The Arbitration Clause Contained In A Manual Issued By The Government As A Generic Guideline Is Not Binding: Andhra Pradesh High Court

The Court also observed that there cannot be an arbitration clause in a sub-contract or in a separate document when there is no binding agreement between the parties in the first place.

Facts

The Andhra Pradesh Medical Services Infrastructure Development Corporation issued tender for service and maintenance of biomedical assets and equipment within the State. A request for proposal (RFP) was executed between the parties and an agreement dated 04.11.2015 was entered into subsequently. In terms of RFP, the parties were to enter into a detailed agreement that has not been executed to date.

A dispute arose between the parties regarding payment for the work. Accordingly, the applicant filed a writ petition against the respondent for withholding the payments. Thereafter, the respondent issued a notice of termination of the agreement, aggrieved by the action of the respondent, the petitioner filed another writ petition against the notice of the respondent.

It is in its counter-affidavit filed in the above writ petition that the respondent contended that since the agreement between the parties does not have any provision for its termination, recourse can be taken to the guidelines issued by the Government of India, i.e., Manual for Procurement of Goods, 2017 (the Manual).

Thereafter, the petitioner issued a notice to the respondent to amicably settle the dispute in terms of Clause 9.9 of the Manual. The respondent again replied with a show cause notice as to why the agreement should not be terminated. Consequently, the petitioner served the respondent with the notice of arbitration in terms of Clause 9.9 of the Manual.

On refusal of the respondent for arbitration, the petitioner approached the Court under Section 11 of the A&C Act for the appointment of the arbitrator.

The Contention of the Parties

The petitioner sought the appointment of the arbitrator on the following grounds:

• The respondent in its counter-affidavit to the writ petition filed by the petitioner against the notice of termination has relied on the provisions of the manual to derive power to terminate the agreement.
• The manual admittedly has an arbitration agreement, therefore, the parties must be relegated to arbitration.
• The respondent having agreed to the applicability of the manual cannot now contend that the manual is not binding.

The respondent objected to the maintainability of the application on the following grounds:

• There is no agreement between the parties as the agreement dated 04.11.2015 is not in accordance with the standard format used by the respondent and as also provided in the RFP.
• The RFP is also not an agreement and only provides necessary information to the parties to enter into a detailed agreement.
• The manual issued by the Central Government is not a binding document as it only provides general guidelines for the procurement of goods.
• The agreement dated 04.11.2015 also does not have any arbitration clause nor does it mention anything about Clause 9.9 of the Manual, therefore, recourse to manual cannot be taken to refer the parties to arbitration.
• Clause 9.9 of the manual does not satisfy the requirement of Sections 10 and 11 of the Indian Contract Act, 1872, therefore, cannot be treated as valid arbitration agreement in terms of Section 7 of the A&C Act.
• The High Court has ordered ACB enquiry against the petitioner consequently an FIR was registered, therefore, the matter involves determination of serious offences and cannot be referred to arbitration.

Analysis by the Court

The Court held that admittedly there is no arbitration agreement clause in the agreement between the parties. It observed that RFP is also not an agreement but merely provides necessary information to the interested parties.

The Court further observed that in terms of RFP, the petitioner and the respondent were to enter into a draft agreement which was to be prepared by the respondent after the petitioner had formed a Special Purpose Vehicle. However, the petitioner did not form any SPV, therefore, the draft agreement which recorded the essential requirements, rights and obligations of the parties was never executed. Therefore, there is no valid agreement between the parties and in absence of a valid agreement, there cannot be a valid arbitration agreement in some other contract.

The Court further held that the reliance placed by the petitioner on the Manual is completely misplaced as it is merely a manual issued by the government which provides generic guidelines.

Accordingly, the Court dismissed the application.

Case Title: TBS India Telematic and Biomedical Services Pvt. Ltd. v. Commissioner of Health and Family Welfare, Arbitration Application No. 26 of 2020

Date: 08.07.2022

Citation: 2022 LiveLaw (AP) 90 

Counsel for the Applicant: Mr. Anish Dayal, Sr. Counsel assisted by Mr. P. Badrinath

Counsel for the Respondent: Mr. P. Sudhakara Reddy, Additional Advocate General

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