Invocation Of Arbitration Clause In Tender Document Is Possible Only If Purchase Order Is Placed: Orissa High Court

The Single Bench of Chief Justice Dr. S. Muralidhar reiterated that the arbitration clause contained in the tender document was not an arbitration agreement in praesenti, but a provision that was to come into existence in the future, if a purchase order was placed.

The opposite party Odisha State Medical Corporation (OSMC) floated a tender for supply of medical drugs. The petitioner Emcure Pharmaceuticals Ltd submitted a bid pursuant to the tender floated by OSMC. The bid of the petitioner was not accepted and the tender was awarded to another party. Thereafter, a representation was made by the petitioner to OSMC that the bid of the other party was wrongly accepted by OSMC in violation of the tender conditions and that the tender ought to have been awarded to the petitioner.

OSMC issued a letter to the petitioner seeking the petitioner's consent to supply an item at a specific approved rate, which was accepted by the petitioner on the condition that it was awarded a contract to supply the entire quantity covered by the tender.

OSMC accepted the offer of the petitioner and stated that the purchase order would be issued in its favour as per the terms and conditions of the tender, without specifying whether the petitioner would be given a purchase order for the entire quantity covered by the tender.

However, no purchase order was placed by OSMC with the petitioner. The petitioner Emcure Pharmaceuticals Ltd invoked the arbitration clause contained in the tender document and issued a notice to OSMC seeking the appointment of an Arbitrator, on the ground that it was not awarded the tender to supply the entire quantity. After OSMC failed to reply to the notice, the petitioner Emcure Pharmaceuticals filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 (A&C Act) before the Orissa High Court seeking appointment of an Arbitrator to adjudicate the disputes between the parties.

The opposite party OSMC disputed the maintainability of the arbitration petition before the Orissa High Court. OSMC contended that as per the tender document, only a dispute between the tender inviting authority and the successful bidder, in connection with or relating to the contract, could be referred to arbitration. OSMC averred that since the petitioner was not the successful bidder, it could not invoke the arbitration clause. OSMC added that no contract or agreement had been executed by OSMC with the petitioner and that the dispute had not arisen in relation to the contract but in relation to the bidding process.

OSMC contended that since no purchase order was placed with the petitioner, there was no concluded contract between the parties, and thus no dispute could be said to have arisen which could be referred to arbitration.

The petitioner Emcure Pharmaceuticals contended that as per the tender document, disputes between the parties arising out of the bid documents were to be referred to arbitration in terms of the A&C Act. Therefore, the petitioner submitted that the petition for appointment of the Arbitrator was maintainable before the Court.

The petitioner averred that the limited or conditional offer made by the petitioner was accepted by the opposite party OSMC, which constituted a completed contract. The petitioner added that the question whether an Arbitrator should be appointed was required to be referred to the Arbitral Tribunal and it ought not to be considered by the Court.

The Court observed that as per the terms of the arbitration clause, which formed a part of the tender document, only a dispute between OSMC and the "successful bidder" could be referred to arbitration.

The Court noted that though the opposite party OSMC had accepted the petitioner's offer to supply, OSMC had specified that the purchase order would be issued as per the terms and conditions of the tender. The Court added that the purchase order was never issued by OSMC.

The Court observed that as per the law laid down by the Supreme Court in the case of Bharat Sanchar Nigam Ltd versus Telephone Cables Limited (2010), it is only when a purchase order is placed that a 'contract' would be entered into between the parties and it is only when the contract is entered into that the arbitration clause would become a part of the said contract.

The Court noted that the Supreme Court had ruled that if a purchase order was not placed, consequently the General Conditions of Contract, which included the arbitration agreement and formed a part of the tender document, would not come into existence or operation at all. Thus, the Supreme Court had ruled that the arbitration clause contained in the tender document was not an arbitration agreement in praesenti, or during the bidding process, but a provision that was to come into existence in the future, if a purchase order was placed.

The High Court ruled that although OSMC had issued a letter accepting the petitioner's offer to supply, the acceptance was not with respect to the petitioner's condition that it be allowed to supply the entire quantity covered by the tender. The Court added that a caveat was entered into by the opposite party OSMC that a purchase order would be issued by it to the petitioner.

Therefore, the Court held that till the purchase order was issued to the petitioner pursuant to the acceptance of the offer made by the petitioner, there was no completed 'contract' between the parties. Thus, the Court ruled that the arbitration clause contained in the tender document was not attracted.

The Court added that the petitioner was not entirely without a remedy since as per the relevant clauses of the tender document, disputes arising out of the bidding process were subject to the jurisdiction of the courts of law, including a Civil Court.

The Court observed that the Supreme Court in the case of Hythro Power Corporation Ltd versus Delhi Transco Ltd (2003) had ruled that the existence or non-existence of an arbitration agreement can also be examined by the arbitral tribunal under Section 16 of the A&C Act. However, the Court added that in view of the law laid down by the Supreme Court in the case of Bharat Sanchar Nigam Ltd versus Telephone Cables Limited (2010), which is a later decision, the occasion for invoking the arbitration clause did not arise in light of the facts and circumstances of the dispute between the parties.

The Court thus dismissed the arbitration petition of the petitioner. The Court added that it was open to the petitioner to avail other remedies available to it in accordance with law.

Case Title: Emcure Pharmaceuticals Ltd versus The Managing Director, Odisha State Medical Corporation and Others

Dated: 13.05.2022 (Orissa High Court)

Citation: 2022 LiveLaw (Ori) 71

Counsel for the Petitioner: Mr. Kamal Bihari Panda, Senior Advocate

Counsel for the Opposite Parties: Mr. P.K. Muduli, Advocate

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