R 1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 25TH DAY OF JANUARY 2019 BEFORE THE HON’BLE MR. JUSTICE H. T. NARENDRA PRASAD WRIT PETITION No.29575 OF 2011(GM-TEN) AND WRIT PETITION No.33742 OF 2011 BETWEEN:
M/s Eagle MPCC (JV) No.16, S.C.S. Complex South Car Street Tiruchengode-637211 Represented by its Proprietor Sri. U.R. Subramaniam Aged about 51 years. … Petitioner (By Sri. Ashok Haranapalli, Senior counsel Along with Sri. K.S. Harish, Advocate) AND:
South Western Railway No.18, Miller’s Road Bangalore-560 046 Represented by its Chief Administrative Officer. ... Respondent (By Sri.Y.T. Abhinav, Advocate for Sri. N.S. Sanjay Gowda, Advocate) These writ petitions are filed under Articles 226 & 227 of the Constitution of India praying to direct the respondent not to deduct monies towards security deposit, performance guarantee and any other damages or loss to the respondent in relation to tender notice dated: 29.09.2010 vide Annexure-A from letter of acceptance dated: 30.11.2010 vide Annexure-K and letter of acceptance dated: 28.02.2011 vide Annexure-K1 and etc.
These writ petitions, having been heard and reserved for orders on 08.01.2019, coming on for pronouncement this day, the Court, made the following:
ORDER In these writ petitions, the petitioner has sought the following reliefs:
(a) Allow this Petition and pass an order directing the Respondent not to deduct monies towards security deposit, performance guarantee and any other damages or loss to the Respondent in relation to Tender Notice No.CAO/CN/ BNC/041/10 Dt:29.09.2010 SCHS-225 (Ch.83000 to Ch.88000) vide Annexure- A, from Letter of Acceptance No.W.496/SCHS-222 dt: 30.11.2010 vide Annexure-K and LOA No. W.496/SCHS-224 dt:28.02.2011, vide Annexure-K-1.
(b) Direct the Respondent to refund the monies deducted from Letter of Acceptance No.W.496/SCHS-222 dt.30.11.2010 vide Annexure-K and Letter of acceptance No.W.496/SCHS-
224 dt.28.02.2011, vide Annexure-K-1 towards Tender Notice No.CAO/CN/BNC/ 041 Dt:29.09.2010 SCHS-225 (Ch.83000 to Ch.88000) vide Annexure-A, and also direct the respondent to refund Earnest Money Deposit deposited along with the Tender notice No. CAO/CN/BNC/041 Dt.29.09.2010 SCHS-225.
2. The brief facts of the case are that the petitioner is a joint venture entity, well versed with works and constructions such as earth work, major and minor bridges, road under bridge, road over bridge, protective work, road works and other works related to railways. The respondent herein has floated the tender with regard to the earth work. Pursuant to that tender, the petitioner has submitted the response. Along with the tender documents, petitioner has submitted all relevant documents and quoted a price of 12.44% less than the price fixed by the respondent. Since the tender bid of the petitioner was the lowest, the tender submitted by the petitioner was accepted by the respondent. Subsequently, the respondent by letter dated 27.01.2011 (Annexure-C) sought for extension of validity of offer. Pursuant to that request, the petitioner issued a letter dated 04.02.2011 (Annexure-D) informing their inability to extend the validity period. The respondent issued a letter of acceptance dated 02.03.2011 produced as Annexure-F. Subsequently, by letter dated 15.04.2011 (Annexure-R1) the petitioner has informed the respondent that acceptance letter is received and they have started the work and requested for approval of the drawing. Thereafter the respondent has requested the petitioner to execute the agreement, but the petitioner has not executed the agreement in terms of the Tender. The respondent determined that petitioner has abandoned the contract and the respondent has forfeited the EMD amount and deducted the security deposit and performance guarantee from the other contracts which are entrusted to the petitioner.
3. Sri Ashok Harnahalli, learned Senior Counsel appearing for Sri K.S.Harish for the petitioner firstly submits that pursuant to the tender notification, petitioner has submitted the response. Pursuant to that, on 02.03.2011 (Annexure-F), the respondent has issued the letter of acceptance. The letter of acceptance issued by the respondent is not accepted by the petitioner and it has not entered into the agreement with the respondent. Therefore, there is no concluded contract between the parties which could be enforced in the Court of Law. In the absence of concluded contract the respondent cannot forfeit the EMD, security deposit and performance guarantee. He has relied on Tender document Clauses 10 and 10.1 in respect of execution of contract documents, Clause 18 in respect of earnest money deposit and clauses 4.2.3 and 4.3 in special conditions of contract in respect of security deposit and performance guarantee vide Annexure-A and contended that forfeiture of earnest money deposit or recovery of security deposit or performance guarantee can be done only if the parties have entered into the contract. Since there is no contract between the parties the respondent has no power to recover the amount from the petitioner. In support of his submissions, he has relied on paras 18 and 19 of the judgment of the Hon’ble Supreme Court reported in (1996) 2 SCC 667 in the case of U.P.RAJKIYA NIRMAN NIGAM LTD. vs. INDURE PVT. LTD. AND OTHERS and paras 39 and 40 in the case of DRESSER RAND S.A. vs. BINDAL AGRO CHEM LTD. reported in (2006) 1 SCC 751.
4. Secondly, he contended that there is no concluded contract and there is no written agreement. Hence, party cannot be asked to invoke arbitration clause. He has relied on Sections 2(b) and 7 of the Arbitration and Conciliation Act, 1996 and submits that the arbitration agreement shall be in writing, in this case there is no written agreement between the parties. He has also relied on para 8 of the judgment of the Hon’ble Supreme Court in the case of U.P.RAJKIYA NIRMAN NIGAM LTD.
(supra).
5. Thirdly, learned Senior Counsel contended that even assuming that there is an arbitration clause, the writ petition under Article 226 of the Constitution of India is maintainable since the action of the respondent forfeiting the EMD amount, recovery of the security deposit and performance guarantee, without giving any notice to the parties the respondent unilaterally taken a decision. Hence, action of the respondent is arbitrary in nature. To that effect, he has relied on para 52 of the judgment reported in (2004) 3 SCC 553 in the case of ABL INTERNATIONAL LTD. AND ANOTHER vs. EXPORT CREDIT GUARANTEE CORPORATION OF INDIA LTD. AND OTHERS.
6. Fourthly, he contended that the action of the respondent in recovering the security deposit and performance guarantee related to the other contracts is without jurisdiction. Clause 52-A (ii) of the General Conditions was inserted by amendment dated 27.04.2011. It operates prospectively. Hence the respondent cannot exercise the power under Clause 52-A (ii) of the General Conditions of contract.
7. Per contra, learned counsel for the respondent firstly submitted that pursuant to the tender notification, the petitioner has submitted tender document after duly signed by the competent officer of the petitioner. By signing the document he has accepted all the conditions mentioned in the document. Pursuant to the response of the petitioner, the respondent has sent the acceptance letter on 02.03.2011 duly signed by the competent authority. The same has been received by the petitioner and he started the work in terms of the contract. On 15.04.2011 he has written a letter to the respondent stating that they have received the above referred acceptance letters, they have started survey and completed and sought for approval of the drawing. Therefore, it is very clear that the contract between the parties is a concluded contract. The subsequent agreement is only formal. The acceptance letter is signed by the Chief Engineer who is authorized to represent on behalf of the President of India. In support of his contentions, he has relied on para 9 of the judgment of the Hon’ble Supreme Court reported in AIR 1963 SC 1685 in the case of UNION OF INDIA vs. A.L.RALLIA RAM.
8. Secondly, learned counsel submits that in the letter of acceptance (Annexure-F) it is clearly mentioned that if the contract is rescinded the security deposit and performance guarantee amounts will be recovered. Therefore, there is no arbitrariness in the decision of the respondent. Even as per Clause 52-A of the General Conditions of Contract before amendment also it is very specific that the respondent has lien in respect of the claim in other contracts.
9. Thirdly, the learned counsel contended that since the contract between the parties is a concluded contract and in the contract there is an arbitration clause, if there is any dispute between the parties, they have to approach the arbitrator. The parties have signed the contract and they have accepted the conditions in the contract. In the tender document itself the arbitration clause has been incorporated. In Clause 3 of the Tender Document it is stated that the General Conditions of the Contract is a part of the Tender Document and Tender Form. Clause 4 of the Tender Form states that until a formal agreement is prepared and executed acceptance of the tenders shall constitute a binding contract between them subject to the modification as may be mutually agreed to between them and indicated in the letter of acceptance of their offer for the work. Clause 27 of the Special Conditions of Contract related to settlement of dispute. There the arbitration clause has been incorporated. Therefore, he contended that in terms of Sections 2(b) and 7 of Arbitration and Conciliation Act, there is a written contract and the arbitration clause has been incorporated under it. Hence, the writ petition is not maintainable.
10. Heard learned counsel for the parties and perused the records.
11. It is not in dispute that the respondent floated the tender on 29.09.2010. Pursuant to that, the petitioner has sent his response after duly signed by the competent officer. Pursuant to his response, by Annexure-F dated 02.03.2011 the respondent has issued a letter of acceptance. In pursuance to that, the petitioner has issued a letter to the respondent dated 15.04.2011 stating that they have received the above referred acceptance letters, they have started the survey and completed. They have also arranged labours for bar bending and machineries for earthwork excavation. So far they have not been issued with the approved drawing for the bridges in the above two reaches. They have set up the site office also, their machineries and the men are idling from 10.04.2011 onwards. Hence, they requested the respondent to arrange to issue the approved drawings for the above referred two reach works to enable them to start work. By seeing this document it is very clear that the petitioner has received the acceptance letter. Therefore, the contract between the parties is concluded and it is a concluded contract.
Section 3 of the Indian Contract Act, 1872 is extracted hereinbelow:
“3. Communication, acceptance and revocation of proposals- The communication of proposals, the acceptance of proposals, and the revocation of proposals and acceptances, respectively, are deemed to be made by any act or omission of the party proposing, accepting or revoking, by which he intends to communicate such proposal, acceptance or revocation, or which has the effect of communicating it.”
12. Section 3 of the Indian Contract Act envisages communication of proposal, acceptance 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. Communication of an acceptance is complete – as against the proposer, when it is put 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 into a promise, the acceptance must (1) be absolute and unqualified; (2) be expressed in some usual and reasonable manner, unless the proposal prescribes the manner in which it is to be accepted…”. Under Section 10, “all agreements are contracts if they are made by the free consent of parties competent to 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 to contract to do or not to do something, if some event, collateral to such contract, does or does not happen.” A contingent contract to do or not to do anything, if an unforeseen future event happens, cannot be enforced by law, under Section 32, unless and until that event has happened. If the event becomes impossible, such contract becomes void.
13. On going through the above provisions and the documents produced by the parties, the submission of the learned Senior Counsel for the petitioner that there was no concluded contract appears to be not well founded. By going through the documents it is sufficient to conclude that there was an offer and unconditional acceptance, and communication which are the essential ingredients for conclusion of a valid contract. The fact that some of the subsequent acts contemplated in the tender such as payment of deposit and formal execution of the agreement certainly would not nullify the concluded contract. The subsequent acts contemplated in the tender are only for the effective purpose of enforcing the contract and nothing more.
14. Clause 27 of the Tender Document is extracted hereinbelow:
“27. Execution of Contract Documents: The successful Tenderer shall be required to execute an agreement with the President of India acting through the Chief Engineer/Chief Engineer (Construction)/Divisional Railway Manager ……………./Engineer/…………., South Western Railway for carrying out the work according to the Contract Documents.”
The Chief Engineer/East/Construction, South Western Railway, Bengaluru is the authorized officer who is signing the documents on behalf of the President of India. All these documents, including the acceptance letter is signed by the very same officer. Therefore, there is a written contract which has been signed by competent officers from both the sides. Hence, in my opinion, it is a concluded contract.
15. Sections 2(b) and 7 of the Arbitration and Conciliation Act are extracted hereinbelow:
“2(b). “arbitration agreement” means an agreement referred to in Section 7.
………………..
7. Arbitration agreement 1) In this Part “arbitration agreement” means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.
2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
3) An arbitration agreement shall be in writing.
4) An arbitration agreement is in writing if it is contained in-
a) a document signed by the parties;
b) an exchange of letters, telex, telegrams or other means of telecommunication [including communication through electronic means] which provide a record of the agreement; or c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.
5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.”
16. As already held, there is a concluded contract between the parties and it was a written contract signed by both the parties. In Clause 3 of the Tender Document it is specifically stated that the Regulations for Tenders and Contracts shall be read in conjunction with the General Conditions of contract. Clause 63 of the General Conditions of Contract provides for settlement of disputes through arbitration. Same clause has been incorporated in Tender document’s clause 27, which is extracted hereinbelow:
“27. Settlement of Disputes – Indian Railway Arbitration Rules:
27.1 The tenderer/contractor cannot claim any compensation in case any of his labour, machinery etc. idle due to exigencies such as execution of contract, land acquisition etc.
27.2 (Clause 63 of GCC). Matters finally determined by the Railway.
All disputes and differences of any kind whatsoever arising out of or in connection with the contract, whether during the progress of the work or after its completion and whether before or after the determination of the contract, shall be referred by the Contractor to the General manager and the General Manger shall within 120 days after receipt of the Contractor’s representation make and notify decisions on all matters referred to by the Contractor in writing provided that matters for which provision has been made in clauses 8, 18, 22(5), 39, 43(2), 45(a), 55, 55-A(5), 57, 57-A, 61(1), 61(2) and 62(1) to xiii)B of the General Conditions of Contract or in any clause of the special conditions of contract shall be deemed as ‘excepted matters’ (matters not arbitrable) and decisions of the Railway authority, thereon shall be final and binding on the Contractor provided further that “excepted matters” shall stand specifically excluded from the purview of the arbitration clause.
27.3 (Clause 64(1) of GCC) Demand for Arbitration:
(i) In the event of any dispute or difference between the parties hereto as to the construction or operation of this contract, or the respective rights and liabilities of the parties on any matter in question, dispute or difference on any account, or as to the withholding by the Railway of any certificate to which the Contractor may claim to be entitled to, or if the Railway fails to make a decision within 120 days, then and in any such case, but except in any of the “excepted matters” referred to in Clause 63 of these conditions, the Contractor, after 120 days but within 180 days of his presenting his final claim on disputed matters, shall demand in writing that the dispute or difference be referred to arbitration.”
17. Even as per Sections 2(b) and (7) of the Arbitration and Conciliation Act, there is a written agreement between the parties and there is an arbitration clause in the contract.
18. In the case of U.P.RAJKIYA NIRMAN NIGAM LTD. (supra), relied upon by the learned Senior Counsel for the petitioner, the appellant had withdrawn the tender before the acceptance letter is issued. Therefore, there is no concluded contract. Hence, that case is not applicable to the case on hand. In the case on hand, acceptance letter issued by the respondent was received and it was acted upon by the petitioner. Even in the case of DRESSER RAND (supra) relied upon by the petitioner, it is held that the letter of intent is accepted. It is only intention to enter into a contract in future and it is not binding on the parties and it does not amount to contract. But in the case on hand letter of acceptance has been issued, the petitioner has received the same and acted upon it. Therefore, the said judgment is not applicable to the present case.
19. In the case of ABL INTERNATIONAL LTD.
(supra) relied upon by the petitioner the impugned acts of the respondent is arbitrary, unfair and unreasoned. Under that circumstance, the Hon’ble Supreme Court held that writ under Article 226 is maintainable. Hence, this case is also not applicable to the case on hand.
20. Clause 3 of the letter of acceptance issued by the respondent to the petitioner dated 02.03.2011 vide Annexure-F is extracted hereinbelow:
“3. The total Security Deposit amount required for the contract is 5% of the contract value i.e., Rs.56,93,747/- (RUPEES FIFTY SIX LAKHS NINETY THREE THOUSAND SEVEN HUNDRED AND FORTY SEVEN ONLY). The Earnest Money Deposit amount of Rs.
803010/- remitted by you along with the offer vide TDR 910040042266682 dated 08.11.2010 issued by Axis Bank Ltd., Tiruchengode, is adjusted towards part of Security Deposit. The balance Security Deposit of Rs.48,90,737/- will be recovered from the running bills of the contract at the rate of 10% of the bill amount till the full Security Deposit is recovered. Please note that no interest will accrue on the Security Deposit available with the Railway.”
21. It is very clear from Clause 3 of letter of acceptance vide Annexure-F extracted above that the respondent can recover from the running bill of the contractor. Therefore, the contention of the petitioner that it is the arbitrary action of the respondent is not correct.
22. Even under General Condition of contract issued in the month of June 2010, Section 52-A is very clear. It is extracted hereinbelow:
“52-A Lien in respect of claims in Other Contracts:- Any sum of money due and payable to the contractor (including the security deposit returnable to him) under the contract may be withheld or retained by way of lien by the Railway, against any claim of this or any other Railway or any other Department of the Central Government in respect of payment of a sum of money arising out of or under any other contract made by the contractor with this or any other Department or the Central Government.
It is an agreed term of the contract that the sum of money so withheld or retained under this clause by the Railway will be kept withheld or retained as such by the Railway till the claim arising out of or under any other contract is either mutually settled or determined by arbitration, if the other contract is governed by arbitration clause or by the competent Court as the case may be and contractor shall have no claim for interest or damages whatsoever on this account or on any other ground in respect of any sum of money withheld or retained under this clause and duly notified as such to the contractor.”
23. A perusal of the above clause shows that the respondent has lien in respect of the claim in other contracts. In view of my finding that there is a concluded contract, there is a written agreement under which there is an arbitration clause, it is very clear that all disputes and differences of any kind whatsoever arising out of or in connection with the contract, any other contract, work in progress, the parties can invoke the arbitration clause. Since the dispute is between the parties in connection with the contract, the petitioner can invoke the arbitration clause.
24. For the aforesaid reasons, this Court is decline to entertain the writ petitions. Hence, the writ petitions are dismissed.
Sd/- JUDGE Cm/-