State of Haryana and Another vs O.P. Singhal and Co.

The Executive Engineer PWD (B&R), Hissar, invited tenders for execution of certain work and M/s. O. P. Singhal and Company through O. P. Singhal submitted the tender. The tender submitted by him was accepted by the Executive Engineer and letter of acceptance was conveyed. However, no formal contract as envisaged by Art. 299 of the Constitution, was entered into. Ultimately the contract was not executed and the parties blamed each other for the same. On 3rd March, 1980, M/s. O. P. Singhal & Company filed a suit for recovery of Rs. 4900/- with interest and also prayed for injunction. The State of Haryana and the Executive Engineer fi1ed an application under S. 34 of the Arbitration Act, (hereinafter referred to as ''the Act'') for stay of the suit on the plea that the contract between the parties contained clause 25-A, which provided for reference of the disputes to an Arbitrator to be appointed by the Chief Engineer, PWD (B&R), branch, Chandigarh. The application was opposed by the plaintiff and he pleaded that no contract was executed, and, therefore, the arbitration clause was not applicable.

On the contest of the parties, the following issues were framed.

Whether the proceedings of the suit are liable to be stayed under S. 34 of the Arbitration Act, OPA

Relief.

Both the sides led evidence. The trial Court by order dt. 29th April, 1982 stayed the proceedings in the suit, since the dispute had to be decided by the Arbitrator after recording finding that even if no written contract was by the parties the unsigned written contract contained arbitration clause, which was effective in view of Union of India (UOI) Vs. A.L. Rallia Ram, , Union of India (UOI) Vs. Bharat Charcoal Co. Ltd., and Kumarbar-bar Behera Vs. Executive Engineer, P.H. Maintenance Division No. II, Bhubaneswar and Another, .

On plaintiff''s appeal the learned District Judge endorsed the finding of the trial Court that the unsigned written contract was enforceable. Mulamchand Vs. State of Madhya Pradesh, relied upon on behalf of the plaintiff was distinguished and The Union of India v. S. Kesar Singh. AIR 1978 J&K 102 was followed in coming to the conclusion that a valid contract came into being between the parties merely by submission of tender and acceptance thereof. In spite of recording this finding in favour of the defendant-State, the learned District Judge concluded that in order to seek stay under S. 34 of the Act, the concerned party had to plead and prove its readiness and willingness both at the commencement of the proceedings and at all other relevant times and to do all things necessary for the proper conduct of the arbitration proceedings in accordance with the law, failing which, stay would be refused. For this view, reliance was placed on Anderson Wright Ltd. Vs. Moran and Company, , Food Corporation of India Vs. Thakur Shipping Co. and Others, , Middle East Trading Co. Vs. The New National Mills Ltd., , N.C. Padmanabhan and Others Vs. S. Srinivasan, and Punjab State v F. Soni Construction Company (1965) 67 PLR 1132.

Adverting to the facts of the case, the learned District Judge held that bare averment was made in para 4 of the petition and the same was neither supported by an affidavit nor any evidence was led in the case that the applicant was and is still ready and willing to do all necessary things to the proper conduct of the arbitration proceedings. This finding was arrived at particularly because the plaintiff repudiated the contract due to the non-performance of initial part of the contract by the defendants and the defendants did not bother to get the dispute referred to the arbitrator in accordance with the terms of the arbitration clause within the stipulated period of six months.

The learned District Judge further proceeded to hold that questions of law like acceptance of contract, its validity and rescission were involved and in view of Jagadhari Bhandar and Jagadhatri Bhandar and Jagadhatri Oil Mills Vs. Commercial Union Assurance Co. Ltd., , such questions of law could not be referred to an Arbitrator. In view of the aforesaid findings the appeal was allowed and the stay was vacated. This is revision by the defendants.

After hearing the learned counsel for the parties I do not find if the learned District Judge acted illegally or with material irregularity which may call for interference in revisional jurisdiction of this Court. It has been repeatedly held by the Supreme Court that the erroneous decision even on question of law cannot be interfered with in revisional jurisdiction.

Assuming that there is slight error in the judgment of the learned District Judge about the pleading in regard to the defendants readiness and willingness to abide by the arbitration clause and to do all things necessary for the conduct of the arbitration. However I find there is no evidence in support of the plea. On the other hand evidence has been brought on the record by the plaintiff that when the defendants changed material terms of the contract it rescinded the contract and gave information to the defendants and in spite of that the defendants did not refer the dispute to the Arbitrator. In case they considered that the plaintiff wrongly rescinded the contract they should have referred the matter to the arbitrator within 6 months because the dispute had arisen at that time and the arbitration clause provided for reference of the dispute within six months.

I find one more fundamental hurdle in the way of the petitioner. K.P. Chowdhary Vs. State of Madhya Pradesh and Others, and Mulamchand Vs. State of Madhya Pradesh, clearly provide that Art. 299 of the Constitution of India 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. In pursuance of such a void contract if a party incurs the expenditure then that party is entitled to reimbursement not because of the contract but on the. rule of quasi-contract or restitution and it becomes subject to obligation or duty to account the defendant for what he has received in the transaction. Both these judgments are applicable to the facts of the present case and the learned District Judge was in error in not applying the rule laid down in Mulamchand''s case (supra) which was clearly applicable to this case and is not distinguishable. Once the main contract is void then the arbitration clause contained therein becomes meaningless because the arbitration clause is provided for reference of present or future disputes to arbitration under a valid agreement and if the agreement itself is invalid the arbitration clause falls with it. The Courts below erred in relying on Union of India (UOI) Vs. A.L. Rallia Ram, in coming to the conclusion that even unsigned written contracts can be valid. In A. L. Rallia Ram''s case (supra) it was assumed that there was a valid existence of contract but the arbitration agreement which was reduced to writing though not signed by the parties was subject matter of consideration. On these facts it was held that an unsigned written arbitration agreement would be valid. As regards S. Kesar Singh''s case AIR 1978 J&K 102 (supra) I am of the opinion that that has not been correctly decided. Only reference was made to A. L. Rallia Ram''s case (supra) and not to K.P. Chowdhary Vs. State of Madhya Pradesh and Others, and Mulamchand Vs. State of Madhya Pradesh, If these two judgments had been noticed the decision would have been otherwise. Accordingly, I dissent from S. Kesar Singh''s case (supra) and hold that merely because of submission of tender and acceptance thereof no binding contract as envisaged by Art. 299 of the Constitution can come into existence. Accordingly, I hold that in the present case no binding contract came into being between the parties within the meaning of Article 299 of the Constitution with the result that the arbitration clause contained in the unsigned agreement could not be relied upon for claiming stay under S. 34 of the Act. On this reasoning also the application filed by the petitioner under S. 34 of the Act deserves to be dismissed.

For the reasons recorded above this revision is devoid of merit and is dismissed with no order as to costs.

Revision dismissed.