JUDGMENT Sudhir Narain, J.
1. The applicant has prayed for appointment of an arbitrator regarding the dispute and differences arising out of the contract between the applicant and the opposite parties.
2. The facts in brief are that the opposite parties vide its notification dated 10.4.1995 invited sealed bids from the individual/ association of persons for conversion of 35 kms. long Mathura (Jn.) Achhnera (ex.) section from metre gauge to broad gauge on Build Own Lease Transfer (hereinafter referred to as (BOLT) basis. The bids were to be opened on 29.5.1995 in the office of Chief Administrative Officer, Construction North-East Railway. Gorakhpur, The applicant and another firm submitted their bid documents for doing the aforesaid work. The bids were subject to terms and conditions mentioned in the General Conditions of Contract Regulation and instruction for tenders and these terms were to form part of the contract. The bids were opened. The Chief Engineer (Construction) West communicated to the applicant vide letter dated 2.2.1996 that the Ministry of Railways for and on behalf of the President of India has accepted the offer for option II for 8 years lease period at the bare project cost including interest of Rs. 34,69,86,183.00 with a monthly lease payment of Rs. 59,14,300.00 and with transfer fee of Rs. 3,11,93,818.00 at the end of lease period. The applicant was requested to take all necessary action. It was further mentioned that the letter of acceptance showing all other details would follow separately. The applicant had submitted tender in sealed cover containing two copies of the documents as required in prescribed form comprising of liability and technical conditions accompanied by relevant documents. The packet No. 2 contained two copies of financial bill, bid document Vol. 1. Section 1 clause (ii) provided that the bidder shall be required to furnish a performance guarantee in the form of a bank guarantee equivalent to 5 per cent of bare construction cost inclusive of interest charges as indicated in the bill. The petitioner did not submit the bank guarantee. The Chief Engineer (Construction) West, Gorakhpur sent a letter dated 27.3.1996 to the applicant intimating it that the final letter of acceptance and award of work shall be done after receipt of the performance guarantee. The applicant was asked to submit the performance guarantee within 15 days of the issue of the letter. Opposite party No. 4 again sent a letter dated 15.4.1996 requesting the applicant to deposit performance guarantee bond. The applicant admittedly did not submit the performance guarantee on 6.5.1996. A letter was issued from the office of the Chief Administrative Officer intimating to the applicant that the letter dated 2.2.1996 and provisional acceptance letter dated 27.3.1996 has been withdrawn as it failed to submit performance guarantee equivalent to 5 per cent of the bare construction cost inclusive of interest charges, i.e.. 1.75 crores.
3. The applicant submitted an application for payment of the amount of damages to the tune of Rs. 9,468 lacs on the ground that it incurred the expenses but it was not permitted to perform the contract work and further requested that in the event the amount is not paid the matter be referred to the arbitrator per clause 64 of the Arbitration clause contained in the general terms and conditions of the contract. The copy of those letters dated 11.3.1997, 12.6.1997 and 18.12.1997 have been annexed as Annexure-4, 4A and 4B to this application. As the opposite parties did not agree to refer the matter to the arbitrator, the applicant has filed this petition.
4. The opposite parties have filed counter-affidavit. Their main contention is that as the applicant itself did not submit the performance guarantee, there was no concluded contract and in absence of such contract, the applicant is not entitled to enforce clause 64 of the arbitration agreement. It has now to be examined as to whether there was a concluded contract between the parties.
5. The applicant had submitted its bid documents in pursuance of the notification issued by the opposite parties inviting sealed bids from the individual/association of persons. The Tender Committee of the opposite parties after examination and comparison of bids of all bidders recommended for acceptance of offer of the applicant to the Railway Board and the Appreciation Committee of the Railway Board also recommended acceptance of the offer of the applicant to the Ministry of Railways. The Ministry of Railways approved the acceptance of the offer of the applicant. The Chief Engineer (Construction) West for and on behalf of the President of India communicated to the applicant vide letter dated 2,2.1996 that the Ministry of Railways for and on behalf of the President of India has accepted the offer of the applicant for 8 years lease. The acceptance letter, however, further stated ........................ "Letter of acceptance showing all other details will follow separately. ......................... You are requested to take all necessary action accordingly." This letter clearly indicates that the bid of the applicant was accepted. The applicant had made an offer by submitting bid document and after examination of those documents, the letter was communicated to the applicanl accepting the offer, in Union of india v. A. L. Rallia Ram. AIR 1963 SC 1685, it was held that the correspondence between the parties ultimately resulting in the acceptance note amounts to contract, in M/s. Progressive Constructions Ltd. v. Bharat Hydro Power Corporation Ltd., AIR 1996 Delhi, 92, the petitioner therein had submitted the tender in response to a notice inviting tenders for the construction work. The respondent issued a letter of inter for the purpose of construction after finalisation of terms and conditions of the contract. The petitioner was to sign the contract but on account of certain differences, the contract could not be signed. The Court held that once the tender was accepted and letter of intent was issued, there was a concluded contract and the arbitration clause contained in the tender document would bind the parties. The applicant in this case had submitted the tender and the opposite parties had intimated to it that the Ministry of Railways for and on Behalf of the President of India has accepted this offer, in view of this letter, the contract was concluded in respect of its terms.
6. The question still remains as to whether the contract is enforceable. The applicant was to perform the terms of the contract which provided that the petitioner will submit a performance guarantee equivalent to 5 per cent of the bare construction cost inclusive of interest charges, i.e., 1.754 per cent. The bid in volume I contained the following condition :
"A successful bidder shall be required to furnish a performance guarantee, in the form of a bank guarantee, equivalent to 5% of the bare construction cost, inclusive of interest charges and as indicated in the bid, and valid during the period of construction."
"This performance guarantee, as left unused, will be discharged by the N. E. Railway and, after completion of all obligations of the successful bidder for executing the work as per terms and conditions set on warranty obligation and units being replaced by the agency by a performance guarantee, equivalent to 2% of the bare construction cost, as stated in the bid which would be valid for the first year of the lease period and covering the period of warranty obligations under the proposed lease agreement. The position of guarantee left unused shall be discharged immediately after the period stated herebefore. Failure to issue a performance guarantee with 15 days of issue of the provisional letter of acceptance shall constitute a disqualification, despite the successful bidder having been otherwise found eligible and shall be a condition precedent before the issue of the final letter of acceptance and the award of the work to the bidder'.
These terms clearly indicate that the tenderer must submit a performance guarantee within fifteen days of the issue of letter of acceptance and in case of failure to do so shall constitute a disqualification. The Court can enforce the performance of the contract as against the opposite parties only after the applicant had submitted performance guarantee in the form of bank guarantee. It was not merely signing the agreement but the applicant was to comply with the terms and conditions before it is to enforce the contract. The contract never became enforceable as the applicant never submitted the performance guarantee. The applicant has placed reliance upon certain instructions issued by the Railways known as Code for Engineering Department. Paras 1, 2. 5 and 6 provide that unqualified acceptance of a tender constitutes a binding contract until a formal agreement is constituted and in order to ensure the acceptance, the letter should be suitably worded. If the acceptance of the tender by the Railway is a conditional acceptance, it requires consent of the tenderer before the binding contract takes place.
7. Paragraphs 1, 2, 5 and 9 are regarding prior approval of certain authorities before signing the agreement. Paras 1260 and 1262 relate to execution and performance of the contract, which read as under :
"1260. Execution of contract prior to commencement of works or supplies :
(i) No contractor should be permitted to commence work or supply materials until the relevant contract or work order has been signed by the parties competent to do so :
(ii) Exceptions to this rule are permissible only in cases of extreme urgency such as works or supplies necessary to safeguard life or property or to repair damage to a track caused by flood, accident or other unforeseen contingency;
so as to restore and maintain through communication. Even in such cases, if circumstances permit, some form of written contract, or at least an agreed statement of rates to be paid should be prepared before the commencement of works or supplies, the intention being that the conditions, specifications, etc. with sufficient items and rates to carry on with, should be agreed upon before hand.
(iii) in other exceptional but less emergent cases in which the commencement of work or supply cannot be postponed till the preparation and sanction of the contract documents, prior consultation with the Financial Adviser and Chief Accounts Officer shall be necessary.
(iv) in all cases of departure from sub-para (1) above, the completion and execution of the main contract should be proceeded with expeditionsly. (c.f. para 627F)' "1262. Agreements and Work Orders.--As soon as possible after the acceptance of a tender, the successful tenderer should be called upon to furnish the required security (refer para 1244) and to sign the formal agreement or work order. For zone-contracts, separate work orders are issued for each contract document required to be executed by the tenderer whose tender is accepted shall be either an agreement or work order."
8. Admittedly, the applicant did not submit performance guarantee as provided in the bid documents which form part of the tender. The contention of the applicant that it had asked the opposite party to provide the relevant form of the performance guarantee but it was never supplied to it. It was for the applicant to have obtained the form. It was required to give a bank guarantee equivalent to 5% of the bare construction cost inclusive of interest charges, i.e., 1.57 crores. It was to give this bank guarantee within fifteen days of the communication of the acceptance letter dated 2.2.1996. The Railways thereafter wrote a letter to the applicant to give the performance guarantee on March 27, 1996 and April 15. 1996. The version of the applicant is that the opposite parties did not supply the proforma of the performance guarantee' the same could not be submitted. It was for the applicant to have stated that it had arranged for a bank guarantee and as regards the proforma, it could have been obtained from the opposite parties, as it was mere a formality. It was only to show that it is submitting bank guarantee of a bank which has guarantee the performance of the contract by the applicant.
9. The applicant has placed reliance upon clause (3) of bid document Vol. 1 which provides that the guarantee shall be conditional and payable on demand without protest or demur or be drawn on a nationalised bank in a proforma which will be furnished by the Railway, in paragraph 14 (b) of the application the applicant has stated that it asked the opposite parties for extension of time for submitting performance guarantee but opposite parties did not give reply to any letter of the applicant. This has been denied by the opposite parties. It is, however, clear that the applicant was fully conscious that the performance guarantee was to be submitted. The applicant has stated that it demanded a draft copy of the performance guarantee vide letter dated 14.3.1996. This letter has been annexed as Annexure-1 to the rejoinder-affidavit and not to the original application. The opposite parties could not reply in regard to this document as it was not annexed with the petition Secondly, the applicant was to submit the guarantee within two weeks from 2.2.1996. There is no explanation for not submitting the bank guarantee within the period of two weeks. The Railway had issued a letter on March 27. 1996 asking the applicant to submit performance guarantee and again on April 15, 1996 reminding the applicant to Submit the performance guarantee. It was only on May 6, 1996 when the applicant failed to submit the performance guarantee, the Railway had withdrawn the provisional acceptance of the tender. The applicant had not stated that any nationalised bank had given the guarantee for performance of the contract by the applicant and unless it was shown by the applicant that a nationalised bank had given the guarantee for performance of the contract by it, the Railway could have withdrawn the provisional acceptance of the tender. There is no explanation for not submitting the bank guarantee. The performance of the guarantee was part of the final contract in respect of the work to be done and the contract to be enforced.
10. One of the arguments raised by the applicant is that sub-clause (3) of clause 11 of the bid document was amended subsequently. This has been vehemently denied in the counter-affidavit, in paragraph 4 of the counter-affidavit, it has been clearly stated that the bid document having clause 11 was amended before submission of the tender by the bidder and the applicant had submitted its bid with the amended condition. This paragraph has not been denied in the rejoinder-affidavit filed by the applicant.
11. The applicant wants to seek reference to arbitration on the question whether it is entitled for damages as it suffered loss as after the acceptance of the contract, it took steps for carrying on contractual work the details of which are given in paragraph 13 of the application as follows :
(i) Preliminary expenses, site inspection, survey estimate, joint venture, piece rate work, labour, Jamadars, suppliers, querries, preparation of plan, mobilisation of work and other connected amounts Rs. 3,872.00 Lacs.
(ii) Losses for blockages of funds financiers, liability payment Rs. 100.00 Lacs.
(iii) Loss of payments made to suppliers, quarry downers, piece rate workers, experts engaged for project etc. Rs. 50.00 Lacs.
(iv) Losses for machinery. equipments arranged and brought at site Rs. 89.00 Lacs.
(v) Loss of profits Es. 347.00 Total Rs. 968.00 Lacs
(vi) interest @ 24% p. a. from 6.5.1996 till payment.
The arbitration clause will come into force only when the contract becomes enforceable. The contract becomes enforceable only after the performance of the guarantee is submitted by the applicant to the Railway. The third paragraph of clause 11 (3) of the bid document provides that failure to issue performance of guarantee within fifteen days of the issue of provisional letter of acceptance shall constitute a disqualification despite the successful bidder having been otherwise found eligible and shall be a condition precedent before the issue of final letter of acceptance and the award of the work to the bidder, in Rajasthan Co-operative Dairy federation v. Shri Maha Laxmi Mingrate Marketing Services (Pvt.) Ltd. and others. JT 1996 (8) SC 351, where a letter of intent was issued after having accepted the tender for its selling agent and the tenderer was required to submit a bank guarantee in terms and conditions of contract and he having failed to do so, the Supreme Court held that such cancellation was legally Justified. The applicant was entitled to be satisfied about the financial position of the partner proposed as selling agent. It was observed :
"If the conduct of respondent No. 1 was such that did not inspire any confidence in the appellant, the appellant was entitled to decline entering into any legal relationship with respondent No. 1 as its selling agent. The letter of intent merely expressed an intention to enter into a contract. If the conditions stipulated in the letter of intent were not fulfilled by respondent No. 1, and if the conduct of respondent No. 1 was otherwise not such as would generate confidence the appellant was entitled to withdraw the letter of intent. There was no binding legal relationship between the appellant and respondent No. 1 at this stage and the appellant was entitled to look at the totality of circumstances in deciding whether to enter into a binding contract with respondent No. 1 or not."
12. The acceptance of bid was subject to performance of certain terms and conditions of the contract. The applicant here is claiming damages for the loss incurred by it as it made preparation to carry out the contract work but on the other hand, it fully knowing the terms and conditions of the contract that it has to submit the bank guarantee and it having failed to do so, cannot rely on the arbitration clause for making the reference of the dispute to an arbitrator as no enforceable contract came into existence between the parties.
13. In view of the above the application is dismissed.