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PETITIONER: M/S RICKMERS VERWALTUNG GMB H

       Vs.

RESPONDENT: THE INDIAN OIL CORPORATION LTD.

DATE OF JUDGMENT:       19/11/1998

BENCH: K.VENKATASWAMI

ACT:

HEADNOTE:

JUDGMENT:  JUDGMENT Dr. A.S.Anand. CJI Leave granted. This appeal by special leave calls in  question  the judgment  and  order  of the Delhi High Court dated Oct. 17, 1996 and arises in the following circumstances. The respondent, Indian Oil Corporation Ltd., entered into an agreement with M/s Tubacero of Mexico  for  purchase of   pipes  for  its  Kandla-Bhatinda  Pipeline  project  on September 16,  1993.    According  to  the  terms   of   the agreement,  M/s  Tubacero  were  to deliver the pipes to the respondent at Tampico Port in Mexico.  In order to bring the pipes to India, the respondent,  a  Government  Corporation, was  required  to go through M/s Transchart, a department of the Ministry of Surface  Transport,  which  brokers  charter party  arrangements  with  various  vessel  owners,  for the purposes of shipping  of  pipes  from  Tampico  Port.    M/s Transchart  invited  offers from various ship owners and the appellant was one of the ship owners who made an offer.   In order  to execute a contract between the parties, respondent No.  1 was to establish a standby letter of  credit  as  per the  format  to be mutually agreed upon by the parties while the appellant was to furnish a performance bond  also  in  a format  to  be  mutually  agreed  upon  by both the parties. Respondent No.  1 conveyed to the appellant  on  Nov.    17, 1993  that  loading of pipes at Tampico port should commence on December 14, 1993 and be completed by December 21,  1993. The  appellant,  however,  did  not  proceed  in  the matter because the format and the language of the standby letter of credit in the form issued by its bankers was not approved by the first respondent.  The draft letter of  credit  proposed by  the  first  respondent  was  also  not  approved  by the appellant and fresh proposals  were  exchanged  between  the parties.   As a consequence, the appellant did not carry the pipes, as according to it.  the formats of standby letter of credit and performance guarantee were  not  settled  between the parties.  The first respondent was, therefore, compelled to  arrange  for  the carriage of first consignment of pipes received from M/s Tubacero at  Mexico.    Trnaschart  by  it telex  dated  December 24, 1993 apprised the appellant about

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the failure to carry out its  obligation,  despite  repeated requests  which  had  resulted in the Charterers to finalise alternative shipping arrangements.  While the  matter  stood thus, the appellant filed a request for arbitration with the Indian Council  of  Arbitration  on  11.6.1994.  On June 28, 1994 the first respondent received a notice from the  Indian council  of Arbitration intimating it that the appellant had filed an application dated June 16, 1994 invoking Clause  53 of   the   Agreement  of  Affreightment  (AOA)  relating  to arbitration and that it had laid a claim of 1,031,668.77  US dollars.  The first respondent was directed to deposit a sum of Rs.    83,200/-  towards  costs  of the arbitration on or before July 28, 1994.  On receipt of the communication  from the  Indian  Council  of  Arbitration,  the first respondent informed  the  Indian   council   of   Arbitration   (second respondent)  that  there  did not exist any binding contract between the first respondent and the  appellant,  much  less any  binding  agreement  of  refer  any  dispute between the parties  to  arbitration  according  to  the  Rules  of  the Arbitration of  the  Indian  Council of Arbitration.  It was asserted that the agreement dated Nov.  11, 1993 relied upon by the appellant in its statement of claim, as  constituting the  contract between the parties had not been signed by the first respondent and the document was nothing  more  than  a mere  proposal  made  by the appellant, which was subject to the parties agreeing on  the  format  and  language  of  the standby  letter  of  credit  to  be  provided  by  the first respondent for the benefit of the appellant and was  subject to  the  parties also agreeing to the format and language of performance guarantee to be established by the appellant  in favour of  the  first  respondent.    It was maintained that since no agreement could  be  reached  with  regard  to  the contents   of   the  aforesaid  two  documents,  which  were fundamental to arrive at a working relationship between  the parties, the claim of the appellant regarding the conclusion of the  contract  between  them  was  not maintainable.  The first respondent also questioned  the  jurisdiction  of  the Indian  Council  of  Arbitration to decide whether or not an arbitration  agreement  exists  between  the   parties   and asserted that in case the appellant considered that they had entered  into  a binding agreement between the parties, they could take steps to obtain a reference through  a  competent court.   Notwithstanding  the stand of the first respondent, the Indian  Council  of  Arbitration  on  January  3,  1995, intimated   to   the  parties  that  it  had  appointed  Mr. M.K.Chawla a retired Judge of the Delhi  High  Court  as  an Arbitrator.   It  was  also stated in the communication that appellant had nominated Rear  Admiral  (Dr.)  O.P.Sharma  as their nominee  as  arbitrator.    The  first  respondent was requested to file its statement of defence  by  January  15, 1995, which  date  was subsequently extended.  The direction to deposit a sum of Rs.  83,000/- towards cost  of  expenses of the  arbitration  was  reiterated.  The first respondent, aggrieved by the communication from the  Indian  Council  of Arbitration  dated  January  3, 1995, filed a petition under Section 33 of the Indian Arbitration Act,  1940,  seeking  a declaration  from  the  court  that  there did not exist any concluded arbitration agreement between the parties and  the reference  of  the dispute in question to the Arbitration by the appellant was unwarranted and  not  maintainable.    The application  was  resisted  by the appellant, who maintained that a valid and subsisting agreement  between  the  parties had  come into existence and that the claim of the appellant was required to be adjudicated by the arbitrators  in  terms of Clause  53  of  the "agreement".  On the pleadings of the

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parties, a learned single Judge  of  the  Delhi  High  Court framed the following issues :              "1.Whether there is a valid and              subsisting agreement between the              parties ?              2.Relief." During the pendency of the application  the  learned single   Judge   stayed   further   proceedings  before  the Arbitrator appointed by the Indian Council  of  Arbitration. Parties  were directed to file evidence by way of affidavits in the court.    documentary  evidence  and  affidavit  were consequently filed in the court. The case put up before the learned single  Judge  on behalf  of  the  appellant  was that though no agreement (as drawn up on 11.11.1993)  was  formally  signed  between  the parties,  yet  the  contemporaneous correspondence exchanged between them went to show that a binding contract  did  come into  existence  between  the parties and since Clause 53 of the "agreement" dated 11.11.1993 provided that all  disputes under  the  Charter  Party  were  to  be settled in India in accordance with the provisions  of  the  Indian  Arbitration Act,  1940  read  with the Maritime Arbitration Rules of the Indian Council of Arbitration, their plea to get the dispute settled by arbitration  was  well  founded.    According  to respondent No.  1, Indian Oil corporation Ltd., on the other hand, no arbitration agreement had been executed between the parties   and   that   the   contemporaneous  correspondence exchanged between the parties had also not brought about any enforceable contract between them  because  the  fundamental conditions  of  the terms of the bargain were neither agreed upon nor fulfilled by the parties. After    referring    to   various   documents   and correspondence exchanged between the  parties,  the  learned single  Judge  on  October  17,1996, vide the order impugned herein, held that  on  concluded,  enforceable  and  binding contract came into existence between the parties and as such Clause  53  of  the  Charter  Party  "agreement" relating to arbitration had no existence in the eye of law.   Issue  No. I was,  accordingly,  decided in favour of respondent No.  1 and the petition filed under Section 33 of  the  Arbitration Act by  respondent No.1 was allowed on October 17,1996.  The learned  single  Judge   restrained   the   appellant   from proceeding with the arbitration.  Hence this appeal. We  have  heard  learned counsel for the parties and perused the record. It is an admitted case of the parties that a Charter Party Agreement was drawn up on November 11, 1993.   It  is, however, not disputed that the said agreement was not signed by the parties.    Mr.  R.F.Nariman, learned senior advocate appearing for the appellant submitted that even  though  the agreement dated November 11, 1993 had not been signed by the parties  but the parties had acted upon it treating it to be a binding contract.  Argued Mr.  Nariman that the  agreement was  operative  and  binding even without the parties having agreed to the format and terms  of  the  standby  letter  of credit  and the performance guarantee, because the appellant had after receipt of the letter of  credit  from  respondent No.1  sent  to  him  a  communication dated December 6, 1993 intimating that the draft of letter of credit was  basically acceptable except for some minor details.  Similarly, it had been  eonveyed  that  the  draft  performance bank guarantee received by it from respondent No.1 had  been  forwarded  to the bankers  for  their acceptance.  Learned counsel pointed out that on December 16,1993, Transchart had faxed  a  fresh draft  of  standby  letter of credit to the appellant and in

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the communication attached thereto, it  was  indicated  that the draft letter of credit would be acted upon by respondent No.1 On  this  basis,  Mr.  Nariman submitted that a binding agreement had come into existence,  through  correspondence, and  the  non-signing  of  the charter party agreement dated November 11,1993 by respondent No.1 was of  no  consequence. Mr.   Nariman  asserted  that Clause 48 of the agreement did not speak of any agreement regarding the terms of letter  of credit  to  be forwarded by State Bank of India or regarding the format and language of the performance guarantee  to  be established   by  the  appellant  in  favour  of  the  first respondent,  and  therefore,  even  in  the  absence  of  an agreement  about  the  format of the letter of credit and of the performance guarantee, Clause 48 of  the  agreement  was attracted and recourse to arbitration was justified. Learned  counsel  for  the   respondent   in   reply submitted  that  perusal  of  the  correspondence  exchanged between the parties established that there was no meeting of mind between the parties and  no  agreement  could  also  be spelt  out  from  the  correspondence  exchanged between the parties.  Learned counsel submitted,  by  reference  to  the documents  on  the record, that the correspondence exchanged between the parties, including various fax messages, exposed that the appellant was not ready to nominate the  vessel  to carry the cargo, without agreeing on the terms of the letter of  credit  and the performance guarantee and that there was no letter or fax exchanged between the parties  which  could in  any  manner indicate that any agreement had been arrived at between the parties with  regard  to  the  terms  of  the standby  letter  of  credit  and  the performance guarantee. Since, the appellant itself attached primary  importance  to the  furnishing  of letter of credit by the first respondent before it  could  carry  the  cargo  submitted  the  learned counsel,  the "draft" Charter Party agreement dated November 11,1993 even if it had in fact  been  executed  between  the parties,  could  not become enforceable because the terms of letter of credit and  performance  guarantee  had  not  been agreed to between the parties.         It  would  at  this  stage  be  relevant  to extract sub-clause (a) of Clause 48 to the Charter Party.  It  reads thus:-            "4(a) Freight is payable :-            IOC  will open a standby irrevocable Letter of            Credit for freight amount of each shipment for            the cargo  in  transit.    Standby  Letter  of            Credit  will  be  issued  by  SBI India on SBI            Germany.  Freight payment will be made through            Bank Transfer at Hamburg Germany  under  which            50  percent  less  3.75  percent commission is            payable  within   7   working   days   against            presentation  of  copy  Bill  of  Landing  and            owners invoice  in  triplicate.    40  percent            within  7  working  days  of  saft  arrival of            vessel  at  disport  and  on  presentation  of            owners  invoice  in  triplicate and 10 percent            within 30 days of completion of discharge  and            on   presentation   of   owners   invoice   in            triplicate".

A  bare  reading  of Clause 48 (supra) shows that respondent No.1 was to open a standby irrevocable letter of credit  for freight  amount  of  each  shipment of the cargo in transit. The standby letter of credit was required to  be  issued  by the  State  Bank  of  India  on  the  State Bank of Germany. Indeed this clause by  itself  does  not  show  whether  the

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condition  of  establishing  a standby irrevocable letter of credit or  the  furnishing  of  performance  guarantee  were conditions precedent to the conclusion of contract but there is  enough  material  on  the  record to show that they were meant to be condition  precedent.    In  this  connection  a reference  may  be  made  to  the  fax  communication  dated 4.11.1993  from  the  appellant  (much  before  the  alleged agreement of November 11,1993) which reads thus :-            "frt-payment :    100 pct secured by bank gtee            in favour of Line  account  at  hamburg  under            which  50  pct  less  3.75  pct  commission is            payable  within  seven  working  days  against            presentation  of  original  bladings and Lines            invoice in triplicate.  $0 pct within 35  days            of  date  of  bill  of lading 10 pct within 60            days of date of bill of lading.            (in  order  to avoid any dispute and documents            to be furnished we have to relate to one  firm            document  which is bill of lading and one firm            date which is date of bill of lading).            Line to provide charters with performance gtee            equivalent  to 5 pct of freight bases on appr.            10,000  mt  per  shipment  equivalent  to  usd            50,000  firm  valid  till  40  pct  payment is            released.            Formate of bank gtee and performance bond gtee            to mutually  agreed.    Specification of cargo            noted however quantity now  abt.    50,000  mt            only.   In  case  of  7 shipments quantity per            shipment 7,000 mt only.  Kdly advise as  cargo            quantity major factor for freight calculation.            Pls  Advise  urgently till office opening tom.            Morning here.  Will reply  on  c/p-terms  tom.            Afternoon." and the fax message sent by respondent No.1.  on 10.11.1993:            "tradex  newdelhi  10.11.1993 attn: mr wersich            line pipes-tampico/kandla  received  following            from chrts:            1.period  - to be changed to dec 1993 to july            1994 (however everything else reg qtty /  lots            remains same)            2.in place of bank gtee -            "ioc  will  open a standby irrevocable 1/c for            freight amount of one shipment for  the  cargo            in  transit. Standby l/c will be issued by sbi            india on sbi germany. Freight payment will  be            made  through bank transfer at hamburg germany            under  which  50%  less  3.75%  commission  is            payable   within   7   working   days  against            presentation of  b/1  and  owners  invoice  in            triplicate.  40  pct  within 7 working days of            safe arrival of vsl  at  disport  and  10  pct            within 30 days of completion of discharge.            3.the  ship  name/details should be intimated            immediately. End plse confirm your  acceptance            to above per return." The  return  fax message from the appellant dated 10.11.1993 reads:            "refyr msg of just now :            1.accepted            2.ioc will open a standby irrevocable 1/c  in            regard   to   the   freight   amount  for  the            shipments.  Funds under 1/c for each lot to be            available by latest 15th of each month  before            nomination of the vessel by line.  Standby 1/c

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          will  br  issued  by sbi india on sbi germany,            sbi Germany  to  be  authorised  to  reimburse            themselves.  In case any freight amount is not            being   received   by  line  as  per  c/p  and            mentioned below, the amount shall be  released            on  first  written  demand  under  standby 1/c            freight payment  will  be  made  through  bank            transfer at hamburg germany:            a.50% less 3.75% commission is payable within            7 days on prersaa, 29,90: 2 nos. copy bill  of            lading Lina’s invoice in triplicate            b.40%   is   payable   within   7   days   on            presentation of : arrival notice  from  master            (telegram/telex/telefex)            c.10%   is   payable   within   30   days  on            presentation of : discharge notice from master            (telegram/telex/telefex)            3.require urgently all detls of Ist lot  (see            Y’  days telex) before, we cannot niminate the            vessel. Entd            comments:            in case point 2 not clear, kdly call in  order            to discuss the possibilities over phone. Tks.            Lifting  extended  to  12.30  hrs  german time            tomorrow.            Looking forward to hearing from you." This  correspondence  unmistakably shows that at no point fo time, till the charter party agreement was drafted  on  11th Nov.  1993  did the parties agree to proceed further without agreeing upon  the  format  of  the  letter  of  credit  and performance guarantee. Reference  here  may also be made to the fax message dated December 16, 1993, by which a fresh draft  of  standby letter  of  credit  was sent by Transchart to the appellant. In that fax message it was indicated that the  draft  letter of credit  would  be  acted  upon  by  the  appellant.   The response of the appellant’s agent, Line International of the same date, however, shows that it was categorically asserted by it that the draft letter of credit was not  workable  and therefore, was not acceptable.  Line International had faxed draft of  a  fresh  standby letter of credit.  Subsequently, another draft of standby letter of credit was also faxed  by Line   International   but  since  there  was  no  agreement regarding the acceptance of the draft, the appellant did not nominate  any  vessel  for  carrying  the  cargo  which  was required to be loaded from December 14, 1993 to December 21, 1993.   Line  International  had  consistently maintained in their various fax messages,  that  the  offer  made  by  the appellant  was subject, inter alia, to the acceptance of the draft letter of credit.  The stand of the appellant was thus categorical that without any agreement on the terms  of  the letter of credit, it was not ready to nominate the vessel to carry the  cargo.    The appellant was, thus, for all intent and purposes treating the furnishing of the letter of credit as a condition precedent for carrying  the  cargo.    At  no point  of  time  did  the  appellant accept the terms of the letter of credit furnished by respondent No.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

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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  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. 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 shows that there is nothing expressly  agreed  between  them  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 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.  The finding recorded by the learned  single  Judge is  based on a proper appreciation of evidence on the record and a correct application of the legal principles.  We  find no merit  in  this  appeal.   It fails and is dismissed with costs.