ARBITRATION PETITION NO.32 OF 2015

IN THE GAUHATI HIGH COURT (HIGH COURT OF ASSAM, NAGALAND, MIZORAM & ARUNACHAL PRADESH) ARBITRATION PETITION NO.32 OF 2015 Durga Krishna Store Private Limited, a Company incorporated under the Companies Act, 1956, having its registered Office at Club Road, Silchar 788001, Cachar, Assam. -Versus-..Petitioner 1. The Union of India, Represented by the General Manager, N.F. Railway, Maligaon, Guwahati 781011. 2. The Deputy Chief Engineer/Con-I, N.F. Railway, Silchar. 3. The Deputy Chief Engineer CON/Tender, N.F. Railway, Maligaon, Guwahati 781011...Respondents B E F O R E HON BLE MR. JUSTICE ARUP KUMAR GOSWAMI For the petitioner For respondents : Mr. R. Hussain, Advocate. : Mr. D.K. Dey, Standing Counsel, N.F. Railway. Date of hearing : 15 th May, 2017. Date of Judgment & Order : 30 th May, 2017. JUDGMENT & ORDER Heard Mr. R. Hussain, learned counsel for the petitioner. Also heard Mr. D.K. Dey, learned standing counsel, N.F. Railway, appearing for all the respondents. 2. By this application under Section 11 of the Arbitration and Conciliation Act, 1996 (for short, 1996 Act ), the petitioner prays for appointment of an Arbitrator. Arb. Petition No.32/2015 Page 1 of 12

3. The case of the petitioner as projected in the petition is that the respondents floated a tender Notice No.CON/2012/FEB/04 in tender No.CE/CON/LMG-SCL/EMB/ 2012/05 for construction of Bridge No.497 (2 X 6.10 m RCC Box), 505 (2 X 3.50 m RCC Box), 515 (2 X 5.10 m RCC Box) on alignment adjacent to MG track in between Chainage 132.255.00 KM to 137/160.00 KM (New Chainage) and other ancillary works in between stations Ditokcherra Damcherra in connection with LMG-SCL-GC Project. The date of opening of the tender was fixed on 23.03.2012 and the petitioner participated in the said tender process along with other tenderers. By an acceptance letter dated 14.06.2012 issued by the respondent No.3, it was communicated to the petitioner that the petitioner s negotiated offer for the work in question had been accepted at a total cost of Rs.6,69,15,889.64. By the said letter, the petitioner was authorised to commence the work so as to ensure completion of the work within 15(fifteen) months. The petitioner mobilised resources for the purpose of completion of the work. Though the petitioner was required to submit a Performance Guarantee in the form of an irrevocable bank guarantee for an amount equal to 5% of the contract value within a maximum period of 60(sixty) days, the same could not be submitted due to unavoidable circumstances but later on, on 22.09.2012, the petitioner submitted the Bank guarantee, valid up to 21.06.2014, which was also accepted by the respondents. On 01.11.2012, the Deputy Chief Engineer/CON-I requested the petitioner to start the work on war footing so that the work can be completed within the stipulated period. However, in a turn of events, by a communication dated 18.06.2013 issued by the respondent No.3, the contract of the petitioner was terminated on the ground of delay in submission of Performance Guarantee. 4. Aggrieved by the aforesaid termination of the contract, the petitioner lodged a claim on 05.06.2015 for a sum of Rs.1,09,50,442.44 but the respondents failed to respond to the same. As there was a clause being Clause-45 in the Tender Documents for settlement of dispute through arbitration, the petitioner invoked Arbitration Clause by notice dated 07.10.2015. But as the respondents failed to appoint the Arbitrator within the stipulated time, recourse is taken by filing this application for appointment of an Arbitrator. 5. In the affidavit filed by the respondents, it is stated that the plea that the petitioner had mobilised resources is factually not correct since for construction of site Arb. Petition No.32/2015 Page 2 of 12

office, labour shed etc., over Railway land, it is necessary to obtain permission from the Railways, which the petitioner had not taken. In terms of the acceptance letter dated 14.06.2012 as well as Clause-36(a) of the Tender Documents, the petitioner was required to submit a Performance Guarantee in the form of an irrevocable bank guarantee within 30(thirty) days (60 days with penal interest of 15% per annum) of receiving the letter of acceptance and, therefore, there was no question of accepting the bank guarantee after 98(ninety-eight) days. It is stated that it was the duty of the petitioner to have started the work after receiving the acceptance letter by submitting a Performance Guarantee. The contract work with the petitioner was terminated in terms of the letter dated 14.06.2012 on failure to submit the bank guarantee within the stipulated period of time. It is asserted that the Railway authorities are authorised to terminate the contract at any stage in terms of the General Conditions of Contract, N.F. Railway, 1998. It is also asserted that there is no dispute as the claims raised by the petitioner, numbering 9(nine), are not acceptable and as there is no dispute between the parties, the question of appointment of Arbitrator does not arise. 6. Mr. Hussain, learned counsel for the petitioner has submitted that Clause-45 of the Tender Documents of the tender in question provides for settlement of disputes through arbitration, which is governed by Clauses-63 and 64 of the General Conditions of Contract, N.F. Railway, 1998 and that in the instant case, Clause-64(3)(a)(ii) thereof is attracted. It is submitted that absence of a formal agreement is of no consequence as the acceptance letter itself provides that the same will be enforceable contract in between the parties. It is submitted by him that even though the petitioner could not submit the Performance Guarantee within the stipulated time and had also not executed the formal agreement, the petitioner had started mobilizing resources and the respondent authorities had also, notwithstanding the fact that the Performance Guarantee was yet to be submitted, had asked the petitioner to proceed with the work on war footing and, therefore, termination of the contract on the ground that the Performance Guarantee was not submitted within the stipulated time, cannot withstand the scrutiny of law and, therefore, the same had given rise to a legitimate dispute. In support of his contention, he has placed reliance on the decisions of the Apex Court in UNISSI (India) Private Limited -Vs- Post Graduate Institute of Medical Education & Research, reported in (2009) 1 SCC 107, Trimex International FZE Limited, Dubai -Vs- Vedanta Aluminium Limited, India, reported in (2010) Arb. Petition No.32/2015 Page 3 of 12

3 SCC 1, Oil & Natural Gas Corporation Petro Additions Limited -Vs- Daelim Industrial Company Limited, Korea, reported in (2015) 13 SCC 176 and State of Uttar Pradesh & Ors. -Vs- Combined Chemicals Company Private Limited, reported in (2011) 2 SCC 151. 7. Abiding by the stand taken in the affidavit, Mr. Dey has vehemently argued that the petitioner having not furnished the bank guarantee within the time prescribed, which is the basis for execution of the formal contract agreement, the petitioner cannot raise any dispute with regard to termination of the contract and, therefore, there is no question of appointment of any Arbitrator. He has also submitted that in absence of a formal agreement, no arbitration can be resorted to as there is no agreement between the parties. That apart, the claims made by the petitioner are also without any basis. He has submitted with reference to Section 37 of the Indian Contract Act, 1872 that the parties to a contract must either perform or offer to perform their respective promises and in the instant case the petitioner had failed to perform its obligations although such obligation and/or performance was not dispensed with or excused. He has placed reliance on the decisions of the Apex Court in Payal Chawla Singh -Vs- Coca-Cola Company & Anr., reported in (2015) 13 SCC 699 and Jagdish Chander -Vs- Ramesh Chander & Ors., reported in (2007) 5 SCC 719. 8. I have considered the submissions advanced by the learned counsel appearing for the parties and have also perused the materials on record. 9. At the outset, having regard to the contours of the argument advanced by the learned counsel appearing for the parties, it will be expedient to consider Section 7 of the 1996 Act, which defines Arbitration Agreement so far as it relates to Chapter-II. Section 7(1) defines arbitration agreement to mean 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. Section 7(2) lays down that an arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. Section 7(3) provides that an arbitration agreement shall be in writing. Section 7(4) provides that 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 Arb. Petition No.32/2015 Page 4 of 12

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. Section 7(5) provides that 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. 10. In Jagdish Chander (supra), the question that had fallen for consideration was as to whether Clause-16 of the Deed of Partnership providing that, if during the continuance of the partnership or at any time afterwards any dispute touching the partnership arises between the partners, the same shall be mutually decided by the partners or shall be referred for arbitration if the parties so determined, is an arbitration agreement within the meaning of Section 7 of the 1996 Act. The Supreme Court, interpreting the aforesaid Clause-16, had held that Clause-16 is not an arbitration agreement as defined under Section 7 of the 1996 Act. It was observed that if the Clause had merely said that in the event of disputes arising between the parties, they shall be referred to arbitration, it would have been an arbitration agreement but the use of the words shall be referred to arbitration if the parties so determined completely change the complexion of the provision, as it indicates that the parties are required to reach a decision as to whether the disputes should be referred to arbitration or not. The Supreme Court, at Paragraph-8 of the said judgment, also set out the principles in regard to what constitutes an arbitration agreement. The paragraph is quoted below: 8. This Court had occasion to refer to the attributes or essential elements of an arbitration agreement in K.K. Modi v. K.N. Modi, Bharat Bhushan Bansal vs. U.P. Small Industries Corporation Ltd. and Bihar State Mineral Development Corporation v. Encon Builders (I) (P) Ltd. In State of Orissa v. Damodar Das, this Court held that a clause in a contract can be construed as an 'arbitration agreement' only if an agreement to refer disputes or differences to arbitration is expressly or impliedly spelt out from the clause. We may at this juncture set out the well settled principles in regard to what constitutes an arbitration agreement: (i) The intention of the parties to enter into an arbitration agreement shall have to be gathered from the terms of the agreement. If the terms of the agreement clearly indicate an intention on the part of the parties to the agreement to refer their disputes to a private tribunal for adjudication and an Arb. Petition No.32/2015 Page 5 of 12

willingness to be bound by the decision of such tribunal on such disputes, it is arbitration agreement. While there is no specific form of an arbitration agreement, the words used should disclose a determination and obligation to go to arbitration and not merely contemplate the possibility of going for arbitration. Where there is merely a possibility of the parties agreeing to arbitration in future, as contrasted from an obligation to refer disputes to arbitration, there is no valid and binding arbitration agreement. (ii) Even if the words 'arbitration' and 'arbitral tribunal (or arbitrator)' are not used with reference to the process of settlement or with reference to the private tribunal which has to adjudicate upon the disputes, in a clause relating to settlement of disputes, it does not detract from the clause being an arbitration agreement if it has the attributes or elements of an arbitration agreement. They are : (a) The agreement should be in writing. (b) The parties should have agreed to refer any disputes (present or future) between them to the decision of a private tribunal. (c) The private tribunal should be empowered to adjudicate upon the disputes in an impartial manner, giving due opportunity to the parties to put forth their case before it. (d) The parties should have agreed that the decision of the Private Tribunal in respect of the disputes will be binding on them. (iii) Where the clause provides that in the event of disputes arising between the parties, the disputes shall be referred to Arbitration, it is an arbitration agreement. Where there is a specific and direct expression of intent to have the disputes settled by arbitration, it is not necessary to set out the attributes of an arbitration agreement to make it an arbitration agreement. But where the clause relating to settlement of disputes, contains words which specifically excludes any of the attributes of an arbitration agreement or contains anything that detracts from an arbitration agreement, it will not be an arbitration agreement. For example, where an agreement requires or permits an authority to decide a claim or dispute without hearing, or requires the authority to act in the interests of only one of the parties, or provides that the decision of the Authority will not be final and binding on the parties, or that if either party is not satisfied with the decision of the Authority, he may file a civil suit seeking relief, it cannot be termed as an arbitration agreement. Arb. Petition No.32/2015 Page 6 of 12

(iv) But mere use of the word 'arbitration' or 'arbitrator' in a clause will not make it an arbitration agreement, if it requires or contemplates a further or fresh consent of the parties for reference to arbitration. For example, use of words such as parties can, if they so desire, refer their disputes to arbitration or in the event of any dispute, the parties may also agree to refer the same to arbitration or if any disputes arise between the parties, they should consider settlement by arbitration in a clause relating to settlement of disputes, indicate that the clause is not intended to be an arbitration agreement. Similarly, a clause which states that if the parties so decide, the disputes shall be referred to arbitration or any disputes between parties, if they so agree, shall be referred to arbitration is not an arbitration agreement. Such clauses merely indicate a desire or hope to have the disputes settled by arbitration, or a tentative arrangement to explore arbitration as a mode of settlement if and when a dispute arises. Such clauses require the parties to arrive at a further agreement to go to arbitration, as and when the disputes arise. Any agreement or clause in an agreement requiring or contemplating a further consent or consensus before a reference to arbitration, is not an arbitration agreement, but an agreement to enter into an arbitration agreement in future. 11. In Trimex International FZE Limited (supra), the Supreme Court had observed that once the contract is concluded orally or in writing, the mere fact that a formal contract has to be prepared and initialled by the parties would not affect either the acceptance of the contract so entered into or implementation thereof, even if the formal contract has never been initialled. It was observed by the Supreme Court that unless an inference can be drawn from the facts that the parties intended to be bound only when a formal agreement had been executed, the validity of the agreement would not be affected by its lack of formality. 12. In UNISSI (India) Private Limited (supra), the appellant had sent an agreement containing an arbitration clause as per the format provided by the respondent, after duly signing the same on requisite value of stamp papers for signing of the same by the respondent. Though the respondent had received the same, it did not send back the agreement to the appellant after signing it as per the agreement between the parties. The respondent had used machines supplied by the appellant for about a year and had thereafter, returned the same to the appellant. The bank guarantee Arb. Petition No.32/2015 Page 7 of 12

furnished and the earnest money deposited were encashed and forfeited by the respondent. Taking note of the aforesaid facts and the correspondences between the parties including the tender offer as well as the supply order issued by the respondent, it was held that there existed an arbitration agreement between the parties. 13. In Combined Chemicals Company Private Limited (supra), one of the appellants had issued a tender notice for supply of Zinc Sulphate of Agriculture Grade to meet the requirement of the Agriculture Department and Clause-16 of the said tender form provided, amongst others, that in the event of any dispute arising out of or concerning the agreement, the same shall be referred to the arbitration. The bid given by the respondents, having been found to be lowest, acceptance letter was issued providing for execution of a formal agreement, if so required. The Supreme Court on the basis of contents of the acceptance letter along with other documents as well as the conduct of the parties concluded that an agreement was executed between the competent authority and the respondent. 14. In Oil & Natural Gas Corporation Petro Additions Limited (supra), having regard to the language adopted in the NIT with regard to acceptance of the bid, it was held that with the acceptance of the bid by the applicant, would by itself, conclude the contract. 15. In Payal Chawla Singh (supra), the petitioner had issued a legal notice invoking arbitration mechanism under what is called as Solutions Programme. While negating the claim, the Supreme Court observed that what is contemplated under the Solutions Programme is a mere possibility of the employee seeking arbitration as opposed to an obligation to refer all disputes to arbitration. It is in this context, it was emphasised that under Section 7 of the 1996 Act, the parties to an arbitration agreement must agree to submit their disputes to arbitration. 16. In the instant case, tender form (second sheet) under the heading Regulations for the Guidance of Tenderers has laid down, amongst others, that (a) tender form (first and second sheet) and (b)(i) N.F. Railway General Conditions of Contract and Standard Special Conditions of Contracts, 1998, (ii) Indian Railway Unified Standard Specification Volume I and II, 2010 edition and USSOR Schedule of Rates (for Labours and Materials) of Northeast Frontier Railway, 2010 edition, shall form part of the Arb. Petition No.32/2015 Page 8 of 12

contract. In the first sheet at Clause-4, it is provided that until a formal agreement is prepared and executed, acceptance of the tender shall constitute a binding contract subject to modifications, as may be mutually agreed to between the parties and indicated in the letter of acceptance of the tenderers offered for the work. 17. Clause-36 of the Tender Documents provided that the successful bidder shall have to submit a Performance Guarantee within 30(thirty) days from the date of issue of the letter of acceptance. Extension of time for submission of Performance Guarantee beyond 30(thirty) days and up to 60(sixty) days from the date of issue of the letter of acceptance may be given by the authority, who is competent to sign the contract agreement but a penal interest of 15% per annum shall be charged for the delay beyond 30(thirty) days. It is also provided that in case the contractor fails to submit the requisite Performance Guarantee even after 60(sixty) days from the date of the letter of acceptance, the Contract shall be terminated duly forfeiting the Earnest Money Deposit (EMD) and other dues, if any, payable against that contract. It is also provided that the failed contractors shall be debarred from participating in re-tender for that work. At Clause-45.1 of the Tender Documents, it is provided that arbitration and settlement of disputes shall be governed vide Clauses-63 and 64 of the General Conditions of Contract, N.F. Railway, 1998. The respondents have not denied existence of arbitration clause. 18. At this juncture, it will be appropriate to quote the relevant extract of the letter dated 14.06.2012:- No.W/362/CONT/LMG-SCL/EMB/2012/05 Dated: 14.06.2012 To, Durga Krishna Store Pvt. Ltd., Club Road, Silchar 788001, Cachar, Assam. Sub: Construction of Bridge No.497 (2x6.10m RCC Box), 505 (2x3.50m RCC Box), 515 (2x6.10m RCC Box), 518 (2x6.10m RCC Box), on alignment adjacent to MG track in between Chainage 132/255.00 KM to 137/160.00 KM (New Chainage) and other ancillary works in between stations Ditokcherra- Damcherra in connection with LMG-SCL GC Project (Tender No.CE/CON/LMG-SCL/EMB/2012/05). Arb. Petition No.32/2015 Page 9 of 12

Ref: (i) Your original offer dated 23.03.2012, (ii) Your negotiated offer dated 24.05.2012. Dear Sir(s), Your negotiated offer for the above noted work has been accepted by the competent authority for and on behalf of the President of India at a total cost of Rs.6,69,15,889.64 (Rupees Six Crores Sixty nine lakhs Fifteen thousand Eight hundred Eighty nine & paisa Sixty four only) as per the enclosed schedule of rates & quantities. You are hereby authorised to commence the work on the strength of this letter to ensure completion of the work within 15(Fifteen) months time as per conditions of the tender and in this regard you may contact Dy. CE/CON- 1/Silchar, N.F. Rly. early. You are required to submit a Performance Guarantee in the form of an irrevocable Bank Guarantee (proforma enclosed) for an amount equal to 5% of the contract value (i.e. for Rs.33,45,794.00) within 30 days time (60 days with penal interest of 15% per annum) as per clause 36(a) (Performance Guarantee) of the tender document from the date of issue of this letter of acceptance. In case you fail to submit the requisite Performance Guarantee within the prescribed time limit, the contract shall be terminated duly forfeiting EMD and other dues against the contract and you will be debarred from participating in re-tender for this work. Please note that the validity of BG bond should be 60 days beyond stipulated completion period of the contract as per tender condition. The total security deposit for this work will be Rs.33,45,794.00 (i.e. 5% of the contract value). The Earnest Money of Rs.4,25,580.00 deposited by you along with the tender has been retained as part of initial security deposit. The balance security deposit money of Rs.29,20,214.00 may be deposited by you in cash, otherwise it will be recovered from the running bills of the contract as per condition of the tender. You are required to submit a programme of work as to how you propose to complete the work within the stipulated time in accordance with the acceptance letter. Arb. Petition No.32/2015 Page 10 of 12

You are requested to attend this office to execute formal Contract Agreement of the work, only after acceptance of the performance guarantee for which the documents are being made ready for your signature. This acceptance letter shall be legal and enforceable contract between you and Railway. If you fail to execute the work or fail to execute formal Contract Agreement in accordance with the stipulation in the acceptance letter, it would make you liable for breach of the contract and Railway Administration shall be entitled to take recourse to and action as deemed fit in accordance with stipulation of the tender. While every care has been taken to fully incorporate the decision of the accepting authority regarding acceptance of your offer, the Railway administration reserves the right to correct the inadvertent mistakes which may have occurred in communication of the accepted rates and other terms and conditions at the time of signing the formal contract agreement between the contractor and the Railway administration. An additional copy of this acceptance letter is also enclosed herewith which may be returned duly signed in all pages for binding contract. 19. Perusal of the said letter dated 14.06.2012 goes to show that the letter was issued on the basis of the negotiated offer dated 24.05.2012. The letter demonstrates that the petitioner was authorised to commence work on the strength of the acceptance letter to ensure completion of the work within 15(fifteen) months. Third Sub-paragraph of the letter is in consonance with Clause-36 of the Tender Documents. The acceptance letter also goes to show that the acceptance letter itself shall be legal and enforceable contract between the petitioner and the Railway. Though the petitioner was obliged to execute a formal contract agreement of the work after acceptance of the Performance Guarantee, it is provided that if the petitioner failed to execute the work or failed to execute formal contract agreement in accordance with the stipulation in the acceptance letter, it would make it liable for breach of the contract. Both Clause-36 and the letter dated 14.06.2012 speak about the termination of the contract if there is a failure to submit requisite Performance Guarantee. Unless a contract is concluded, there can be no occasion for termination of contract. This position is further made clear by the fact that acceptance letter is construed to be legal and enforceable contract. The fact that on the strength of the acceptance letter, the petitioner is asked to proceed and commence Arb. Petition No.32/2015 Page 11 of 12

with the work is also a pointer to the fact that there is a concluded contract. Not only that, the petitioner was also asked to start the work with full swing on 01.11.2012, which is almost 4½ months from the date of issue of the acceptance letter. In the meantime, on 22.09.2012, the petitioner had submitted the bank guarantee for an amount of Rs.33,45,794/-. 20. Thus, it appears to me that merely because the Performance Guarantee and consequently, the formal contract agreement were not executed between the parties, it cannot be said that there is no concluded contract between the parties. Clause-4 of the first sheet of the Tender Documents also supports the view that acceptance of the tender shall constitute a binding contract until a formal agreement is prepared. 21. The question that arises as to whether there is a written agreement between the parties incorporating an agreement to refer the disputes to arbitration. 22. It is already noticed that first and second sheet of the Tender Documents shall form part of the contract. The General Conditions of Contract, N.F. Railway, 1998, which is referred to in the second sheet, contains an arbitration clause which is also incorporated in the Tender Documents. 23. In that view of the matter, on the basis of the law laid down by the Supreme Court, as discussed above, there is no escape from the conclusion that there exists an arbitration agreement for referring the disputes to Arbitrator. 24. Resultantly, on failure of the respondents to appoint Arbitrator, I appoint Mr. Hirendra Nath Sarma, a retired Judge of this Court, as Arbitrator to adjudicate the dispute between the parties. 25. This application is, accordingly, allowed. J U D G E M. Sharma Arb. Petition No.32/2015 Page 12 of 12