# DRESSER RAND S.A v. MIS. BINDAL AGRO CHEM LTD. AND ANR

- **Citation:** [2006] 1 S.C.R. 308
- **Court:** Supreme Court of India
- **Decided:** 2006-01-12
- **Case number:** Civil Appeal Nos. 8357 of2003
- **Bench:** Arun Kumar, R.Y. Ra Veendran
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/dresser-rand-s-a-v-mis-bindal-agro-chem-ltd-and-anr-21071
- **Pages:** 34

## Headnote

Arbitralion--Arbitralion agreement-Existence of--Purchaser-lndian
Company offering invitation to bid to Foreign Company for •upply of
equipment--General Conditions of Purchase containing arbitration clause
C modified by supplier-Foreign Company and agreed to by Indian Company
and Foreign Company-Subsequent issue of leiter of intent by Indian Company
lo Foreign Company-letter of intent contemplating issuance of regular and
de/ailed purchase order--However, purchase order not issued--Dispule
between parties·-Arbitration agreement, if brought inlo existence--Held:
D Invitation to bid and also acceptance of modification lo General .Condition of
Purchase by purchaser as suggested by supplier merely set out terms on
which parties were ready to do business when purchase order was placed by
purchaser--Since no purchase order placed, neither General Conditions of
Purchase nor Arbitration Clause contained therein became effective and
enforceable-lei/er of lnlent provides that when purchase order 1~5 placed
E General Condition of Purchase containing arbitralion clause would become
applicable and available lo parlies--No purchase order placed and feller of
intent cannot be /reated as purchase order, issuance of /euer of inten' did not
mean arbitralion clause enforceable-Hence, there is no arbitration agreement
lo resolve disputes. by arbilration-Foreign Awards (Recognition and
F Enforcement) Act, 1961-Seclion 3
G
Foreign Awards (Recognition and Enforcement} Act, /961: Section 3
Staying of proceedings in respect of mailers to be referred to arbitrution--
£ristence of arbitration agreement-Determination of--Held: Fulls/or decision
of the Court under section 3 and has to be finally decided by Court.
Mere acquiescence or ac~eptance to the jurisdiction of arbitrator by
Indian Company, if Indian Company estopped from challenging existence of
arbitration ugreemenl-Held: When mutter comes up before the Court under
section 3. Indian Company can slate that /here was no arbitration agreement--
There is no question of waiver or acquiescence.
II
308
..
<
DRESSER RANDS.A."· BINDAL AGRO CHEM. LTD
309
)
A
Res1>ondent No. I-Indian Company invited bid for purchase of
certain equipments for its new project from the appellant, a foreign
company. Appellant offered to supply'. the equipments. Appellant suggested
certain modifications to the General Conditions of Purchase containing
an arbitration clause. Representatives of both appellant and respondent
no. I initialed the revision clauses dated 10.6. f 991 containing modifications B
to General Conditions of Purchase. Thereafter, representative of the
respondent no. I issued letters of intent dated 12.6.1991 on the letterhead
of another company-respondent no. 2, on the appellant and the appellant
countersigned them. Letters of intent contemplated issue of regular and
detailed purchase order. Respondent no. I neither placed any purchase
order nor issued any confirmation that Letters of Int~nt _were placed by c
respondent no. 2 on its behalf. Thereafter, respondent no. I informed the
·appellant that it proposed to obtain the equipments from an alternative .
source, expressing its inability for the same. Thereafter, appellant issued
several notices to the respondents to open Letters of Credit otherwise it
·(
would proceed on the basis that the respondents had repudiated the D
contract. Then in terms of General Conditions of Purchase incorporated
in the agreement of 12.6.1991, it referred the disputes relating to the
agreement against respondents to International Chamber of Commerce
for resolution by Arbitration. ICC issued notice to respondents regarding
the said claim by the appellant. Advocate B acting under instructions from
respondents sent telex to ICC that the respondents were in .process of E
jointly nominating an arbitrator. Thereafter, another advocate sent
communications to ICC that he had been instructed to represent the
respondents in place of Advocate B and denied the existence of arbitration
agreeme

## Text

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A
B
DRESSER RAND S.A.
v.
MIS. BINDAL AGRO CHEM LTD. AND ANR.
JANUARY 12, 2006
[ARUN KUMAR AND R.Y. RA VEENDRAN, JJ.]
Arbitralion--Arbitralion agreement-Existence of--Purchaser-lndian
Company offering invitation to bid to Foreign Company for •upply of
equipment--General Conditions of Purchase containing arbitration clause
C modified by supplier-Foreign Company and agreed to by Indian Company
and Foreign Company-Subsequent issue of leiter of intent by Indian Company
lo Foreign Company-letter of intent contemplating issuance of regular and
de/ailed purchase order--However, purchase order not issued--Dispule
between parties·-Arbitration agreement, if brought inlo existence--Held:
D Invitation to bid and also acceptance of modification lo General .Condition of
Purchase by purchaser as suggested by supplier merely set out terms on
which parties were ready to do business when purchase order was placed by
purchaser--Since no purchase order placed, neither General Conditions of
Purchase nor Arbitration Clause contained therein became effective and
enforceable-lei/er of lnlent provides that when purchase order 1~5 placed
E General Condition of Purchase containing arbitralion clause would become
applicable and available lo parlies--No purchase order placed and feller of
intent cannot be /reated as purchase order, issuance of /euer of inten' did not
mean arbitralion clause enforceable-Hence, there is no arbitration agreement
lo resolve disputes. by arbilration-Foreign Awards (Recognition and
F Enforcement) Act, 1961-Seclion 3
G
Foreign Awards (Recognition and Enforcement} Act, /961: Section 3
Staying of proceedings in respect of mailers to be referred to arbitrution--
£ristence of arbitration agreement-Determination of--Held: Fulls/or decision
of the Court under section 3 and has to be finally decided by Court.
Mere acquiescence or ac~eptance to the jurisdiction of arbitrator by
Indian Company, if Indian Company estopped from challenging existence of
arbitration ugreemenl-Held: When mutter comes up before the Court under
section 3. Indian Company can slate that /here was no arbitration agreement--
There is no question of waiver or acquiescence.
II
308
..
<
DRESSER RANDS.A."· BINDAL AGRO CHEM. LTD
309
)
A
Res1>ondent No. I-Indian Company invited bid for purchase of
certain equipments for its new project from the appellant, a foreign
company. Appellant offered to supply'. the equipments. Appellant suggested
certain modifications to the General Conditions of Purchase containing
an arbitration clause. Representatives of both appellant and respondent
no. I initialed the revision clauses dated 10.6. f 991 containing modifications B
to General Conditions of Purchase. Thereafter, representative of the
respondent no. I issued letters of intent dated 12.6.1991 on the letterhead
of another company-respondent no. 2, on the appellant and the appellant
countersigned them. Letters of intent contemplated issue of regular and
detailed purchase order. Respondent no. I neither placed any purchase
order nor issued any confirmation that Letters of Int~nt _were placed by c
respondent no. 2 on its behalf. Thereafter, respondent no. I informed the
·appellant that it proposed to obtain the equipments from an alternative .
source, expressing its inability for the same. Thereafter, appellant issued
several notices to the respondents to open Letters of Credit otherwise it
·(
would proceed on the basis that the respondents had repudiated the D
contract. Then in terms of General Conditions of Purchase incorporated
in the agreement of 12.6.1991, it referred the disputes relating to the
agreement against respondents to International Chamber of Commerce
for resolution by Arbitration. ICC issued notice to respondents regarding
the said claim by the appellant. Advocate B acting under instructions from
respondents sent telex to ICC that the respondents were in .process of E
jointly nominating an arbitrator. Thereafter, another advocate sent
communications to ICC that he had been instructed to represent the
respondents in place of Advocate B and denied the existence of arbitration
agreement and sought rejection of claim lodged by appellant.
Respondent no. I and 2 filed suit for declaration that there was no F
arbitration agreement between itself and appellant and for an injunction
restraining the appellant from proceeding with arbitration before ICC.
They also filed applications seeking temporary injunction to restrain
appell11nt from proceeding with arbitration. Appellant filed suit under
section 3 of Foreign Awards (Recognition and Enforcement) Act, 1961 for G
staying the proceedings in the said suits. Single Judge of High Court
.¥ •r
artowed the applications filed by respondent no. I and 2 and restrained
the appellant from proceeding with the arbitration subject to their
furnishing of bank guarantee. However, it dismissed the applications under
section 3 of the Act holding that no valid or operative agreement capable
of being performed had come into existence by issue of letters of intent H
310
SUPREME COURT REPOR IS
[20061 I S.C.R.
A signed by respondent no. 2 and countersigned by appellant. Aggrieved
appellant filed appeals. Division Bench of High Court dismissed the
appeals. However, it allowed the appeals filed by the respondents and
deleted the requirement of imposition of condition of furnishing a bank
guarantee. Hence, the present appeals.
B
Dismissing the appeals, the Court
HELD: I.I. Clause (2) of Article II of the Schedule to the Foreign
Awards (Recognition and Enforcement) Act, 1961 contains the Convention
on the Recognition and Enforcement of Foreign Arbitral Awards that an
C 'agreement in writing' includes not only an arbitral clause in a contract
or a separate arbitration agreement, signed by the parties, but a term
contained in an exchange of letters or telegrams agreeing to submit their
differences to arbitration. The question whether there is an arbitration
agreement or not squarely falls for decision of the Court under section 3
of the 1961 Act and will have to be finally decided by the Court.
[)
[328-B-C[
E
F
Renusagar Power Co. ltd v. General Electric Company, [ 1984[ 4 SCC
679 and Rickmers Verwaltung Gmbh v. Indian Oil Corporation ltd. [ 19991
I SCC I, relied on.
2.1. Parties agreeing upon the terms subject to which a contract will ·
be governed, when made, is not the same as entering into the contract itself.
Similarly, agreeing upon the terms which will govern a purchase wh,~n a
purchase order is placed, is not the same as placing a purchase order. A
prelude to a contract should not be confused with the contract itself.
[333-D-EI
2.2. The tender document or the invitation to bid of purchaserrespondent no I (containing the "instructions to bidders" and the "general
conditions of purchase"), by itself, is neither an agreement nor a contract.
The instructions to bidders informed the intending bidders how the bid
G should be made and laid down the procedure for consideration and
acceptance of the bid. The process of bidding or submission of tenders
would result in a contract when a bid or offer is made by a prospective
supplier and such bid or offer is accepted by purchaser-respondent no I.
The second part of the Invitation to Bid consists of the 'General Conditions
of Purchase', that is, the conditions subject to which the purchase order
H will be placed or offer will be accepted. The 'General Conditions of
.. '
DRESSER RAND SA r. BINDAL AGRO CHEM. LTD.
311
Purchase' were made available as a part of the Invitation to bid, so as to A
enable the prospective suppliers to ascertain their obligations and
formulate their offers suitably. 1330-D-EI
2.3. Where a tenderer is not willing to make his offer subject to the
'General Conditions of Purchase' prescribed and stipulated by the
purchaser, he would either suggest his own terms and conditions or suggest B
modifications to the 'General Conditions of Purchase' prescribed by the
intending purchaser (person inviting the offers). Many 'Invitations to Bid'
contain a condition that the tenderers will not be entitled to make any
changes in the 'General Conditions of Purchase', in which event he is
required to mould his offer strictly in accordance with the 'General C
Conditions of Purchase' stipulated by the purchaser. The reason for
insisting upon adherence to Purchaser's 'General Conditions of Purchase'
is not far to seek. If several persons submit their offers subjecting them
to different terms and conditions of supply, it will be difficult or virtually
impossible to evaluate them with reference to a common denominator. The
,,
general conditions of purchase act as a common denominator for all D
tenderers to base their offers and for evaluation of such offers.
(330-F-H; 331-A-BI
2.4. Many a time the supplier is able to persuade the purchaser to
agree for modification of the 'conditions of purchase' stipulated by the
purchaser, particularly where a supplier is in a position of strength and E
the purchaser is keen to purchase a particular product of that supplier.
There are also several suppliers who stipulate their own 'conditions of sale'
and refuse to go by the conditions of purchase stipulated by the purchaser.
The intending purchaser. and the intending supplier are at liberty to
negotiate and agree upon the terms subject to which offers will be made p
and accepted. As contrasted from sale of ready Goods sold off the shelf
across the counter, sale/purchase of complex machinery/ equipment made
to order, to suit particular requirements of the purchaser, have several
facets relating to pricing, period of delivery, mode of delivery, period and
nature of warranty, suitability for the intended purpose, patent rights,
packing, insurance, incidental services, consequences of delay and breach, G
rejection/replacement force majeure etc. (331-B-CI
2.5. The 'General Conditions of Purchase' and Revision No.4 dated
1°0.6.1991 containing the modifications thereto, merely set out the terms
on which the parties were ready to do business with each other if and when
purchase order was placed by respondent no. I. Parties merely agreed that H
312
SUPREME COURT REPORTS
(20061 I S.C.R.
A when an order was placed or contract was entered for supply of a
machinery by appellant to respondent no. I, it will be subject to the
'General Conditions of Purchase' stipulated by respondent no. I as
modified by Revision No.4 dated I0.6.1991 agreed by both parties. But
when no purchase order was placed, neither the 'general conditions of
B purchase' nor the arbitration clause in the 'General Conditions of
Purchase' became effective or enforceable. Therefore, initialing of
'Revision No. 4' by appellant and respondent no. I on I0.6.1991 containing
the modifications to General Conditions of Purchase, did not bring into
existence any arbitration.agreement to settle disputes between parties.
c
D
1331-A; 332-A-B; 333-E-Fl
Chatturbhuj Vithaldas Jasani v. Moreshwar Parashram, AIR (1954) SC
236 and Rickmers Verwaltung Gmbh v. Indian Oil Corporation ltd., 119991
I SCC I, referred to.
3. A Letter of Intent merely indicates a party's intention to enter
into a contract with the other party in future. A Letter of Intent is not
intended to bind either party ultimately to enter into any contract. A Letter
of Intent may be construed as a letter of acceptance if such intention is
evident from its terms. It is not uncommon in contracts involving detailed
procedure, in order to save time, to issue a letter of intent communicating
the acceptance of the offer and asking the contractor to start the work
E with a stipulation that the detailed contract would be drawn up later. If
such a letter is issued to the contractor, though it may be termed as a
Letter of Intent, it may amount to acceptance of the offer resulting in a
concluded contract between the parties. But the question whether the letter
of intent is merely an expression of an intention to place an order in future
or whether it is a final acceptance of the offer thereby leading to a contract,
F
is a matter that has to be decided with reference to the terms of the letter.
1337-A-B; C-El
G
Rajasthan Co-operative Dairy Federation ltd. v. Maha laxmi Mingrate
Marketing Service Pvt. ltd.. 119961 IO SCC 405, relied on.
Chitty 011 Contracts Volume I- 2/ith Edn Para 2.115, referred to.
4.2. Clause 'C' of Letters of Intent provides that the Purchase Order
shall be subject to the "General Conditions of Purchase" included in the
inquiry, as amended by appellant's comments thereto, Revision 4 dated
I0.6.1991 ".Therefore, the General Conditions of Purchase which contains
the arbitration clause, is not made a part of the Letters of Intent nor are
H the Letters of Intent made subject to the General Conditions of Purchase.
-
1
•
DRESSER RANDS.A. 1•. BIN DAL AGRO CHEM.LTD.
313
)
The Letters of Intent merely provide that if and when the purchase order A
is placed, the purchase order will be subject to the General Conditions of
Purchase, as modified by Revision No.4. Therefore, the point of time at
which the General Conditions of Purchase will become applicable, is the
point when the purchase order is placed and not earlier. Consequently,
Clause 27.4.2 of the General Conditions of Purchase containing the B
arbitration clause would become applicable and available to the parties
only when the purchase order was placed and not earlier. The term
\
'purchase order' has a specific meaning and connotation. The purchase
order is the "agreement entered into between respondent no I. and the·
prospective supplier as recorded in the purchase· order form (prepared in
the form of Attachment-VII to the General Conditions of Purchase) signed C
by the parties, including all Attachments and annexures thereto and all
documents incorporated by reference therein together with any subsequent
modifications thereof in writing." Admittedly, no such purchase order was
placed by either respondent no.I or any one authorized by respondent no.I.
(336-C-FI
D
4.3. It is also evident from Clause (I) of the Letters of Intent that
the purchase order was to be issued simultaneously with the Letter of
Credit. The last para of Letters of Intent required appellant to sign and
return the duplicate copy of the letter as token acceptance of appellant
having agreed to the Letters of Intent which means that the person issuing E.
the Letters of Intent wanted concurrence of appellant to the terms
contained in the Letter of Intent so that it can place an-order in terms of
the conditions mentioned in the Letters oflntent. The concurrence sought
was to the contents of Letters of Intent and not acceptance of any order
for supply. These provisions clearly indicate that the Letters of Intent were
only a step leading to purchase orders and were not, by themselves, F
purchase orders. When all the terms of the Letter of Intent are
harmoniously read, it is clear that Letters of intent merely required the
supplier to keep the offer open till 31.8.1991 with reference to the price
and delivery schedule. Therefore, issue of the Letters of Intent by
respondent no 2, assuming that it was done on behalf of respondent no I,
did not mean that the General Conditions of Purchase whkh contains the G
provision for arbitration became a part of the Letters of Intent or became
e_nforceable. Therefore, the letters of intent, even if assumed to result in
any binding contract, did not provide for arbitration.
(336-A-B; F-G-H; 338-8-C; 336-G-H; 337-A; 339-A-BI
H
314
SUPREME COURT REPORTS
[20061 I S.C.R.
A
4.4. The submission that the words 'the purchase order' in clause (C)
should be read as 'this purchase order' cannot be accepted. It is not open
to change the terms of any document. The use of the words "this purchase
order" in some clauses of the General Conditions of Purchase was not
inappropriate. The General Conditions of Purchase, in entirety, were
B intended to be treated as a part of the purchase order as and when the
purchase order was placed. Therefore, when the General Conditions of
Purchase were read as part of the purchase order, use of the words 'this
purchase order' in the 'General Conditions of Purchase' would be
appropriate. Therefore, it is impermissible to read the words 'I.he purchase
order' in clause (C) of Letters of Intent as 'this purchase order. (339-B-D(
c
4.5. Neither the General Conditions of Purchase forming part of
Invitation of Bid nor Revision No.4 dated I0.6.1991, nor the Letters of
Intent dated 12.6.1991 contain any arbitration agreement. There is also
no other document or correspondence which can be read as containing a
provision that can be interpreted as an agreement to resolve disputes by
D arbitration. Therefore, the decision of High Courts that there is no
arbitration agreement, does not suffer from any infirmity. 1339-E-FI
5. Mere acceptance or acquiescing to the jurisdiction of arbitrators
for adjudication of the disputes as to the existence of the arbitration
E agreement or a rbitrability of the dispute does not disentitle the party to
have the remedy under section 3 of Foreign Awards Act. Therefore, the
fact that at some point of time, respondent no. I or no. 2 had stated that
they would appoint an Arbitrator will not come in the way of their
demonstrating that there is no arbitration agreement when the matter
comes up before the court under section 3 of the Act. There is no question
F of either waiver or acquiescence. (342-B-C-D(
U.P. Rajkiya Nirman Nigam Ltd. v. lnJure Pvt. Ltd. (1996( 2 SCC 667,
relied on.
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 8357 of2003.
G
From the Judgment and Order dated 4.3.2003 of the Delhi High Court
in FAO (OS) Nos. 136/2002.
WITH
Civil Appeal No. 8358 of 2003.
F.S. Nariman, P.H. Parekh, Ashok Pratap. Sameer Parekh and Ms.
H Shakun Sharma (for Mis. P.H. Parekh & Co.) for the. Appellants.
,
'
'
-i
'
-1
\
•
~
DRESSER RANDS.A.1•. BINDALAGROCHEM. LTD. [RAVEENDRAN, J.]
3 J 5
Rajeev Dutta, R. Nedumaran, Uday Kumar, Ms. Namrata Chopra and A
Rajiv Rufus for the Respondent No. I.
Dr. A.M. Singh vi, Joy Basu and B.K. Satija ·for Respondent No. 2.
The Judgment of the Court was delivered by
B
RAVEENDRAN, J. These appeals arise from the judgment of the
Delhi High Court in FOA (OS) Nos. 94, 113, 136 and 137 of 2002 dated
04.3.2003 affirming the order dated 14.2.2002 passed by a learned single
Judge of High Court. of Delhi in I.A. Nos. 5795/93, 9246/93 in Suit No.
1362/93 and I.A. Nos. 5819/93, 9355/93 in Suit No. 1380 of 1993.
c
2.
For convenience, Dresser Rand S.A. (Appellant in both the appeals],
BINDAL Agro Chem. Ltd., [Respondent No. I in both appeals) and K. G.
Khosla Compressors Ltd. [Respondent No. 2 in both appeals) will also be
hereinafter referred to as DR, BINDAL and KGK respectively.
3.
BINDAL has filed Suit Nos. 1363/1993 in the Delhi High Court, D
for a declaration that there exists no arbitration agreement between itself and
DR and for a consequential injunction restraining DR from proceeding with
the arbitration before the International Chamber of Commerce, Paris. KGK
has also filed Suit No. 1380/1993 in the said court for similar relief.
4.
BINDAL and KGK have filed IA Nos. 5795/93 and 5819/1993 E
respectively in their respective suits, under Order 39 Rules I and 2 CPC
seeking a temporary injunction to restrain DR from proceeding with the
arbitration. -
5. DR has filed I.A. No. 9246/1993 in Suit No. 1363/1993 and I.A .. No. F
9355/1993 in Suit No. 1380/1993 under Section 3 of the Foreign A~ards
(Recognition and Enforcement) Act, 1961 [for short 'Foreign Awards. Act']
for staying further proceeding in the said suits. DR contended that there was
an arbitration agreement between itself and BINDAL and KGK and
consequently, further proceedings in the suits filed by BINDAL and KGK
should be stayed under section 3 of the Foreign Awards Act.
G
6. A learned single Judge of the High Court heard the four applications
in the two suits and passed a common order dated 14.2.2002. He held that
the plaintiffs in the two suits (BINDAL and KGK) had made out a prima
facie case for grant of a temporary injunction restraining DR from proceeding H
316
SUPREME COURT REPORTS
120061 I S.C.R.
A with the arbitration. He also held that DR had failed to prove that any
provisional concluded arbitration agreement had come into existence between
either DR and BINDAL or DR and KGK. He also held that in the absence
of any tripartite arbitration agreement, it may not be possible to decide the
obligations between BINDAL and KGK. He, therefore, allowed the
B applications for temporary injunction filed by BINDAL and KGK and
restrained DR from proceeding with the arbitration, subject however to
BINDAL and KGK furnishing a bank guarantee to an extent of 5% (3% by
BINDAL and 2% by KGK] of French Francs 4,93,00,000 and 5.26.25,000.
The learned single Judge dismissed the applications filed by DR under section
3 of the Foreign Awards Act by holding that no valid or operative agreement
C capable of being performed had come into existence by issue of Letters of
Intent signed by KGK and counter-signed by DR. The said order dated
14.2.2002 in so far as it grants temporary injunction is an interim order and
in so far as it rejects DR's applications for stay under section 3 of the Foreign
Awards Act is a final order. The said common order granting temporary
injunction restraining it from proceeding with the arbitration was challenged
D by DR in F AO (OS) No.136/2002. The said common order rejecting the two
applications for stay under Section 3 of the Foreign Awards Act was challenged
by DR in FOA (OS) No.137 of2002. BINDAL and KGK challenged the said
common order in so far as it imposed a condition (relating to furnishing of
Bank Guarantee) for temporary injunction. in FAO (OS) No.94/2002 and
E FAO (OS) No.113/2002 respectively.
7. A Division Bench of the Delhi High Court by common order dated
4.3.2003 dismissed the appeals filed by DR and allowed the appeals filed by
BIN DAL and KGK. The Division Bench affirmed the finding of the learned
single Judge of the High Court that there was no arbitration agreement and
F consequently, upheld the rejection of the applications under section 3 of the
Foreign Awards Act. The Division Bench while affirming the temporary
injunction granted by the learned Single Judge restraining DR from proceeding
with the Arbitration, deleted the requirement imposed by the learned Single
Judge relating to furnishing of bank guarantee by BINDAL and KGK.
G
H
8. Feeling aggrieved, DR has filed these civil appeals by special leave
[CA No.8357/L003 and CA No.8358/2003] challenging the rejection of FAO
(OS) No.136/2002 and FAO (OS) No.137/2002. On the contentions urged,
the following questions arise for consideration in these appeals :-
(i)
Whether there is an arbitration agreement between DR and
y
DRESSER RAND SA"· BIN DAL AGRO CHEM.LTD. [RA VEENDRAN, J]
317
BINDAL;
(ii) Whether there is an arbitration agreement between DR and KGK;
(iii) Whether BINDAL and KGK are estopped from contending that
there is no arbitration agreement, in view of their counsel having
stated in his telex dated 11.4. l 993, that his clients were in the
process of jointly appointing an arbitrator.
FACTUAL BACKGROUND :
A
B
9. BINDAL wanted to invite global tenders for supply of various
equipments and materials for its Shahjahanpur Fertilizer Project. For that
purpose, it prepared its standard 'Invitation to Bid' comprising "Conditions C
of Purchase for Supply of Equipment and Material under ICB Procedure -
Shahjahanpur Fertilizer Project". The said Invitation to Bid consisted of the
following sections :-
(i)
Attachment I - Instructions to bidders (Articles I to 34);
(ii) Attachment II - General conditions of purchase (Articles -1 to
36);
D
(iii) Attachment Ill to XVI : Special conditions of purchase
(Attachment-III), schedule of requirements (Attachment-IV),
Technical Specifications (Attachment-V) Bid Form and Price E
Schedules (Attachment VI), Purchase Order Form (Attachment
VII), Spare Parts List (Attachment-VIII), Vendor Data
Requirements (Attachment-IX), List of Lubricants (AttachmentX), Progress Trend Charts (Attachment-XI), Draft form of
Performance Guarantee (Attachment-XII), Draft Form of Bank
Guarantee for Advance/Progress Payments to Supplier F
(Attachment-XIII), Bid Security Form (Attachment-XIV), General
specifications for packing (Attachment-XV) and check list
(Attachment-XVI).
I 0. BINDAL sent a telex dated 12.1.1990 to DR informing that it was
implementing a Gas-based Fertilizer Plant at Shahjahanpur and it was in the G
process of exploring possibilities for securing ~~;ious equipments including
Synthesis Gas Compressors, -Process Air Compressors, Refrigeration
Compressors and co~ Compressors and enquired whether DR would be
interested in supplying the equipments. DR sent a reply dated 18.5.1990
offering to supply Syn-Gas Compressor and indicating the total price of the H
318
SUPREME COURT REPORTS
(20061 I S.C.R.
A compressor and spare parts. The matter was dormant for some times. By
letter dated 16.3.1991, BINDAL informed DR that the necessary Government
approval for fertilizer project has been received and, therefore, it wished to
revive the discussions for supply of Syn. Gas compressors and C02
compressors. By fax dated 5.4.1991, BINDAL requested DR for a quotation
to be followed by a formal Bid for Syn-Gas and C02compressors and informed
B DR that having regard to the tight foreign exchange situation, the Government
of India had allocated only 50% of its total foreign exchange requi. ement
and, therefore, it had decided to limit its imports only to moving machinery,
cutting out static equipment. DR sent a reply dated 16.5.1991, quoting its
price for Syn. Gas compressor and proposed to discuss the modalities of DR
C having overall responsibility for various compressor turbines/auxiliaries not
included in the scope of supplies, as also commercial points. This was followed
by a meeting between the representatives of DR and BINDAL wherein the
technical details in regard to performance of the syn. gas compressor were
discussed.
D
11. Thereafter, DR gave its comments/modifications to the terms and
conditions of BINDAL termed as "Revision 4 (Attachment IV)" dated
I 0.6.1991 wherein it set out the amendments/modifications it required to
BINDAL's 'General Conditions of Purchase'. The said "'Revision 4"' was
initialled by the representatives of DR and BINDAL, presumably in token of
E the changes agreed in the standard General Conditions of Purchase of
BINDAL.
12. We extract below relevant portions of clauses I and 27 in the
BINDAL's 'General Conditions of Purchase' and the modifications thereto
by DR (Note : We are not referring to other clauses of "General Conditions
F of Purchase' or the modifications thereto by DR, as they are not relevant for
our immediate purpose) :
G
H
Clause
BINDAL's General Conditions of Purchase
No.
1.0
I. I
DEFINITIONS
In this General Conditions of Purchase the
following terms shall be interpreted as
indicated.
The PURCHASE ORDER means the agreement
entered into between OWNER or by
Modifications
made by DR
No change
f
DRESSER RANDS.A. 1•. BIN DAL AGRO CHEM. LTD. [RA VEENDRAN. lh
319
!
CONTRACTOR on behalf of OWNER and the
A
SUPPLIER as recorded in the PURCHASE
ORDER Form, signed by the parties, induding
all attachments and annexures thereto and all
documents incorporated by reference therein
together with any subsequent modifications
B
thereof in writing.
...
1.5
OWNER shall mean BINDAL AGRO-CHEM
No change
\
LIMITED having their Registered office at
Gopala Tower, 12th Floor, Rajindra Place,
New Delhi I JO 008, India, and shall
c
include all their legal representatives,
successors and assignees.
1.7
SUPPLIER or VENDOR shall mean the
No change
individual or firm supplying the GOODS
(
and SERVICES under this PURCHASE ORDER.
D
27.0
RESOLUTION OF DISPUTES/ ARBITRATION
27.1
The OWNER and the SUPPLIER shall make
every effort to resolve amicably by direct
informal negotiations any disagreement or
dispute arising between them under or in
E
connection with the PURCHASE ORDER.
27.2
If, after thirty (30) days from the commencement
of such informal negotiations, the OWNER and
the SUPPLIER have been unable to
resolve amicably a PURCHASE ORDER
F
dispute, either party may require that the dispute,
be referred for resolution to the formal
mechanisms as specified hereunder.
27.3
Legal Construction
Subject to the provision of Article 27.4 the
PURCHASE ORDER shall be, in all respects,
Deleted G
• -"'.
construed and operated as an Indian Contract and
in accordance with Indian Laws as in force for the
time being and is subject to the jurisdiction of
the Courts in Delhi.
H
320
SUPREME COURT REPORTS
(2006) I S.C.R.
A
27.4
Arbitration
27.4.1
In case of indigenous PURCHASE ORDERS all
Deleted
disputes which cannot be settled by mutual
negotiations, the matter shall be referred for
arbitration in accordance with Indian Arbitration
B
Act, 1940 of any statutory modification of
enact?1ent thereof for the time being in force.
27.4.2
In case of foreign SUPPLIER all disputes which
No change
cannot be settled by mutual negotiations shall be
settled under the Rules of Conciliation and
c
Arbitration of International Chamber of
Commerce, Paris by one or more arbitrators
appointed in accordance with rules.
27.4.3
Execution of the PURCHASE ORDER shall be
Deleted
continued by the SUPPLIER during the
D
Arbitration proceedings unless otherwise
directed in writing by the CONTRACTOR/
OWNER.
27.4.4
The venue of Arbitration in all cases
Deleted
shall be Delhi and sha!l be conducted in English
E
language only.
13. According to DR. after Revision No.4 dated I 0.6.1991 was initialled,
negotiations and discussions continued, and they were concluded late in the
evening of 12.6.1991. It is stated that at that stage. the representative of
F BIN DAL delivered two letters described as ·'Letters of Intent" dated 12.6.1991
issued on the letterhead of K.G. Khosla Compressors Ltd. (KGK) stating the
intention to place an order for the following :
(a) One Dresser Rand Model 463 B.5/5 and one Model 373 BR8/l
vertically split compressor for Synthesis Gas Service and Steam
G
turbine driver model SBQ at a price of FF 49,300,000 (French
Francs).
"
f
(b) Two Dresser Rand Model JM9.8 and Two Model 260-885/4
Centrifugal compressors for CO:! service and team turbine driver
Model QUBVT at a price of FF 52,625.000.
H
y
DRESSER RAND SA v. BINDAL AGRO CHEM. LTD. IRAVEENDRAN, J.]
32 J
Except the description of the machinery and the price, the Letters of A
Intent were identical in its terms and relevanrportions thereof are extracted
below (not seriatim) :-
L PURCHASE ORDER
This Letter. of Intent will be followed by a regular and detailed B
Purchase Order to be issued by KGK simultaneous with the
establishment of the Letter of Credit mentioned at para B of this
letter.
C. TERMS AND CONDITIONS
The Purchase Order shall be subject to the "General Conditions of
Purchase" included in inquiry and as amended by DR's comments
thereto, Revision 4 dated June I 0, 1991, initialled by DR and KGK
separately.
M. GOVERNMENT OF INDIA APPROVALS
This Letter of Intent is being issued subject to the necessary approvals
to be given by Indian Government Authorities.
c
D
The Letters of Intent also contained terms relating to price, manner of
making payment of price, opening of Letter Guarantee, date for delivery, and E
consequences of not opening Letter of Credit by the stipulated date. The
relevant clauses are extrac(ed below :-
B. PRICE AND TERMS OF PAYMENT
I .....
"2. Payment shall be made through an irrevocable and confirmed
Letter of Credit (Confirmation charges being to DR's account) allowing
partial payments releasable in one or several drafts, and according to
F
the terms and conditions of this Letter of Intent, to be opened by 31st
August, 1991 by Bank of America, Barakhamba Road, New Delhi, or G
any other Bank acceptable to DR., notified and payable to DR by
Bank of America, Paris. The said Letter of Credit will be construed
in accordance with the Uniform Customs and Practices for
Documentary Credits of the International Chamber of Commerce.
Draft of such Letter of Credit is provided for in Attachment II of th is
Letter of Intent and is subject to changes proposed by KGK or its H
322
SUPREME COURT REPORTS
(2006) I S.C.R.
A
bankers and prior written agreement by DR or its bankers. The said
Letter of Credit shall be valid for a period of 15 months from its
notification to DR and shall be extendable by two (2) months period
at DR's request in order to allow complete drawings of the said
Letter of Credit."
B
x x x
D. DELIVERY DATE
The delivery date (last shipment) shall be 15-1/2 (Fifteen & One Half
Months) after DR's receipt of this Letter of Intent. For the purpose
C
of assessing liquidated damages for delivery, delivery time shall be
calculated on the basis of issuance of DR's Certificate of readiness to
ship, after inspection by KGK or its authorized agents and in the
event of their failure to do so, a declaration by DR that one month's
notification, of readiness to ship and invitation to inspect was given.
The time lag between the first and the last shipment will not exceed
D
12 weeks.
G. OPTIONAL PERFORMANCE TEST
KGK has an option of asking DR to carry out shop performance test
(PTC-10 class Ill) for the equipment described in this LOI for an
E
extra price of FF. 875,020/-. The said option shall be exercised by
19th June, 1991 in writing by KGK. It is agreed that the delivery
period described in para D of this Letter shall be extended by three
week in case performance test is desired to be carried out.
F
G
F. AUTHORISATION TO PROCEED
This Letter of Intent shall serve as DR's authorization to proceed
with this order.
L. ENTRY INTO FORCE
This contract will come into force upon receipt of this Letter of Intent
by Supplier.
lfby August 31, 1991 KGK is 1unable to fulfil the obligations described
-.._
,
in this LOI. the contract perfom1ance schedule and prices may be
revised.
H DR alleges that when the Letters of Intent dated 12.6.1991 were delivered by·
DRESSER RANDS.A. v. BIN DAL AGRO CHEM.LTD. [RA VEENDRANJ]
323
BINDAL on 12.6.1991, it enquired as to why the Letters of Intent were being A
issued in the name of KGK, when all its negotiations, discussions and
correspondence were only with BINDAL, and as the equipment supply was
also for BINDAL. DR further alleges that BINDAL's representatives informed
that for its own convenience, the Letters of Intent were being issued in the
name of KGK and assured that full and total responsibility for performance B
would, however, be that ofBINDAL; and that acting on the said representation,
DR's representatives countersigned the Letters of Intent in token of its
\
acceptance and returned one copy each to BINDAL. According to DR, except
the Letters of Intent dated 12.6.1991 (and a subsequent clarification dated
15.6.1991 from KGK that it did not require the shop performance test), there
was no discussions, negotiations or communications either in writing or verbal, C
between KGK and DR at any time. According to DR, it did not meet any
official of KGK at any point of time and it always proceeded on the basis that
the said letters of intent were issued by KGK as an agent/consultant of
BINDAL and not independently on its own account.
y
D
14. BINDAL neither placed any purchase order nor issued any
confirmation that the Letters of Intent dated 12.6.1991 were placed by KGK
on its behalf. However, the Chairman of BINDAL sent a communication
dated 26.8.1991 to DR stating that in spite of its efforts, procedural matters
at Government level did not move as fast as it expected, and that it was fully
conscious of the position in which DR had to receive the Letters of Credit E
before making major financial commitments for castings etc. and requested
DR to wait till 31.10.1991. BINDAL also stated that it was confident to open
the Letters of Credit before 3 I.I 0.1991 and will accept a corresponding delay
in the delivery schedule.
14.1. Thereafter, DR by communication dated 24.10. f99 I, after referring F
to the discussions with BINDAL (wherein the Commercial Director of
BlNDAL had assured that all approvals from the Government were received
-
and the Letter of Credit was likely to be opened before the end of November,
1991) advised BINDAL that in view of the delay, there will be a price
increase of 4.5% (provided the LOC was established by 30. 11.1991) apart G
from the corresponding delay in supply.
·•
..,
14.2. By communication dated 9.12.1991, BINDAL informed DR that
it was not possible to accept the Syn. Gas Compressor turbine manufactured
by DR as it found after a visit to DR's works at France that DR did not have
any experience in manufacturing. large mechanical turbines, and therefore it H
324
SUPREME COURT REPORTS
[2006] I S.C.R.
A was proposing to obtain the drive turbine for Syn. Gas Compressor from an
alternative source who has supplied similar turbines. By a subsequent letter
dated 23.12.1991, BINDAL infonned DR that it was not agreeable to any
revision in prices and it would like to discuss certain other issues in January,
1992. This was followed by a communication dated 13.2.1992 from BINDAL
B stating that the Bank required a purchase order for opening the Letter of
Credit and, therefore, it was taking action to re-write all their foreign letters
of intent in the fonnat of letter of intent and labelling them as purchase
orders, and that consequently, some of the clauses of the Letters of Intent (C,
F, H, I, L etc.) would undergo changes and a draft of a purch?.se order
cleared by the Bank will be faxed. However, no such draft purchase order
C was sent by BIN DAL nor any Letter of Credit was opened by BINDAL. No
purchase order was issued. Ultimately, DR was given to understand by the
Commercial Director of BINDAL that Indian Government had pressurized
BINDAL to buy Indian equipment and, therefore. BINDAL proposed to
purchase the equipment from BHEL and not from DR.
D
15. Thereafter. DR through its counsel, issued notices dated 9.1.1993
to BINDAL and KGK referring to the Letters of inr.ent dated 12.6.1991
issued by KGK and infonning that if the Letter of Credit was not opened in
terms of Letters of Intent dated 12.6.1991 within I 0 days, DR will proceed
on the basis that BINDAL and KGK had repudiated the contract and committed
E breach. As there was no reply, counsel for DR sent notices dated 29.1.1993
to BINDAL and KGK stating that DR had treated the inaction of BIN DAL
and KGK as repudiation of the contract. This was followed by notices c.ated
4.2.1993 to BINDAL and KGK whereby DR's counsel sought return of all
papers and technical information furnished by DR to BINDAL/KGK. Again
F by notices dated 5.2.1993, DR's counsel informed BINDAL and KGK that
in terms of clause 27.4.2 of general conditions of purchase incorporated in
the "agreement" dated 12.6.1991, DR intended to refer the disputes relating
to the "agreement" to the International Chamber of Commerce, Paris, ('ICC'
for short) for resolution by arbitration. It also proposed a panel of 3 names
for appointment of the sole arbitrator. As there was no reply, DR lodged a
G request for arbitration with ICC (received by ICC on 8.3.1993) in respect of
its claim against BINDAL and KGK for the following reliefs :-
H
I.
an award for US $ I 0,411.000 or alternatively, damages in such
sum as the Arbitrator may determine;
2.
delivery to DR, of the documents enumerated in Appendix
-1. '
y
'{
,.;
DRESSER RANDS.A."· BIN DAL AGRO CHEM.LTD. [RAVEENDRAN.J.]
325
thereto (with all copies thereof made by BINDAL and KGK);
A
3. · an injunction restraining BINDAL/KGK by themselves, their
agents or contractors from using any of the said documents for
any purposes; and
4.
for interest, costs etc.
B
ICC issued a notice dated 10.3.1993 to BINDAL and KGK in regard to
lodgment of the said claim by DR.
16.