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CASE NO.: Appeal (civil)  8357 of 2003

PETITIONER: Dresser Rand S.A.                                

RESPONDENT: BINDAL Agro Chem Ltd and K. G. Khosla Compressors Ltd.

DATE OF JUDGMENT: 12/01/2006

BENCH: Arun Kumar & R V Raveendran

JUDGMENT: J U D G M E N T With

Civil Appeal No. 8358 of 2003  

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.  

2.      For convenience, Dresser Rand S.A. [Appellant in both the  appeals], BINDAL Agro Chem. Ltd., [Respondent No. 1 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, 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 respectively in their respective suits, under Order 39  Rules 1 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. 9355/1993 in Suit No. 1380/1993 under Section 3  of the Foreign Awards (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.

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 with the

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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  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 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 by DR in FAO (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 of 2002. 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 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 BINDAL and KGK. The Division Bench  affirmed the finding of the learned single Judge of the High  Court that there was no arbitration agreement and  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.  

8.      Feeling aggrieved, DR has filed these civil appeals by  special leave [CA No.8357/2003 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 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 11.4.1993, that his clients were in the  process of jointly appointing an arbitrator.

FACTUAL BACKGROUND :            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 of Purchase for Supply of Equipment

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and Material under ICB Procedure - Shahjahanpur Fertilizer  Project". The said Invitation to Bid consisted of the following  sections :-

(i)     Attachment I \026 Instructions to bidders (Articles 1 to  34);

(ii)    Attachment II \026 General conditions of purchase  (Articles 1 to 36);

(iii)   Attachment III to XVI : Special conditions of purchase  (Attachment-III), schedule of requirements  (Attachment-IV), Technical Specifications  (Attachment-V) Bid Form and Price Schedules  (Attachment VI), Purchase Order Form  (Attachment  VII), Spare Parts List (Attachment-VIII), Vendor Data  Requirements (Attachment-IX), List of Lubricants  (Attachment-X), Progress Trend Charts (Attachment- XI), Draft form of Performance Guarantee  (Attachment-XII), Draft Form of Bank Guarantee for  Advance/Progress Payments to Supplier (Attachment- XIII), Bid Security Form (Attachment-XIV), General  specifications for packing (Attachment-XV) and check  list (Attachment-XVI).                 

10.     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 process of exploring possibilities  for securing various equipments including Synthesis Gas  Compressors, Process Air Compressors, Refrigeration  Compressors and CO2 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 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 CO2 compressors. By fax dated 5.4.1991,  BINDAL requested  DR for a quotation to be followed by a formal  Bid for Syn-Gas and CO2 compressors and informed DR that  having regard to the tight foreign exchange situation, the  Government of India had allocated only 50% of its total foreign  exchange requirement 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 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 discussed. 11.     Thereafter, DR gave its comments/modifications to the  terms and conditions of BINDAL termed as "Revision 4  (Attachment IV)" dated 10.6.1991 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  the changes agreed in the standard General Conditions of  Purchase of BINDAL.  

12.     We extract below relevant portions of clauses 1 and 27 in  the BINDAL’s ’General Conditions of Purchase’ and the  modifications thereto by DR  (Note : We are not referring to

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other clauses of ’General Conditions of Purchase’ or the  modifications thereto by DR, as they are not relevant for our  immediate purpose) : Clause  No. BINDAL’s General Conditions of Purchase Modifications  made by DR 1.0 DEFINITIONS In this General Conditions of Purchase the  following terms shall be interpreted as  indicated.

1.1 The PURCHASE ORDER means the  agreement entered into between OWNER  or by CONTRACTOR on behalf of OWNER  and the SUPPLIER as recorded in the  PURCHASE ORDER Form, signed by the  parties, including all attachments and  annexures thereto and all documents  incorporated by reference therein  together with any subsequent  modifications thereof in writing.  No change 1.5 OWNER shall mean BINDAL AGRO-CHEM  LIMITED having their Registered office at  Gopala Tower, 12th Floor, Rajindra Place, New  Delhi 110 008, India, and shall include all their  legal representatives, successors and  assignees.

No change 1.7 SUPPLIER or VENDOR shall mean the  individual or firm supplying the GOODS  and SERVICES under this PURCHASE  ORDER.

No change 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  connection with the PURCHASE ORDER.  No change 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 dispute,  either party may require that the dispute,  be referred for resolution to the formal  mechanisms as specified hereunder.   No change 27.3 Legal Construction

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Subject to the provision of Article 27.4 the  PURCHASE ORDER shall be, in all respects,  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.

Deleted 27.4

27.4.1 Arbitration

In case of indigenous PURCHASE ORDERS all  disputes which cannot be settled by mutual  negotiations, the matter shall be referred for  arbitration in accordance with Indian  Arbitration Act, 1940 of any statutory  modification of enactment thereof for the time  being in force.

Deleted 27.4.2 In case of foreign SUPPLIER all disputes  which cannot be settled by mutual  negotiations shall be settled under the  Rules of Conciliation and Arbitration of  International Chamber of Commerce,  Paris by one or more arbitrators  appointed in accordance with rules.

No change 27.4.3 Execution of the PURCHASE ORDER shall be  continued by the SUPPLIER during the  Arbitration proceedings unless otherwise  directed in writing by the  CONTRACTOR/OWNER. Deleted 27.4.4 The venue of Arbitration in all cases shall be  Delhi and shall be conducted in English  language only.

Deleted   

13.     According to DR, after Revision No.4 dated 10.6.1991 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 BINDAL 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 BR8/1 vertically split compressor for  Synthesis Gas Service and Steam turbine driver  model SBQ at a price of FF 49,300,000 (French

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Francs).  

(b)     Two Dresser Rand Model 3M9.8 and Two Model  260-8B5/4 Centrifugal compressors for CO2  service and team turbine driver Model QUBVT at  a price of FF 52,625,000.

Except the description of the machinery and the price, the  Letters of Intent were identical in its terms and relevant portions  thereof are extracted below (not seriatim) :-

I.  PURCHASE ORDER

This Letter of Intent will be followed by  a regular and  detailed 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 10, 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.  

The Letters of Intent also contained terms relating to price,  manner of making payment of price, opening of Letter  Guarantee, date for delivery, and consequences of not opening  Letter of Credit by the stipulated date. The relevant clauses are  extracted below :-  B.  PRICE AND TERMS OF PAYMENT  1. ....

"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 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 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 this  Letter of Intent and is subject to changes proposed by  KGK or its 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."                       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.

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For the purpose 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 12 weeks.

G.   OPTIONAL PERFORMANCE TEST

KGK has an option of asking DR to carry out shop  performance test (PTC-10 class III) for the equipment  described in this LOI for an 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.   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.

If by August 31, 1991 KGK is unable to fulfil the obligations  described in this LOI, the contract performance schedule  and prices may be revised.  

DR alleges that when the Letters of Intent dated 12.6.1991 were  delivered by BINDAL on 12.6.1991, it enquired as to why the  Letters of Intent were being 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 would, however, be that of BINDAL; 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,  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.  

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  before making major financial commitments for castings etc.

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and requested DR to wait till 31.10.1991. BINDAL also stated  that it was confident to open the Letters of Credit before  31.10.1991 and will accept a corresponding delay in the delivery  schedule.  

14.1)   Thereafter, DR by communication dated 24.10.1991, after  referring to the discussions with BINDAL (wherein the  Commercial Director of BINDAL 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 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 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 informed 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 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 format 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 purchase order cleared by the   Bank will be faxed. However, no such draft purchase order was  sent by BINDAL 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.

15.     Thereafter, DR through its counsel, issued notices dated  9.1.1993 to BINDAL and KGK referring to the Letters of intent  dated 12.6.1991 issued by KGK and informing that if the Letter  of Credit was not opened in terms of Letters of Intent dated  12.6.1991 within 10 days, DR will proceed on the basis that  BINDAL and KGK had repudiated the contract and committed  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 BINDAL and KGK as repudiation of the contract. This  was followed by notices dated 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 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 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 :-  1.      an award for US $ 10,411,000 or alternatively,  damages in such sum as the Arbitrator may  determine;

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2.      delivery to DR, of the documents enumerated in  Appendix I thereto (with all copies thereof made by  BINDAL and KGK);  

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.   

ICC issued a notice dated 10.3.1993 to BINDAL and KGK in  regard to lodgment of the said claim by DR.  

16.     One Bishwajit Bhattacharyya, Advocate, acting under  instructions from BINDAL and KGK sent a telex dated 11.4.1993  to ICC in reply to the notice of Lodgment dated 10.3.1993  stating that BINDAL and KGK were in the process of   jointly  nominating an arbitrator and that his clients were not agreeable  for appointment of a sole arbitrator. This was, however, followed  by two different communications from different counsel. Mr. R.  S. Gill, Advocate sent a communication dated 27.4.1993 to ICC  stating that he had been instructed to represent BINDAL in place  of Mr. Bhattacharyya. Similarly, one Mr. J.S. Sinha, Advocate  sent a communication dated 28.4.1993 to ICC stating that he  had been instructed to represent KGK in place of Mr.  Bhattacharyya. The written replies of BINDAL and KGK were  enclosed with the said communications dated 27.4.1993 and  28.4.1993. In those communications, BINDAL and KGK denied  the very existence of any arbitration agreement and sought  rejection of the claim lodged by DR. On 28.5.1993, ICC informed  the parties that the advance on costs in regard to arbitration  would be US $ 2,70,000 and directed the counsel for claimant  and counsel for defendants to deposit US $ 67,500 each towards  50% of advance as costs of arbitration.

17.     At that stage, BINDAL filed Suit No.1363 of 1993 on  1.6.1993 in the Delhi High Court, for a declaration that there  was no arbitration agreement between BINDAL and DR and for  an injunction restraining DR from proceeding with the  arbitration. KGK also filed a suit (Suit No.1380 of 1993) on  28.6.1993 for similar reliefs. I.A. Nos.5795/93 and 5819/93  were filed by BINDAL and KGK in the said suits for temporary  injunction restraining DR from proceeding with the Arbitration.  On 4.10.1993, DR filed application under Section 3 of the  Foreign Awards (Recognition & Enforcement) Act, 1961 for stay  of suits. What happened  thereafter is detailed in paras 6 & 7  above.    Re : Points (i) and (ii) : 18.     Section 3 of the Foreign Awards Act providing for stay of  proceedings in respect of matters to be referred to arbitration  reads thus : "Notwithstanding anything contained in the Arbitration Act,  1940, or in the Code of Civil Procedure, 1908, if any party  to an agreement to which Article II of the Convention set  forth in the Schedule applies, or any person claiming  through or under him commences any legal proceedings in  any court against any other party to the agreement or any  person claiming through or under him in respect of any  matter agreed to be referred to arbitration in such  agreement, any party to such legal proceedings may, at  any time after appearance and before filling a written  statement or taking any other step in the proceedings,  apply to the court to stay the proceedings and the court,

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unless satisfied that the agreement is null and void,  inoperative or incapable of being performed or that there is  not, in fact, any dispute between the parties with regard to  the matter agreed to be referred, shall make an order  staying the proceedings."

Article II of the Schedule to the Foreign Awards Act which  contains the Convention on the Recognition and Enforcement of  Foreign Arbitral Awards is extracted below :-

"1. Each Contracting State shall recognize an agreement in  writing under which the parties undertake to submit to  arbitration all or any differences which have arisen or  which may arise between them in respect of defined legal  relationship, whether contractual or not, concerning a  subject-matter capable of settlement by arbitration.

2. The term "agreement in writing" shall include an arbitral  clause in a contract or an arbitration agreement, signed by  the parties or contained in an exchange of letters or  telegrams.

3.  The Court of a Contracting State, when seized of an  action in a matter in respect of which the parties have  made an agreement within the meaning of this article,  shall, at the request of one of the parties, refer the parties  to arbitration, unless it finds that the said agreement is null  and void, inoperative or incapable of being performed."   

19.     In Renusagar Power Co. Ltd. vs. General Electric  Company [1984 (4) SCC 679], this Court considered the scope  of section 3 of Foreign Awards Act and formulated the following  six conditions required to be fulfilled for invoking section 3 :-  (i) there must be an agreement to which Article II of the  Convention set forth in the Schedule applies;  (ii) a party to that agreement must commence legal  proceeding against another party thereto;  (iii) the legal proceedings must be "in respect of any  matter agreed to be referred to arbitration" in such  agreement;  (vi) the application for stay must be made before filing the  written statement or taking any other step in the legal  proceedings;  (v) the Court has to be satisfied that the agreement is  valid, operative and capable of being performed; this  relates to the satisfaction about the "existence and validity"  of the arbitration agreement;  (vi) the Court has to be satisfied that there are disputes  between the parties with regard to the matters agreed to  be referred; this relates to effect (scope) of the arbitration  agreement touching the issue of arbitrability of the claims.  

This Court also held that section 3 of Foreign Awards Act  combines in its own ambit both sections 33 and 34 of the  Arbitration Act,1940 and questions regarding the existence,  validity or effect (scope) of the Arbitration agreement which can  be decided under section 33 of the Arbitration Act, are required  to be decided under section 3 of the Foreign Awards Act before a  stay of legal proceedings contemplated therein could be granted.  This Court stated the scope of enquiry under section 3 of the  Foreign Awards Act thus :-  "Here we are concerned with Section 3 which makes it  obligatory upon the Court to stay the legal proceedings if

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the conditions of the section are satisfied and what is  more the section itself requires that before any stay is  granted the Court should be satisfied that the arbitration  agreement is valid, operative and capable of being  performed and that there are disputes between the  parties with regard to the matters agreed to be referred  to arbitration [conditions (v) and (vi) mentioned earlier].  In other words, the section itself indicates that the proper  stage at which the Court has to be fully satisfied about  these conditions is before granting the relief of stay in a  Section 3 petition and there is no question of the Court  getting satisfied about these conditions on any prima  facie view or a pro tanto finding thereon. Parties have to  put their entire material before the Court on these issues  (whichever may be raised) and the Court has to record  its finding thereon after considering such material."  

Therefore, the question whether there is an arbitration  agreement or not squarely falls for decision of the Court under  section 3 and will have to be finally decided by the Court.  

20.     It is clear from Clause (2) of Article II that an ’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,  therefore, is whether there is an "agreement in writing" under  which parties have agreed to submit their differences to  arbitration.

21.     The principle as to how to find out whether the  correspondence shows consensus ad idem, was stated by this  Court in Rickmers Verwaltung Gmbh v. Indian Oil  Corporation Ltd. [1999 (1) SCC 1] : "The submission of Mr. Nariman that an agreement, even  if not signed by the parties, can be spelt out from  correspondence exchanged between the parties admits of  no doubt. In fact, various judgments cited by him at the  bar unmistakably support this assertion. The question,  however, is can any agreement be spelt out from the  correspondence between the parties in the instant case? In this connection the cardinal principle to remember is  that it is the duty of the court to construe correspondence  with a view to arrive at a conclusion whether there was  any meeting of mind between the parties, which could  create a binding contract between them but the Court is  not empowered to create a contract for the parties by  going outside the clear language used in the  correspondence, except insofar as there are some  appropriate implications of law to be drawn. Unless from  the correspondence it can unequivocally and clearly  emerge that the parties were ad idem to the terms, it  cannot be said that an agreement had come into  existence between them through correspondence. The  Court is required to review what the parties wrote and  how they acted and from that material to infer whether  the intention as expressed in the correspondence was to  bring into existence a mutually binding contract. The  intention of the parties is to be gathered only from the  expressions used in the correspondence and the meaning  it conveys and in case it shows that there had been  meeting of mind between the parties and they had  actually reached an agreement, upon all material terms,  then and then alone can it be said that a binding contract  was capable of being spelt out from the correspondence."

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22.     According to DR, the arbitration agreement is contained in  "the General Conditions of Purchase" forming part of the  Invitation to Bid issued by BINDAL, as modified by Revision No.4  dated 10.6.1991 agreed to between DR and BINDAL,  incorporated by reference in the Letters of Intent dated  12.6.1991 placed by KGK on DR and accepted by DR by counter  signing them. The said contention of DR that there is an  arbitration agreement by correspondence is elaborated thus :-

(a)     BINDAL’s "general conditions of purchase" which is  forming part of the tender documents/Invitation to Bid  contains an arbitration agreement in Clause 27.4.  

The suggestions made by DR for modification of the  arbitration clause (Clause 27.4) in the "General Conditions  of Purchase", as per Revision No.4 dated 10.6.1991, were  agreed to by BINDAL. Consequently, the "General  Conditions of Purchase" contain the following arbitration  clause :

"In cases of foreign supplier, all disputes which  cannot be settled by mutual negotiations shall  be settled under the Rules of Conciliation and  Arbitration of ICC......."

(b)     Clause ’C’ of the letters of intent dated 12.6.1991  issued by KGK as an agent/authorized consultant of  BINDAL to DR provided that "the purchase order shall be  subject to the ’general conditions of purchase’ included in  inquiry and as amended by DR’s comments thereto,  Revision No.4 dated 10.6.1991 initialled by DR and KGK  separately";

(c)     The Letters of Intent are the purchase orders and  they have been accepted by DR by counter-signing them.  Therefore, there are concluded contracts between DR on  the one hand and KGK representing BINDAL on the other,  for supply of the machinery mentioned in the Letters of  Intent which are governed by BINDAL’s ’general conditions  of purchase’ which contain an arbitration clause. Thus  there is an arbitration agreement between the parties in  terms of clause 27.4.2 of the ’General Conditions of  Purchase".  

23.     We find that the said submission of DR is based on two  premises. The first is that there is an ’arbitration agreement’  between ’DR’ on the one hand and ’BINDAL’ on the other as per  clause 27.4.2 of the ’General Conditions of Purchase’. The  second is that even if clause 27.4.2 of General Conditions of  Purchase    itself may not operate as an arbitration agreement  between the parties, the Letters of Intent by KGK are purchase  orders placed on behalf of BINDAL which are made subject to  the General Conditions of Purchase including the arbitration  clause (clause 27.4.2) and therefore, there is an arbitration  agreement between DR and BINDAL/KGK. On a careful  examination, we find that both premises are erroneous and are  baseless assumptions.  

Whether clause 27.4.2 of  ’General Conditions of  Purchase’ is an ’Arbitration agreement’

24.     The tender document or the invitation to bid of BINDAL  (containing the "instructions to bidders" and the "general  conditions of purchase"), by itself, is neither an agreement nor a

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contract. The instructions to bidders informed the intending  bidders  how the bid 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 BINDAL. 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 will be placed or offer will be accepted. The ’General  Conditions of Purchase’ were made available as a part of the  Invitation to bid, so as to enable the prospective suppliers to  ascertain their obligations and formulate their offers suitably.  

25.     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 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  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  tenderers to base their offers and for evaluation of such offers.  Further, the said General Conditions  stipulated by the purchaser  enable the tenderer to assess his obligations and calculate the  offer price accordingly. For example, there will be a marked  difference in the responsibility of a supplier and the pricing, if  the purchaser seeks a three year warranty instead of one year  warranty, or seeks delivery of machinery at site instead of at  supplier’s factory, or seeks delivery to be expedited instead of  the normal period. 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 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 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, rejection/replacement force  mejeure etc. Agreeing upon the terms subject to which offer is  to be made and accepted, is itself a complicated and time  consuming process. But, reaching an agreement as to the terms  subject to which a purchase will be made, is not entering into an  agreement to purchase.

26.     Therefore, when DR suggested modifications to the  general conditions of purchase, and when BINDAL agreed to  them, and both parties initialled Revision No. 4 containing the  modifications to the General Conditions of Purchase, on  10.6.1991, no contract or agreement came into existence as it

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did not involve either an offer or acceptance or performance of  any promise. "Revision No.4" dated 10.6.1991 only consisted of  the modifications to the General Conditions of Purchase, subject  to which it was willing to enter into a contract with BINDAL for  sale of machinery. Revision No.4 dated 10.6.1991 cleared the  decks by finalizing the general conditions which would be  applicable if and when BINDAL decided to place a purchase  order. In other words, the ’General Conditions of Purchase’ and  Revision No.4 dated 10.6.1991 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 BINDAL. Parties merely agreed that when an  order was placed or contract was entered for supply of a  machinery by DR to BINDAL, it will be subject to the ’General  Conditions of Purchase’ stipulated by BINDAL as modified by  Revision No.4 dated 10.6.1991 agreed by both parties.  

27.     The following observations of this Court in Chatturbhuj  Vithaldas Jasani v. Moreshwar Parashram (AIR 1954 SC  236) though in a different context, are apposite : "... The letters merely set out the terms on which the  parties were ready to do business with each other if and  when orders were placed and executed. As soon as an  order was placed and accepted a contract arose. It is true  this contract would be governed by the terms set out in  the letters but until an order was placed and accepted  there was no contract."

In Rickmers Verwaltung (supra), the appellant contended that  though the agreement drawn up on 11.11.1993 was not  formally signed by the parties, the contemporaneous  correspondence between them showed that a binding contract  came into existence between the parties in terms of such draft  dated 11.11.1993 and clause 53 of the said ’agreement’  provided for arbitration and therefore, the claim raised by the  appellant had to be settled by reference to arbitration. The first  Respondent (Indian Oil Corporation Ltd) on the other hand  contended that no arbitration agreement had been executed  between the parties and the correspondence between the  parties did not bring about any enforceable contract between the  parties, because the fundamental conditions of the terms of the  bargain were neither agreed upon nor fulfilled by the parties.  This Court accepted the contention by the first respondent that  there was no ’arbitration agreement’ on the following  reasoning:-  "From a careful perusal of the entire correspondence on  the record, we are of the opinion that no concluded  bargain had been reached between the parties as the  terms of the standby letter of credit and performance  guarantee were not accepted by the respective parties. In  the absence of acceptance of the standby letter of credit  and performance guarantee by the parties, no  enforceable agreement could be said to have come into  existence. The correspondence exchanged between the  parties shows that there is nothing expressly agreed  between the parties and no concluded enforceable and  binding agreement come into existence between them.  Apart from the correspondence relied upon by the  learned single Judge of the High Court, the Fax messages   exchanged between the parties, referred to above, go to  show that the parties were only negotiating and had not  arrived at any agreement. There is a vast difference  between negotiating a bargain and entering into a  binding contract. After negotiation of bargain in the

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present case, the stage never reached when the  negotiations were completed giving rise to a  binding contract. The learned single Judge of the  High Court was, therefore, perfectly justified in  holding that Clause 53 of the Charter Party relating  to Arbitration had no existence in the eye of law,  because no concluded and binding contract ever  came into existence between the parties."

[Emphasis supplied]

28.     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 when 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. The  purpose of Revision No. 4 dated 10.6.1991 was that if and when  a purchase order was placed by BINDAL, that would be  governed by the "general conditions of purchase" of BINDAL,  as  modified by Revision No.4. But when no purchase order was  placed, neither the ’general conditions of purchase’ nor the  arbitration clause in the ’General Conditions of Purchase’  became effective or enforceable.  Therefore, initialling of  ’Revision No. 4’ by DR and BINDAL on 10.6.1991 containing the  modifications to General Conditions of Purchase, did not bring  into existence  any arbitration agreement to settle disputes  between parties.  

Whether Letters of Intent dated 12.6.1991 contain an  arbitration agreement.  

29.     We will next examine whether any arbitration agreement  came into existence by issue of Letters of Intent dated  12.6.1991 by KGK countersigned by DR and if so who are the  parties to such arbitration agreement.  

30.     The circumstances in which the Letters of Intent dated  12.6.1991 by KGK ’surfaced’ is strange and illogical if not  mysterious. It is admitted by DR that at no point of time, it held  any negotiation or discussion or exchanged correspondence with  KGK in this matter. The case of DR is that BINDAL was  corresponding and negotiating with it for purchase of certain  types of compressors for its Shahjahanpur Fertilizers Project;  that neither BINDAL nor KGK ever informed DR that KGK was  the agent/consultant of BINDAL; and that the modifications to  ’General Conditions of Purchase’ were discussed and finalized on  10.6.1991, as per Revision No. 4 initialled by the  representatives of DR and BINDAL. In the circumstances, there  appears to be no logical reason for two letters of intent being  prepared and issued on the letterhead of KGK on 12.6.1991 out  of the blue, particularly when no representative of KGK  was  present during discussions on 12.6.1991 nor were the Letters of  Intent signed by anyone on behalf of KGK in the presence of  DR’s representatives. According to DR, the representative of  BINDAL handed over the Letters of intent issued on the  letterhead of KGK stating that though the Letters of intent were  issued by KGK, the compressors were for BINDAL and payment  and performance will be the BINDAL. No one has chosen to  explain why the letters of intent were not issued by BINDAL or  why the letters of intent were issued by KGK. What is strange is  the acceptance of such letters of intent by DR without protest  and without insisting that the letters of intent should be issued  by BINDAL or at least that BINDAL should confirm in writing that

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the KGK was issuing the letters of intent on its behalf. If BINDAL  had delivered the letters of intent prepared on the letterhead of  KGK instead of its own, clearly it was with some ulterior motive.  But we are not considering the business ethics of BINDAL nor  the negligence on the part of DR in not insisting upon something  in writing from BINDAL to show that Letters of Intent of KGK  were issued on its behalf. The question for consideration is  whether there is an arbitration agreement in the Letters of  Intent.  

31.     There is sufficient material to show that BINDAL  proceeded on the basis that KGK’s letters of intent dated  12.6.1991 were issued on its behalf, though there is no direct  reference to the Letters of Intent dated 12.6.1991 in any of  BINDAL’s correspondence. We may briefly refer to the following  circumstances which clearly lead to an inference as that KGK’s  Letters of Intent, were on behalf of BINDAL :-  

i)      In its letter dated 23.12.1991, the Chairman of  BINDAL refers to DR’s intention to revise the prices  due to BINDAL not opening the LCs in time.  

ii)     In BINDAL’s communications dated 13.2.1992, there  is a reference to BINDAL’s proposal to rewrite LOIs by  labelling them as purchase orders and consequently,   Clauses C, F, H, I and L of letters of intent undergoing  changes, in view of the Bank requiring purchase  orders instead of letters of intent, for opening the  letters of credit. In the absence of any letter of intent  by BINDAL itself, it has to be inferred that the letters  of intent referred by BINDAL are the letters of intent  dated 12.6.1991 issued by KGK.  

iii)    When DR sent notices dated 9.1.1993 to BINDAL and  KGK, alleging that KGK acted as agent of BINDAL in  issuing the Letters of Intent dated 12.6.1991, there  was no denial either by BINDAL or KGK  

iv)     When DR lodged a request for arbitration with ICC  making a claim jointly against BINDAL and KGK  specifically alleged that KGK acted as agent of BINDAL  in issuing of Letters of Credit, and when copies of  such request for arbitration were forwarded by ICC to  BINDAL and KGK, significantly, BINDAL and KGK sent  a common reply through a common counsel (Mr.  Bishwajit Bhattacharyya) stating that both (BINDAL  and KGK) were proposing to jointly nominate an  Arbitrator.  

v)      Even when BINDAL and KGK subsequently decided to  challenge the arbitration agreement and issued  separate notices dated 27.4.1993 and 28.4.1993  though different counsel, such notices were sent  through two counsel who shared the same office and  telephones.  

The conduct of BINDAL subsequent to 12.6.1991 leads to an  inescapable inference that letters of intent issued by KGK on  12.6.1991 were on behalf of BINDAL. In fact, even otherwise, we  will assume for the purpose of this case that KGK was acting on  behalf of BINDAL as its agent or consultant in issuing the letters  of intent dated 12.6.1991. The question is whether that will take  DR any further in establishing that there is an arbitration  agreement.

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32.     The Preamble to the Letters of Intent states that KGK  "hereby confirms its intention to place an order on Dresser  Rand". This is further made clear from Clause (I) of each letter of  intent which provides that "this letter of intent" will be followed  by a regular and detailed purchase order  to be issued by KGK  simultaneous with the establishment of the Letter of Credit  mentioned in Para B of  letter of intent. This makes it clear that  the letter of intent is only a prelude to the purchase order and  not itself the purchase order. The last para of Letters of Intent  requires DR to sign and return the duplicate copy of the letter as  token acceptance of DR having agreed to the Letters of Intent.  This would mean that the person issuing the Letters of Intent  wanted concurrence of DR 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 of Intent. The concurrence sought was  to the contents of Letters of Intent and not acceptance of any  order for supply.  

33.     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 DR’s comments thereto,  Revision 4 dated 10.6.1991". Therefore, the General Conditions  of Purchase which contains the arbitration clause, is not made a  part of the Letters of Intent nor are the Letters of Intent made  subject to the General Conditions of Purchase. The Letters of  Intent merely provide that if and when the purchase order 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 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 BINDAL  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 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 BINDAL or any one authorized by  BINDAL. 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. Clause (M) made it clear that the  Letters of Intent were being issued subject to necessary  approvals being given by the Authorities of the Indian  Government. These provisions clearly indicate that the Letters of  Intent were only a step leading to purchase orders and were  not, by themselves, purchase orders. Therefore, issue the  Letters of Intent by KGK, assuming that it was done on behalf of  BINDAL, did not mean that the General Conditions of Purchase  which contains the provision for arbitration became a part of the  Letters of Intent or became enforceable.  

34.     It is now well-settled that 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. This Court  while considering the nature of a Letter of Intent, observed thus  in Rajasthan Co-operative Dairy Federation Ltd. V. Maha  Laxmi Mingrate Marketing Service Pvt. Ltd. [1996 (10) SCC

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405] :

"... The Letter of Intent merely expressed an intention to  enter into a contract. There was no binding legal  relationship between the appellant and Respondent 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 1 or not."

It is no doubt true that 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 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 is a final acceptance of the offer thereby  leading to a contract, is a matter that has to be decided with  reference to the terms of the letter. Chitty on Contracts (Para  2.115 in Volume 1- 28th Edition) observes that where parties to  a transaction exchanged letters of intent, the terms of such  letters may, of course, negative contractual intention; but, on  the other hand, where the language does not negative  contractual intention, it is open to the courts to hold the parties  are bound by the document; and the courts will, in particular, be  inclined to do so where the parties have acted on the document  for a long period of time or have expended considerable sums of  money in reliance on it. Be that as it may.              

35.     Learned counsel for DR referred to Clauses (B), (D), (F),  and (L) of the Letters of Intent to contend that they were the  purchase orders.  Clause (B) mentioned the total price exclusive  of taxes and duties payable and provided that the Letter of  Credit should be opened by 31.8.1991 by a bank acceptable to  DR. Clause (D) provided that delivery date shall be 15 =  months from the date of receipt of the Letter of Intent by DR.   Clause (F) stated that "this Letter of Intent shall serve as DR’s  authorization to proceed with this order". Clause (L) stated that  ’This contract will come into force upon receipt of this letter of  intent by supplier’. DR contends that as the Letters of Intent  were referred to as "this order" and ’this contract’ in clauses (F)  and (L), and as clause (F) authorized DR to proceed with the  order, the Letters of Intent were, in fact, purchase orders.  

36.     When all the terms of the Letter of Intent are  harmoniously read, what is clear is 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. They also made it  clear that if the purchase orders were not placed and Letter of  Credit was not opened by 31.8.1991, DR was at liberty to alter  the price and the delivery schedule. In other words, the effect of  Letters of intent was that if the Purchase Orders were placed  and LCs were opened by 31.8.1991, DR would be bound to  effect supply within 15= months, at the  prices stated in the  Letter of Intent. Therefore, it may not be possible to treat the  Letters of Intent as Purchase Orders.  

37.     Even if we assume that the Letters of Intent were intended  to contracts for supply of machinery in accordance with the  terms contained therein, it may only enable DR to sue for  damages or sue for the expenses incurred in anticipation of the

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order and opening of LC. But that will not be of any assistance  to contend that there was an arbitration agreement between the  parties.  

38.     We have already noticed that the letters of intent dated  12.6.1991, do not contain any arbitration clause. The contention  of DR is that arbitration clause in the General Conditions of  Purchase is incorporated by reference, having regard to clause  (C) of Letters of Intent. But clause (C) specifically provided that  ’the purchase order’ shall be subject to General Conditions of  Purchase as amended by Revision No. 4. Clause (C) did not say  that "this letter of intent is subject to the general conditions of  purchase as amended in Revision No. 4". One other aspect may  be noticed. Clause (C) refers to Revision No. 4 initialled by DR  and KGK. It is now admitted by DR that there is no document  (Revision No.4 or otherwise) modifying the general conditions of  purchase, which is initialled by DR and KGK. The Revision No. 4  was initialled only by DR and BINDAL. Therefore, the general  conditions of purchase containing the arbitration clause, never  became a term of the letters of intent dated 12.6.1991. Clause  (C) of the  letters of intent made it clear that it is only the  purchase orders which were to be placed in future on or before  31.8.1991 (along with opening of LC) that was to be subject to  the General Conditions of Purchase. Therefore, we hold that the  letters of intent, even if assumed to result in any binding  contract, did not provide for arbitration.

39.     The learned counsel for DR next contended that the words  "the purchase order" in Clause (C) should be read as "this  purchase order". For this purpose, he referred to several  provisions of the General Conditions of Purchase, some of which  use the words "the purchase order" whereas other use the  words "this purchase order". He contended that the words "the"  and "this" are loosely used in the General Conditions of Purchase  and in the Letters of Intent and are, therefore, interchangeable.  We cannot agree. Firstly, it is not open to us to change the  terms of any document. Secondly, the use of the words "this  purchase order" in some clauses of the General Conditions of  Purchase was not inappropriate. It should be remembered that  the General Conditions of Purchase, in entirety, were intended to  be treated  as a part to 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 ’the purchase order’ in clause  (C) of Letters of Intent as ’this purchase order.  

40.     Thus, neither the General Conditions of Purchase forming  part of Invitation of Bid nor Revision No.4 dated 10.6.1991, 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 arbitration.  We are, therefore, of the view, though for slightly different  reasons, that the decision of the learned Single Judge and the  Division Bench of the High Court holding that there is no  arbitration agreement, does not suffer from any infirmity.

Re: Point No. (iii) :

41.     DR contends that the conduct of BINDAL and KGK clearly  showed that they proceeded on the basis that there was an  arbitration agreement. DR referred to the notices dated

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9.1.1993, 29.1.1993 and 4.2.1993 issued by its Counsel  culminating in the final notice dated 5.2.1993 seeking reference  to arbitration. It is pointed out that neither BINDAL nor KGK  issued any reply to the said notice dated 5.2.1993 thereby  indicating an implied acceptance of an arbitration agreement.  DR also points out that when notice was sent by ICC to BINDAL  and KGK in respect of the request for arbitration lodged by DR,  Mr. Bhattacharyya, Advocate, sent a reply dated 11.4.1993  acting on behalf of both BINDAL and KGK, stating that they are  in the process of jointly nominating an arbitrator. It is contended  that if there was really no arbitration agreement, the counsel for  BINDAL and KGK would not have stated that they were in the  process of nominating an arbitrator. It is contended that only by  way of an afterthought, BINDAL and KGK changed their stand to  contend that there was no arbitration agreement, when their  changed the counsel and sent a further reply dated 27.4.1993  and 28.4.1993 respectively. It is submitted that there is  acquiescence on the part of BINDAL and KGK in regard to  arbitration.  

43.     This is countered by BINDAL and KGK by pointing out that  Mr. Bhattacharyya had stated that an Arbitrator will be  appointed by BINDAL and KGK without examining or knowing  the full facts, while sending the letter dated 11.4.1993. They  point out that immediately thereafter, by issuing notices dated  27.4.1993 and 28.4.1993, they made it clear that there was no  arbitration agreement. It is contended that even if Mr.  Bhattacharyya had stated that an arbitrator was being  appointed, that would not come in the way of either BINDAL or  KGK subsequently pointing out that there was no arbitration  agreement, when they examined the legal position or when an  application under section 3 of Foreign Awards Act was filed.  

44.     In U.P. Rajkiya Nirman Nigam Ltd. vs. Indure Pvt.  Ltd. [1996 (2) SCC 667] negativing a contention based on  acquiescence in matters concerning challenge to arbitrability,  this Court observed thus :- "Acquiescence does not confer jurisdiction........................  The clear settled law thus is that the existence or validity  of an arbitration agreement shall be decided by the Court  alone. Arbitrators, therefore, have no power or jurisdiction  to decide or adjudicate conclusively by themselves the  question since it is the very foundation on which the  arbitrators proceed to adjudicate the disputes. Therefore, it  is rightly pointed out by Shri Adarsh Kumar Goel, learned  counsel for the appellant that they had by mistake  agreed for reference and that arbitrators could not  decide the existence of the arbitration agreement or  arbitrability of the disputes without prejudice to their stand  that no valid agreement existed. Shri Nariman  contended that having agreed to refer the dispute,  the appellant had acquiesced to the jurisdiction of  the arbitrators and, therefore, they cannot exercise  the right under Section 33 of the Act. We find no  force in the contention. As seen, the appellant is  claiming adjudication under Section 33 which the  Court alone has jurisdiction and power to decide  whether any valid agreement is existing between the  parties. Mere acceptance or acquiescing to the jurisdiction  of the arbitrators for adjudication of the disputes as to the  existence of the arbitration agreement or arbitrability of  the dispute does not disentitle the appellant to have the  remedy under Section 33 through the Court. In our  considered view the remedy under Section 33 is the only  right royal way for deciding the controversy."

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[Emphasis supplied]

What is stated above with reference to section 33 of Arbitration  Act, 1940, will apply with equal force in regard to section 3 of  Foreign Awards Act. Therefore, the fact that at some point of  time, BINDAL or KGK 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 Foreign Awards Act.  Therefore, there is no question of either waiver or acquiescence.  

Conclusion

45.     We, therefore, do not find any reason to interfere with the  decision of the Division Bench of the High Court. The appeals  are, therefore, dismissed. Parties to bear their respective costs.