Contract Implied When Parties Bind Themselves To Specified Terms & Conditions Despite Absence Of Formal Agreement: Kerala High Court

The Kerala High Court recently laid down that even if a formal agreement has not been entered into between the parties, where they have bound themselves to certain specified terms and conditions, it cannot be contended that there is no concluded contract between the parties. 

While accepting the arbitration request and appointing an Arbitrator for resolving the dispute between M/S Anantham Online Pvt. Ltd., and the Senior Divisional Commercial Manager, Southern Railway, regarding the execution of a work contract between the parties for operating the Vehicle Parking Facility at Thiruvananthapuram Central (Main Entry) Railway for a period of two years, Justice Devan Ramachandran, observed:

"I...fail to understand the purport of the argument of the respondent that, there was no concluded contract between the parties because, in the scenario where even a formal agreement had not been entered into, Annexure A1 makes it unequivocally evident that terms of the “LOA”, as also any other which may be imposed later, would apply and that parties will have to scrupulously follow the same. Since Annexure A6 (Letter of Award) reiterates this, as also the fact that “contract” has been awarded to the petitioner on certain specified conditions, I cannot countenance the contra argument that there is no concluded contract between the parties". 

The respondents had invited tenderers to operate the Vehicle Parking Facility at Thiruvananthapuram Central (Main Entry) Railway Station through a Tender Document. The said document provided in Clause 19(1) that in case of any delay in execution of the agreement, “the terms of the tender notification”, as well as the Letter of Acceptance (LOA) would be binding and treated as an agreement. Clause 57 of the further provides that in case of disputes arising between the parties, provisions of the Arbitration and Conciliation Act, 1956 and its amendments from time to time, as well as the General Conditions of Contract (GCC) shall apply. 

In response to the tender furnished by the petitioner, LOA was issued by the respondent accepting the same, and stipulating that the period of contract would be reckoned either from the actual date of starting of management of the Vehicle Parking Facility, or from the 30th day of the said document, whichever is earlier. 

The dispute between the parties pertains to the respondent's alleged inaction to remove and stop unauthorised parking of vehicles in the vicinity of the Railway Station. The petitioner submitted that inspite of them requesting the respondent to guide them appropriately to tackle the issue, the latter issued a letter terminating the contract itself and asked the petitioner to hand over the list of vehicles parked in the facility. The respondents responded to the said request stating that the petitioner had not remitted their license fee for the second quarter and made a further demand to execute the formal agreement within a week. The respondents subsequently terminated the contract vide another letter. 

The petitioner thus approached the Court with an Arbitration request, pointing to the Tender Document, which the petitioner states to be an intrinsic part of the contract, as per which all disputes between the parties are mandatorily to be resolved through arbitration. 

The Standing Counsel of Southern Railway S. Biju however argued that there was no concluded contract between the parties, as was evident from a letter issued by the respondent to the petitioner. The counsel contended that although the letter directed the petitioner to execute the agreement within a week of its date, ie, October 3, 2022, no action had been taken, and the petitioner could thus not seek arbitration of the alleged disputes on the basis of a non-existent arbitration clause.

The Court, upon perusing the documents before it, observed that the LOA had deemed the contract to to begin from either the actual date of starting of management of the Vehicle Parking Facility, or from the 30th day of the document, whichever was earlier, without the parties having to enter into a formal agreement, although Clause 3 of the document did mandate it to be executed in a non-judicial stamp paper of Rs.500/- within 15 days from its date.

The Court noted that although a formal agreement, as required in the LOA had not been entered into by the parties, it could be seen that the terms of the LOA had to be abide by the petitioner, by making the requisite payment and security deposit. The Court further went on to observe that pursuant to the same, a Letter of Award was also issued to the petitioner by the respondent, without requiring the former to enter into a formal contract, and at the same time, stating that the General and Special Conditions of Contract as already notified to them ought to be scrupulously followed. 

"The sum total of the afore would luculently, therefore, establish that, though a formal agreement had not been entered into between the parties, they bound themselves to certain specified terms and conditions, under which the petitioner was obligated to operate the Vehicle Parking Facility; and this is virtually conceded because, the respondents also admit that, the license fee for the first quarter had been remitted by the petitioner along with all other requirements being satisfied. It is only quad hoc the second quarter of the license fee that Annexure A16 communication of the respondent relate to; and this is further fortified by the fact that, in Annexure A19, they refer specifically to a “contract”, which according to them, stood terminated with effect from 06/07-11-22," the Court observed. 

The Court was of the view that the Letter of Award explicitly states that a 'contract' had been awarded to the petitioner and that the general conditions and special conditions of the contract ought to be followed. 

It thus found that there was a concluded contract between the parties. 

In this regard, the Court furter went on to state that since the Tender Document mandates for arbitration of disputes in Clause 57, "...it without doubt, and as is admitted, the “GCC” contains provisions for arbitration between the parties, though copy of the same has not been made available to this Court by either of the parties in spite of sufficient opportunity having been offered to them". 

The Court thus allowed the Arbitration request and appointed Advocate K.K. Raziya as the sole arbitrator in the matter to adjudicate and resolve the disputes and differences between the parties.

The petitioner was represented by Advocates Biju Balakrishnan, V.S. Rakhee, K.R. Sunil, Ajmal P., and Gopika P.J. 

Case Title: M/S Anantham Online Pvt. Ltd. v. Senior Divisional Commercial Manager, Southern Railway, Thiruvananthapuram

Citation: 2023 LiveLaw (Ker) 451

Case Number: AR NO. 25 OF 2023

Click Here To Read/Download The Order