
the appellant in the notice. Therefore, the respondent called upon appel-
lant to nominate their arbitrator to adjudicate the dispute intimating in
B their letter appointment of the arbitrator on their part. From this there
emerged a concluded contract containing clause (14) providing for arbitra-
tion for adjudication ,of the disputes.

As stated earlier, the High Court came to the conclusion that from
C the correspondence between the parties there emerged a concluded con-
tract. After due discussion between the parties draft agreement duly signed
with official seal of the respondent affixed thereon, was communicated to
the appellant on June 27, 1984 which contained clause (14) which formed
-
an integral part of the contract. The modifications suggested by the respon-
D dent were .acted upon by the appellant. At no point of time it was suggested
by any communication that the modifications were not accepted. On the
other hand, tenders were submitted on June 30, 1984 for the joint participa-
tion of the appellant and the respondent. The respondent had sent a bank
Draft for a sum of Rs. 2 lakhs on October 29, 1984. "(l)t is clear that the
petitioner had accepted the agreement and in such an eventuality, the
E petitioner cannot deny the existence of arbitration clause". "Therefore,
from the conduct of the petitioner the inference can be drawn that the
agreement had come into force the moment it was signed by the respon-
dent and sent the same to the petitioner and the petitioner though did not
sign it but acted upon it which amounts to indirect acceptance".
F
Section 3 of the Indian Contract Act, 1872 envisages communication
of proposal, accepta1)Ce of proposal and the revocation of the proposal and
acceptance. Communication of proposal is complete under Section 4 when
it comes to the knowledge of the person to whom it is made. Communica-
-
'

tion of an acceptance is complete - as against the proposer, when it is put
G in the 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. Under Section 7, "in order to convert a proposal int.a ·a promise,
the acceptance must (1) be absolute and unqualified; (2) be expressed in
some usual and reasonable manner, unless the proposal prescribes the
H manner in which it is to be accepted...". Under Section 10. "all agreements
-
U.P. RAlKIYANIRMAN NIGAMLTD. v. INDUREPVf. LTD. [K. RAMASWAMY,J.] 393

are contracts if they are made by the free consent of parties competent to A
contract, for a lawful consideration and with a lawful object, and are not
expressly declared to be void". Section 31 defines "Contingent contract" to
mean· "a contract to do or not to do something, if some event, collateral to
such contract, does not happen". A contingent contract to do or not to do
anything, if an unforeseen future event happens, cannot be enforced by law,
B
under Section 32, unless and until that event has happened. If the event
becomes impossible, such contract becomes void. Section 2 (a) of the Act
defines "arbitration agreement" to mean "a written agreement to submit,
present or future differences, to arbitration, whether an arbitrator is named
therein or not", To constitute an arbitration agreeme~t, there must be an
agreement between the parties, viz., the parties must be ad idem. The c
parties are not ad idem unless they agree to the terms and conditions
mentioned in the agreement. As seen, under the Contract Act unless there
is an agreement, i.e., there is an acceptance of the proposal, the contract
is not complete. It is seen that the draft agreement dated June 22, 1984
was sent to the respondent for acceptance. Admittedly, clause (10) was D
deleted and clause (12) was materially altered unilaterally to convert join
liability to individual liability of the appellant. It would, therefore, be a
counter-proposal signed by the respondent and communicated to the ap-
pellant. At this juncture, it is relevant to notice the Articles of Association
of the appellant-Company, a State Government Undertaking. Article 125
of the Articles of Association gives power to the Board of Directors of the E
appellant-Company and Article 126, clause (xii) confers power on the
Board of Directors "to refer claims or demands, by or against the Company
to arbitration". Under Article 125, the Company has the control and the
competent authority has power to sign the contract on behalf of the
Company. After the Counter-proposal was signed by the respondent, the F
appellant had not signed any contract to bind the parties.

From this factual matrix, the question arises : whether there emerged
any concluded contract pursuant to which the parties are bound by the
terms and conditions of the tenders submitted to the Board and for further
performance? It is seen that the tenders were not jointly signed by the G
appellant and the respondent but were unilaterally submitted to the Board
by the appellant and were later on withdrawn. There did not exist any
concluded contract between the Board and the appellant for the perfor-
mance of the work as per terms and conditions of the tenders floated by
the Board. Under Section 32 it was a contingent contract until it was H
{
394 SUPREME COURT REPORTS [1996] 2 S.C.R.

A accepted by the Board. In this background, the question emerges : whether
there is an arbitration agreement between the parties ? It is seen that clause
(14) of the agreement [subject to the dispute whether it is arbitrable under
clause (14) which is yet another issue with which were are not concerned]
independently does not come into existence unless there is a concluded
contract pursuant to the proposal made by the appellant on June 22, 1984
B or a counter-proposal by the respondent dated June 26, 1984. It is not the
case of the respondent that there exist any such independent arbitration
agreement.

Shri R.F. Nariman, the learned counsel for the respondent, therefore,
C contended that the counter-offer made by the respondent amounts to
acceptance by conduct of the appellant and he placed reliance on para-
graphs 53 [Acceptance by conduct] and 99 [Agreement in principle only of
the Chitty on Contract. Paragraph 53 provides that "an offer may be
accepted by conduct. For example, an offer to buy goods can be accepted
D by supplying them; and an offer to sell goods, made by sending them to
the offeree, can be accepted by using them", The substance of paragraph
99 is that parties may reach agreement in principle but the details may be
worked out at a later date. There is no dispute to the proposition of law
but two factors have to be kept in mind, viz., when the counter-offer was
E made by the respondent ·and whether the unilateral offer amounts to
acceptance by submitting the tenders by the appellant to the Board. We
find that it does not amount to acceptance of counter proposal. It is seen
that admittedly, clause (10) which thrusts responsibility on the first respon-
dent was deleted in the counter-proposal. In clause 12, for joint respon-
sibility unilateral liability was incorporated. In other words the respondent
F disowned its material responsibilities. Unless there is acceptance by the
appellant to those conditions no concluded contract can be said to have
emerged. It seen that the appellant is a Government Undertaking .and
unless contract is duly executed in accordance with the Articles of Associa-
tion, the Appellant is not bound by any such contract. Shri Nariman sought
G to rely on the passage from Palmer on Companies Law containing that it
is an indoor management between the appellant and its officers. When the
negotiations were undertaken on behalf of the appellant, the respondent
was led to believe that the officer was competent to enter into the contract
on behalf of the appellant. When the counter-proposal was sent, the
H appellant had not returned the proposal. Therefore, it amounts to accep-
, I

t
U.P.(RAJKIYANIRMANNIGAMLID.v.INDUREPVT.LID.[KRAMASWAMY,J.) 395

tance and thus concluded contract came into existence. We fail to ap- A
preciate the contention. As seen, material alterations in the contract make
world of difference to draw an inference of concluded contract. The joint
liability of the parties was made unilateral liability of the appellant. There-
by, the respondent sought to absolve itself from the liability of further
performance of the contract with the Board. Similarly, clause (10) which B

- contains material part of the terms for the performance of the contract with
the Board was deleted. Thereby, there is no consensus ad idem on the
material terms of the contact which contains several clauses. In the absence
of any consensus ad idem on the material terms of the contract to be
entered into between the parties, there emerged no concluded contract.
Apart from the draft agreement and the counter-proposal, there is no
c
independent-contract for reference to arbitration. Clause (14) which is an
integral part of the draft agreement proposed by the appellant and the
counter-proposal is the foundation for reference to the arbitration.
r Section 31 (2) of the Act provides that notwithstanding anything D
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 agree-
ment 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 E
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 p
just an 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.

In "Law of Arbitration" by Justice Bachawat [2nd Edn.) at page 19 G
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". H
/
i
, \
396 SUPREME COURT REPORTS [1996] 2 S.C.R.

A We find no force in the contention of Shri Nariman that the appellant
had submitted to the jurisdiction of the arbitrators and !J.aving nominated
the arbitrator, they are estopped to go back upon it. Acquiscence does not
confer jurisdiction.

B The arbitrability of a claim depends on the construction of the clause
· in the contract. The finding of the arbitrator/arbitrators on arbitrability of
the claim is not conclusive as under Section 33, ultimately it is the Court
that decides the controversy. It being a with jurisdictional issue, the ar-
-
bitrator/arbitrators cannot cloth themselves with jurisdiction to conclusively
decide the issue. In "Russel on Arbitration" [19th Edn.] at page 99 it is
C stated thus :
1
'1t can hardly be within the arbitrator's jurisdiction to decide
whether or not a condition precedent to his jurisdiction has been

D
fulfilled. It has indeed several times been said bluntly that an
arbitrator has no power to decide his own jurisdiction and in one
case where rules of an institution prepared to conduct arbitrations
1
gave the arbitrator such power, the court will ignore this when
asked to enforce the award, and decide the question itself. How-
ever, an arbitrator is always entitled to inquire whether or not he
has jurisdiction. An umpire faced with a dispute whether or not
E there was a contract from which alone his jurisdiction, if any, can
arise can adopt one of a number of courses. He can refuse to deal
with the matter at all and have the parties to go to court, or he
can consider the matter and if he forms the view that the contract
upon which the claimant is relying and from which, if established,
alone his jurisdiction can arise is in truth the contract, he can
F
proceed accordingly."

In "Law of Arbitration" by Justice Bachawat [2nd Edn.) at page 155
it is stated that "the question whether matters r,eferred to were within the
ambit of clause for reference of any difference or dispute which may arise
G between the parties, it is for the Court to decide". The arbitrator by a wrong
decision cannot enlarge the scope of the submission. It is for the Court to
decide finally the ambit of the clause in dispute or any clause or a matter
or a thing contained therein or the construction thereof. We, therefore,
hold that the arbitrators cannot cloth themselves with jurisdiction to decide
H conclusively the arbitrability of the dispute. It is for the Court under
f
>
U.P. RAJKIYANIRMANNIGAMLTD. v. INDUREPVT. LTD. (K RAMASWAMY,J.) 397

Section 33 or on appeal thereon to decide it finally. The appellant, there- A
fore, is not estopped to challenge the action and to seek a declaration
under Section 33.

The clear settled law thus is that the the existence or validity of an
arbitration agreement shall ?e decided by the Court alone. Arbitrators, B
therefore, have no power or jurisdiction to decide or adjudicate conclusive-
ly 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 Adrash 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 C
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, there-
fore, 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 D
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 ad-
judication 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 E
remedy under Section 33 is the only right royal way for deciding the ·
controversy.

Since the tenders - the source of the contract between the parties -
had not transformed into a contract, even if the proposal and counter- F
proposal are assumed to be constituting an agreement, it is a contingent
contract and by operation of Section 32 of the Contract Act, the counter-
proposal of the respondent cannot be enforced since the event of entering
into the contract with the Board had not taken place.

In Ramji Dayawala & Sons (P) Ltd. v. Invest Import, AIR (1981) SC G
2085, a two-Judge Bench of this Court considered the existence of the
=-- contract and arbitration clause thereunder. This Court had held that in the
facts of a given case acceptance of a suggestion may be sub silentio
reinforced by the subsequent conduct. Where there is a mistake as to terms
of a document, amendment to the draft was suggested and a counter-offer H
4
\
398 SUPREME COURT REPORTS [1996] 2 S.C.R.

A was made, the signatory to the .original contract is not estopped by his
signature from denying that he intended to make an offer in the terms set
out in the document. Where the contract is in a number of parts it is
essential to the validity of the contract that the contracting party should
either have assented to or taken to have assented to the same thing in the
same sense or as it is sometimes put, there should be consensus ad idem.
B In that case a sub-contract was signed and executed by the Managing
Director of the appellant-Company but part of the contract was altered
subsequently since counter-proposal was given by the respondent. This
Court had held that one such case is where a part of the offer was disputed
at the negotiation stage and the original offeree communicated that to the
c offeror saying that he understood the offer in a particular sense; this
communication.probably amounts to a counter-offer in which case it may
be that mere silence of the original offeror will constitute his acceptance.
Where there is a mistake as to the terms of the documents as in that case,
amendment to the draft was suggested and a counter-offer was made, the
D signatory to the original contract is not estopped by his signature from
denying that he intended to make an offer in the terms set out in the
document; to wit, the letter and the cable. It can, therefore, be stated that
where the contract is in a number of parts it is essential to the validity of
the contract that the contracting party should either have assented to or
taken to have. assented to the same thing in the same sense or as it is
E sometim~s put, there should be consensus ad idem. It was held that there
was no consensus ad idem to the original contract. It was open to the party
contending novatio to prove that he had not accepted a part of the original
agreement though it had signed the agreement containing that part.

As found earlier, there is no signed agreement by a duly competent
F
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
G public undertakings or Government or its instrumentalities to deal on
contractual relations with third parties.

In view of the fact that Section 2 (a) of the Act envisages a written
agreement for ar~itration and that written agreement to submit the existing
H or future differences to arbitration is a pre-condition and further in view
U.P. RAJKIYA NIRMAN NIGAM LTD. v. INDURE PVT. LTD. [K RAMASWAMY, J.) 399

of the fact that the original contract itself was not a concluded contract, A
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
B
proceed further to arbiter the dispute, if any. The conclusion of the High
Court is set aside.

·The appeal is accordingly allowed with costs quantified at Rs. 15,000.

v.s.s . Appeal allowed.

.....