Om Parkash Baldev Krishan vs State of Punjab and Another

D.V. Sehgal, J.—This revision petition is directed against the judgment dated 4th April, 1986 passed by the ld. Subordinate Judge 1st Class, Patiala, whereby an application u/s 33 of the Arbitration Act, 1940 (for short the ''Act'') filed by the Petitioners has been dismissed.

The facts in brief are that the Executive Engineer (Construction Division No. 1) PWD B&R Branch, Patiala, invited tenders for the work styled as ''Construction of high level bridge over Tangri Nadi in Miie No. 19/5 of Patiala-Pehowa road. The Petitioner submitted its tender in response to the same which was opened on 7th Oct., 1975. The Petitioner happened to be the lowest tenderer. It was required to submit drawings for the work to the higher authorities which he did. However, fresh tenders for the same work were re-called in Feb., 1976 by the same Executive Engineer. The Petitioner again submitted its tender. The Executive Engineer informed the petition through a telegram that its tender had been accepted and it was asked to take up the work in hand. Some subsequent correspondence took place between the Petitioner and the Executive Engineer that no valid and binding contract had come into being between it and the State of Punjab Respondent No. 1 and, therefore, it withdrew its offer made through the tender. It also maintained that the acceptance conveyed through the telegram and a subsequent letter dated 31st Aug., 1976 by the Executive Engineer did not constitute a legal, valid and binding contract having the force of law. After a lapse of almost three years the Executive Engineer vide letter dated 15th April, 1980 informed the Petitioner that since it had failed to start the work it had become liable for action under Clause II of the agreement and that the Engineer-in-charge had levied penalty of Rs. 2,55,000 on it. Later it appears that taking resort to the provisions of Clause 28-A of the alleged agreement a claim for Rs. 4,56,040 was made by Respondent No. 1 through the Executive Engineer and a reference for adjudication of this claim was made to the Superintending Engineer Respondent No. 2 who according to the said Clause of the agreement was to act as an Arbitrator. Respondent No. 2 called upon the Petitioner to submit its reply to the claim. The Petitioner, however, disputed existence of any arbitration act between the parties by contending that since there was no valid agreement any Clause in the alleged agreement could not be considered to be a valid arbitration agreement. The Petitioner, therefore, filed an application u/s 33 of the Act in the trial Court for a declaration that there was no valid and binding agreement between the parties and as such there was no arbitration agreement and Respondent No. 2 was not a validly appointed arbitrator.

The application was opposed by Respondent No. 1. A reply was filed on its behalf. It was stated therein that besides telegram acceptance of the tender was conveyed through a detailed letter dated 31st Aug., 1976 by the Executive Engineer Construction Division No. 1 to the Petitioner. In compliance with that acceptance letter the Petitioner had submitted the design, calculations, partnership deed etc. It was also maintained that there was a Clause in the tender duly signed on behalf of the Petitioner that acceptance of the said tender would constitute a legal and binding contract between the parties. On the pleadings of the parties, the ld. trial Court framed the following issues:

(1) Whether Superintending Engineer is not competent to arbitrate upon the matter in dispute? OPA.

(2) Whether was No. valid agreement between the parties as alleged? OPA.

(3) Whether the petition is not maintainable as alleged? OPR.

(4) Relief.

Issues Nos. 1 to 3 were decided by the ld. trial Court through the order under revision against the Petitioner and as a result its application was dismissed.

I have heard the ld. Counsel for the parties and have also gone through the record of the ld. trial court. Ld find that the Court below has acted illegally in dismissing the application u/s 33 of the Act made by the Petitioner. It has been observed by the ld. trial Court that the Petitioner did not choose to appear in the witness box. It is, however, to be noted that through a statement dated 22nd Nov., 1984 ld. Counsel for the Petitioner had tendered in evidence a detailed affidavit Exhibit PI deposing to the facts and had also tendered documents Exhibits P2 to P7. Section 33 of the Act gives jurisdiction to the Court to decide the question before it on the basis of affidavits of the parties. When the affidavit Exhibit PI on behalf of the Petitioner was tendered in evidence the same was not objected to. Therefore, the fact that no one on behalf of the Petitioner appeared in the witness box could not work to its detriment. No doubt documents Exhibits P2 to P7 were admitted in evidence subject to comparison with the original documents. The ld. trial Court has observed that the original documents were not produced and as such these documents could not be taken into consideration. I, however, find that the material documents out of these are only copy pf the telegram Exhibit P6 and the acceptance letter, dated 31st Aug., 197(5 Exhibit p?, The Respondent has produced through RW1 copies of both these documents as Exhibits RW1/13 and RW1/14. Or) perusal of these two sets of documents it is clear that there is no discrepancy in the same. As such documents Exhibit P6 and P7 ought to have been taken into consideration.

The ld. trial Court has then proceeded to observe that Clause 4-6 of the tender which is duly signed by the Petitioner lays down that the tender together with the letter of acceptance thereof shall constitute a binding contract between the successful tenderer and the department and shall form the foundation of rights and obligations of both the parties. It has been thus concluded that the Petitioner is estopped from raising the plea that the acceptance letter does not constitute a binding contract between the parties. It has been further observed that in compliance with the acceptance letter Exhibit P7 the Petitioner had fulfilled some of its requirements by submitting design, calculations, partnership deed etc. but at a later stage it tried to wriggle out of the contract by taking the plea that there is no valid and binding contract between the parties. The Id. trial Court has thus concluded that the contract between the parties is valid. Reliance has also been placed on para 276 of the Public Works Department Code Exhibit RW 2/A which vests powers with the Executive Engineer to execute agreement for works.

I find that the ld. trial Court has not properly appreciated the legal position. After detailed examination of a catena of authorities on the point it has been held in State of Haryana and Another Vs. O.P. Singhal and Co., that merely because of submission of tender and acceptance thereof no binding contract as envisaged by Article 299 of the Constitution of India can come into existence. Where no binding contract has come into being between the parties within the meaning of Article 299 the arbitration Clause contained in the unsigned agreement could not be relied upon for claiming stay u/s 34 of the Act. It has also been observed that Article 299 is mandatory and if no contract is entered into in those terms then it is a void transaction and cannot be given effect to in court of law. The Id. trial Court has attempted to distinguish this judgment from the facts of the case in hand on two grounds: firstly, that O.P. Singhal''s case relates to a contract in the State of Haryana and secondly that an application u/s 34 of the Act was the subject matter of adjudication therein. I fail to appreciate how any of these two aspects amount to distinguish the present case form O.P. Singhal''s case it is to be noted that in the acceptance letter Exhibit P7 and Exhibit RW1/14 the Executive Engineer has required the Petitioner at the end to sign the agreement which was under preparation within ten days. It is undisputed that no such agreement was ever signed.

In the Bihar Eastern Gangetic fishermen Co-operative Society Ltd. v. Sipahi Singh and Ors. AIR 1977 SC 3149, it has been held as under:

The provisions of Article 299 of the Constitution which are mandatory in character require that a Contract made in the exercise of the executive power of the Union or of a State must satisfy three conditions viz: (i) it must be expressed to be made by the President or by the Governor of the State as the case may be; (ii) it must be executed on behalf of the President or the Governor, as the case may be and (iii) its execution must be by such person and in such manner as the President or Governor may direct or authorise. Failure to comply with these conditions nullifies the contract and renders it void and unenforceable. There is no question of estoppel or ratification in a case where there is contravention of the provisions of Article 299(1) of the Constitution.

In State of Haryana and Others Vs. Lal Chand and Others, , it has been held that Article 299(1) of the Constitution applies to a contract made in exercise of the executive power of the Union or the State. Such a contract is nullified and becomes void if the contract is not executed in conformity with the provisions of Article 299(1) and there is no question of estoppel or ratification in such cases nor can there be any implied contract between the Government and another person.

As such the conclusion arrived at the ld. trial Court that inspite of the, fact that no contract in conformity with Article 299(1) of the Constitution had been entered into between the Petitioner and Respondent No. 1 Clause 4-6 of the tender and the subsequent conduct of the Petitioner in complying with the requirements of the acceptance letter amount to acquiescence and estoppel, is not at all sustainable.

In Mulamchand Vs. State of Madhya Pradesh, while discussing the provisions of Article 299(1) of the Constitution it has been held thus:

These provisions have not been enacted for the sake of mere form but they have been enacted for safeguarding the Government against unauthorised contracts. They are based on the ground of public policy, on the ground of protection of general public, and these formalities cannot be waived or dispensed with. If the plea of estoppel or ratification is admitted that would mean in effect the repeal of an important constitutional provision P8 intended for the protection of the general public.

In view of the settled law to which reference has been made above, it is clear that when no contract within the meaning of Article 299(1) of the Constitution had been executed between the Petitioner and Respondent No. 1, Clause 28-A contained in the form of the said unsigned agreement which purported to provide for arbitration in the case of dispute between the parties by Respondent No. 2 as an arbitrator, is also void and ineffective and has no validity in the eyes of law.

Consequently, this revision petition is allowed, order dated 4th April, 1986 passed by the ld. trial Court is set aside, and the application of the Petitioner u/s 33 of the Act is allowed with costs throughout.

Revision allowed.