India: Emergence Of Concluded Contract Only Upon Unequivocal Acceptance To Tender Offer, In Absence Of A Formal Signed Contract

"PSA Mumbai Investment Pte. Ltd.
vs
Board of Trustees of the Jawaharlal Nehru Port Trust Anr."- A Case Study

INTRODUCTION

The hon'ble Supreme Court of India, in a recent judgment of PSA Mumbai Investment Pte. Ltd. vs Board of Trustees of the Jawaharlal Nehru Port Trust and Anr., ¹ held that the acceptance by way of issuance of a Letter Award in a bidding process per-se does not amount to a concluded contract between the parties. For a concluded contract, acceptance by way of Letter of Acceptance to the bid offer must be absolute, unqualified and without condition, even when there is reference to a future unsigned contract as it will not prevent the binding bargain between the parties.

FACTUAL MATRIX

The brief facts of the case being that the Respondent No.1 (Jawaharlal Nehru Port Trust), issued global tender for development of the fourth Container Terminal Project at Jawaharlal Nehru Port. The consortium between the Appellant and Respondent No.2 (M/s ABG Port Private Limited, second member of the consortium) participated in the bidding process as a Consortium and as the Consortium's bid was found to be the most favorable, a letter of award was issued to the Consortium. The counter signed copy of the same was returned to the Respondent No.1. It would be relevant to mention here that the bidding documents i.e., the request for qualification (RFQ) and request for proposal (RFP) had a disclaimer which clearly stated that neither document would be construed to be an agreement between the parties.

The Letter of Award which was issued in favour of the Consortium further mentioned that a special purpose vehicle had to be constituted for execution of the concession agreement to develop the Jawaharlal Nehru Port Trust along with few other steps before the Concession Agreement could be signed. Since some disputes arose between the parties, the Respondent No.1 withdrew the Letter of Award issued in favour of the Consortium and encashed the Bank Guarantees extended by the Appellant in favour of the Respondent. The Respondent No.1 subsequently quantified its damages to Rs.4,46,28,46,454/- and invoked the Arbitration Clause under clause 19.3 of the draft unsigned Concession Agreement.

The said issue of Arbitrability of Claims in absence of a signed contract was raised before the Ld. Arbitrator by the Appellant in his application under Section 16(2) of the Act.² The Ld. Arbitrator decided the issue in favour of the Appellant. The Respondents appealed the order of the Arbitrator under Section 37(2) (a) of Act³ before the hon'ble High Court of Bombay, and the court agreed with the contention of the Respondent No.1 and allowed the appeal by holding that there is concluded contract between the parties as the Letter of Award had been accepted and countersigned by the Appellant and also since the arbitration clause formed part of the Bid Documents, the arbitration clause would govern the parties even though Concession Agreement was not signed. The hon'ble High Court restored the proceedings before the Ld. Arbitrator and directed him to resume the arbitration proceedings. Consequently, the Appellant preferred an appeal before the hon'ble Supreme Court of India.

CONTENTIONS AND ISSUES BEFORE THE HON'BLE COURT

The main contentions that were raised by the parties were as follows: First, was there a concluded contract between the parties upon issuance of Letter of Award by the Respondent No.1; and Second, whether the unsigned concession agreement which included the arbitration clause can be enforced between the parties.

FINDINGS

The hon'ble Supreme Court while referring to Section 7 of the Indian Contract Act, 1872,⁴ held that as at the time of issuance of Letter of Award by the Respondent No.1 two or three important steps had to be undergone before a concluded contract would have emerged between the parties which then would be enforceable in the law between the parties. Thus, a concluded contract did not exist between the parties at the stage of issuance of Letter of Award in the present case. The relevant portion of the judgement is extracted below:

"14. Under Section 7 of the Indian Contract Act, 1872, in order to convert a proposal into a promise, the acceptance must be absolute and unqualified. It is clear on the facts of this case that there is no absolute and unqualified acceptance by the Letter of Award - two or three very important steps have to be undergone before there could be said to be an agreement which would be enforceable in law as a contract between the parties."

The court further held, while relying on the judgment of Kollipara Sriramulu v. T. Awastha Narayana, ⁵ that it is well established that reference to a future contract can still bind the parties if the intention of the parties was such. The relevant portion of the judgment is extracted below:

"17. However, Mr. Dave, strongly relied upon the judgment in Kollipara Sriramulu (Dead) by his LR (supra). This judgment did indeed state that it is well-established that a mere reference to a future formal contract will not prevent a binding bargain between the parties if, in fact, there is such a bargain. The judgment then went on to state that "there are, however, cases whether the reference to a future contract is made in such terms as to show that the parties did not intend to be bound until a formal contract is signed"."

However, the court held that as there was no unconditional acceptance, therefore, there is no agreement between the parties at all, and therefore, the arbitration clause in the draft concession agreement would not be applicable to the parties.

CONCLUSION AND ANALYSIS

The standard of proof to show unqualified acceptance would depend from case to case. However, as far as enforceability of unsigned contract is concerned, notably the Supreme Court of India in the past, in the judgments of Unissi (India) Pvt. Ltd. v. Post Graduate Institute of Medical Education and Research, ⁶ and Govind Rubber Ltd. v. Louis Dreyfus Commodities Asia (P) Ltd.⁷ , had the occasion to decide as to 'whether in absence of a formal contract can the parties be bound by the said unsigned contract'. The common thread in the said judgments including the PSA judgment being - that if there is consensus ad-idem on the contents of the contract, then it would bind the parties even if the contract is not signed. The relevant portion of Govind Rubber Ltd (Supra) judgment is extracted as below:

"16. ......... If it can be prima facie shown that the parties are at ad idem, then the mere fact of one party not signing the agreement cannot absolve him from the liability under the agreement. In the present day of e-commerce, in cases of internet purchases, tele purchases, ticket booking on internet and in standard forms of contract, terms and conditions are agreed upon........"

It, thus, becomes clear that as per the present judgment, for the emergence of a concluded contract on issuance of Letter of Award or Letter of Intent as the case may, it is necessary that the acceptance that is given to the tender offer is unequivocal and without any further conditions. It further held that thought the parties the parties may not have signed a formal contract, but if the acceptance is unequivocal and unconditional then it can be said that a concluded contract has emerged.

Footnotes

1. (2018) 10 SCC 525

2. Arbitration and Conciliation Act, 1996

3. Arbitration and Conciliation Act, 1996

4. Section 7 of Indian Contract Act, 1872 provides as below:
Acceptance must be absolute — In order to convert a proposal into a promise the acceptance must:
(1) be absolute and unqualified; and
(2) be expressed in some usual and reasonable manner unless the proposal prescribes the manner in which it is to be accepted. If the proposal prescribes a manner in which it is to be accepted, and the acceptance is not made in such manner, the proposer may, within a reasonable time after the acceptance is communicated to him, insist that his proposal shall be accepted in the prescribed manner, and not otherwise; but, if he fails to do so, he accepts the acceptance.

5. (1968) 3 SCR 387

6. (2009) 1 SCC 107

7. (2015) 13 SCC 477

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