India: Analysis Of The Recent Decision Of The Bombay High Court In Board Of Trustees Of Jawaharlal Nehru Port Trust vs. M/S. PSA Mumbai Investments Pte. Limited

The Hon'ble Bombay High Court by its judgment dated March 01, 2018, in the case titled Board of Trustees of Jawaharlal Nehru Port Trust vs. M/s. PSA Mumbai Investments Pte. Limited numbered ARBP No. 1227/2016, set aside the order passed by the Learned ("Ld.") Arbitrator in an application under Section 16 of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as "the Act") in an appeal under Section 37 of the Act.

The Respondent who were the original Respondents before the Ld. Arbitrator objected to the jurisdiction of the Ld. Arbitrator under Section 16 (2) of the Act on the ground that there was no arbitration clause/agreement between the parties.

Facts of the case

The Petitioner - Claimant is a major port constituted under the Major Port Trusts Act. In 2009, it had issued a global invitation of Request for Qualification inviting applications for the development of 4th Container Terminal project on Design, Build, Finance, Operate and Transfer basis ("RFQ"). Pursuant to the said RFQ, bids were received from various bidders. The consortium of Respondent No.1, a subsidiary of PSA International Pte. Ltd. Singapore, as the lead member and the Respondent No.2, M/s. ABG Ports Private Limited, was shortlisted to bid for the said project and Request for Proposal ("RFP") was issued to it. The consortium submitted its RFP bid in October 2010.

The financial bid was opened in June 2011 and the Respondent consortium was declared a successful bidder of the said Project. On September 26, 2011, the Petitioner issued a Letter of Award to the Respondent Consortium and the Consortium accepted it and returned a signed copy thereof to the Petitioner on September 29, 2011.

Clause 6 of the said Letter of Award provided that the Concession Agreement was to be signed within 30 days from the date of the letter of acceptance. However, the signing of the Concession Agreement was delayed by the Respondents, first, on account of objecting to pay stamp duty on the Agreement stating that it was not compulsorily registerable, and then on account of disputes inter se the Respondents leading to Respondent No. 2, having 26% share in the Consortium, requesting the Petitioner to allow it to withdraw as member of the Consortium. The Minister of Shipping in consultation with the Ministry of Law concluded that change in composition could not be allowed at the belated stage and accordingly, the Petitioner, by its letter dated August 30, 2012, again called upon the Consortium to sign the Concession Agreement.

The Respondent No.1, vide its letter dated September 15, 2012, in response to the Petitioner's Show Cause notice, reiterated its request to allow the change in composition of the Consortium since it was competent to satisfy all the conditions of the tender documents on its own also. The Petitioner, vide its letter dated October 16, 2012, terminated the letter of acceptance granted to the Respondent Consortium and encashed the Bank Guarantee provided by Respondent No. 1 for Rs. 67 crores.

The Petitioner, thereafter, raised a demand vide its letter dated November 26, 2014, calling upon the Respondents to pay damages of Rs. 4,46,28,46,454/-. Respondent No.1 denied any liability and called upon the petitioner to withdraw its claim. The Petitioner, thereafter, issued a notice of arbitration dated February 18, 2015, invoking the arbitration clause contained in Clause 19.3 of the Concession Agreement.

The Arbitrator entered upon reference and the Respondent No. 1 filed an Application under Section 16(2) of the Act inter alia challenging the jurisdiction of the Ld. Arbitrator to proceed with the arbitration proceedings contending that in view of certain material issue between the parties in respect of stamping of the agreement, the date of the execution of the Concession Agreement was extended mutually between the parties and during that period the Respondents mutually decided that Respondent No.2 would withdraw from the consortium since such change was permissible under the terms of the RFQ and RFP.

It was also contended that the Concession Agreement containing the arbitration clause was never signed by the parties and thus there was no valid and enforceable agreement between the parties. It was contended that since there was no signed arbitration agreement between the parties, the invocation of the unsigned arbitration clause by the Petitioner and the subsequent request to the Ld. Arbitrator for a preliminary meeting for directions was ex-facie, bad in law and not maintainable.

The Ld. Arbitrator allowed the said application filed by the Respondent No.1 and rejected the reference of the Petitioner holding that there did not exist an arbitration agreement between the parties and thus there was no question of referring any dispute to the Arbitral Tribunal.

Being aggrieved by the said order of the Ld. Arbitrator, the Petitioner filed a Petition under Section 37(2)(a) of the Act. The Hon'ble High Court of Bombay decided in favor of the Petitioner setting aside the impugned order of the Ld. Arbitrator and restoring the arbitration proceedings to file, directing the Ld. Arbitrator to proceed with the arbitration proceedings expeditiously. It was also held that the arbitration agreement recorded in Clause 19.3 of the Concession Agreement exists between the parties.

Reasoning

The Hon'ble Bombay High Court observed that the bidding process came to be completed upon submission of the bids by the Respondents and other bidders in accordance with Clause 1.2.1 of the RFQ and therefore the Letter of Award issued by the Petitioner to the Respondents and return of the said Letter of Award duly counter signed by the Respondent No.1 formed a concluded contract between the parties. Further, the Respondents did not dispute that the Letter of Award issued by the Petitioner was signed by the Respondents and returned to the Petitioner accepting all the terms and conditions of the bidding documents which includes the Concession Agreement. It was also relied on that the Authorized Representative of Respondent No.1 had put his initials on every page of the bid document submitted by the Respondent No.1 which included the draft Concession Agreement containing the arbitration clause.

The Hon'ble Bombay High Court also observed that signing of the Concession Agreement after issuance of Letter of Award was one of the requirement to be complied with by the Respondents but was not a condition precedent for the contract. It was held that the contract was already concluded between the parties prior to the date of signing the Concession Agreement.

The Hon'ble Bombay High Court also relied on Clause 3.3.6 of the RFQ which provided that after acknowledgement of the Letter of Award by the selected bidder, it shall execute the concession agreement within the period prescribed in clause 1.3 and such selected bidder is not entitled to seek any deviation in the concession agreement. The Hon'ble Bombay High Court stated that by way of Clause 3.3.6 and a perusal of the documents exchanged between the parties and the acceptance of letter of award by the Respondents was indicative that the acceptance of the said letter would be binding as a concluded contract.

The Hon'ble Bombay High Court also relied on the principles laid down by the Hon'ble Supreme Court in case of Kollipara Sriramulu (deceased) by his Legal Representative vs. T. Aswatha Narayana (deceased) by His Legal Representative & Ors.¹ In the said case, the Hon'ble Supreme Court held that the intention of the parties in this case was very clear that the parties had intended that the letter of award issued by the Petitioner and accepted by the Respondents and return of such letter of award duly signed, to the Petitioner would amount to a concluded contract.

Analysis

The conditions for execution of a valid contract are different from the conditions of execution of a valid arbitration agreement. Even an oral contract which fulfills the requisite preconditions of offer, acceptance, consensus as idem, consideration, competence of parties to enter into the contract and legal purpose, is a valid and binding contract. However, the conditions for an arbitration agreement as per Section 7 of the Act requires such agreement to be in writing in one of the methods provided in Section 7(4) of the Act. Section 7 (4) (b) of the Act states as follows

In the present case, by way of submission of the initialed bid documents including the Concession Agreement which couldn't be altered, by the Respondents, and the acceptance of Letter of Award, the parties entered into a valid arbitration agreement which was binding on the parties.

Petition for Special Leave to Appeal before the Hon'ble Supreme Court has been filed against the said judgment of the Hon'ble Bombay High Court. The case numbered as Special Leave to Appeal (C) No(s). 8166/2018 titled M/S PSA Mumbai Investments Pte. Limited Versus the Board of Trustees of the Jawaharlal Nehru Port Trust & Anr. is pending grant of leave.

Footnote

1. AIR 1968 SC 1028

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