JUDGMENT
Gita Mittal, J.
1. By this judgment, I propose to dispose of the present appeal which has been filed under Section 37 of the Arbitration & Conciliation Act, 1996 by the Food Corporation of India assailing the arbitral award dated 31st January, 2002. Inasmuch as there is no dispute to the factual matrix, the same is briefly noticed hereinafter.
2. The respondent M/s. Garg Rice Mill is running a business of custom milling of paddy. During the year 1995, the appellant had decided that paddy from Punjab would be offered for the milling-cum-storage to rice millers. For this purpose, it had convened a meeting at the Regional Office of the appellant at Chandigarh on 13th January, 1995, for the purposes of explaining the terms and conditions for the milling-cum-storage of the paddy. The terms and conditions on which the paddy would be given for milling-cum-storage to the millers were put before the rice millers in this meeting.
3. The respondent No. 1 purportedly made an offer dated 2nd February, 1995 to store and mill 3000 MTs of Punjab Paddy in their mill premises without charging any storage charges for providing the space. While the appellant had contended that this offer was a confirmation of the acceptance of terms and conditions for milling and storage of the paddy which were communicated in the meeting on 13th January, 1995, the respondent has repudiated the fact that this offer made by it was ever accepted by the appellant herein.
4. The respondent No. 1 also deposited a draft of Rs. 10,000/- drawn on Canara Bank, Yamuna Nagar, dated 2nd February, 1995. There is also no dispute that thereafter the respondent No. 1 started sending paddy for milling to the respondent No. 1, who according to the appellant received the same inter alia, on 12th, 13th, 14th, 15th, 16th, 17th, 19th, 20th and 21st February, 1995, after weighing stock, checking quality and issuing quantity receipts.
The appellant has asserted that this act of delivering paddy to respondent No. 1 was made on acceptance by it the offer of the proposal of respondent No. 1. According to the appellant this established that there was a concluded contract for the purposes of milling of the appellant’s paddy.
5. It is the respondent No. 1’s case that the respondent No. 1 defaulted in carrying out the milling and in order to minimise loss, out of the 40,407 bags of paddy weighing 25793,6800 quintals of superfine paddy, the appellant was compelled to shift 26,485 bags weighing 16304.05 quintals of paddy to other mills for milling. The appellant also suffered a loss of 8789 bags weighing 6085.73 quintals of paddy due to deterioration. In these circumstances, the appellant demanded a sum of Rs. 41,53,001.54p by a registered legal notice dated 15th January, 1998 from the respondent No. 1. The appellant also demanded interest on this amount. The amount was based on the losses suffered by the appellant due to the alleged negligence on the part of respondent No. 1.
6. The respondent No. 1 failed to comply with the notice of demand. Consequently, vide a letter dated 5th February, 1998 the appellant invoked the arbitration clause containing the agreement between the parties and sought consent of respondent No. 1 for reference of the dispute to arbitration.
7. Respondent No. 1 responded to this notice disputing the agreement between the parties. It was contended that the Food Corporation of India had never accepted the offer of the respondent No. 1 even up to 31st March, 1995 and that it had never accepted the paddy for storage and milling. This communication, however, contained the following sentence:
However, in case, FCI wants to appoint the arbitrator, we have no objection to refer the matter to Arbitrator.
At the bottom of the communication, the respondent further stated:
It is intimated that Along with the notice served by the Distt. Manager, FCI, Karnal with regard to an amount of Rs. 1,41,49,441.50/- are wrong and cannot be claimed by the corporation on the facts stated above. However in case FCI wants to appoint Arbitrator through ICA, we have no objection in this regard.
8. In this background, asserting the respondent No. 1 had consented to reference of disputes to arbitration, the appellant sought appointment of an Arbitral Tribunal. The Indian Council of Arbitration constituted an Arbitral Tribunal consisting of three arbitrators. The Food Corporation of India filed a claim dated 30th February, 1998 seeking an award of Rs. 1,08,52,262.00 with interest @ 18% per annum against the respondent No. 1.
9. The respondent No. 1 in its written statement took the following preliminary objections which are required to be noticed in extenso:
1. This Forum has no jurisdiction to entertain the claim filed by the Claimant as no agreement containing arbitration clause was executed or concluded between the claimant and opposite party.
2. That the claimant vide letter dated 06.02.1998 wrote a letter to the opposite party giving the consent in writing for referring the dispute to arbitration as per the following arbitration clause which is as follows:
ICAR Arbitration
All disputes or differences whatever arising between parties out of or relating to the contract/construction measuring and operation or effect of this agreement or the breach thereof shall be settled by Arbitration in accordance with the rules and Arbitration of Indian Council of Arbitration and the award made in pursuance thereof shall be binding on the parties. The award will be speaking order.
From the above clause, it is clear that the dispute will be referred to the arbitration with regard to the differences between the parties relating to the construction, operation or effect of the agreement or breach thereof. Since no agreement was arrived at or executed between the parties and no terms and conditions with regard to milling charges etc. were settled so there is no question of referring the matter to the arbitration arise at all.
3. Moreover, the opposite party never agreed to arbitration clause as contained in letter dated 06.02.1998. The opposite party vide letter dated 10.02.1998 stated that no offer was accepted at the time of storage of paddy nor any written agreement was executed and the contents stated in notice dated 21.02.1998 are totally incorrect, wrong and denied. Moreover, no arbitration clause as contained in the letter dated 06-02-1998 was accepted by the opposite party. Moreover, the letter dated 06-02-1998 had no legal value in the eyes of law as no agreement was entered or arrived at or concluded between the parties.
4. Since no agreement was executed between the parties and as such no terms and conditions was settled either orally or in writing between the claimant and the opposite party and no question arises at all for referring the dispute to the arbitration with regard to the construction giving effect or breach of agreement.
10. So far as the plea of the appellant with regard to storage of the paddy and its acceptance for such purpose by respondent No. 1 constituting an admission of the execution of the contract is concerned, the respondent No. 1 had responded thus in its reply:
6. That this Forum has no jurisdiction to entertain the claim filed by the claimant as the claimant voluntarily dumped the damaged paddy in the premises of the opposite party and unilaterally shifted the same to other places which was in the exclusive possession and control of the claimant and no release order was issued for milling the paddy and no question of milling the paddy arise as no agreement was executed or concluded between the parties and the opposite party is not liable for any damages on account of stacking the paddy in the premises of the opposite party and transferring the same to other places arise at all.
Inter alia, on these pleas the respondent disputed any liability to make payment of the claimed amount to the appellant.
11. The Arbitral Tribunal heard the parties on the preliminary objections taken by the Garg Rice Mills and its partners to the effect that Tribunal had no jurisdiction to arbitrate the claims of Food Corporation of India on the ground that there was no agreement incorporating any arbitration clause. In this behalf, reliance was placed on the reply sent by M/s. Garg Rice Mills to the aforenoticed letter dated 6th February, 1998 which has been noticed hereinabove wherein respondent No. 1 had specifically agreed and given its no objection that in case the appellant wanted to appoint an arbitrator, it did not object to reference of the matter to arbitration through ICA. In view of the admitted position that such a communication had been made on behalf of the appellant, the Tribunal, by an order dated September, 1999, held that the Arbitral Tribunal had jurisdiction to arbitrate the disputes and proceeded further in the matter.
12. Thereafter evidence was recorded on behalf of the parties and after consideration of the entire pleadings and documents and evidence before it, the Arbitral Tribunal had made an award dated 31st January 2002 rejecting the claim of the Food Corporation of India. It is this award which has been assailed before this Court. The principle ground of challenge laid before this Court is based on the plea that the arbitrators having held by the order dated 6th September, 1999 that there is an arbitration agreement between the parties, it had no inherent power to review such a finding and hold in the final award made by it that there is no concluded contract between the parties.
13. Mr. Yashobant Das, learned Senior Counsel appearing for the appellant has submitted that the jurisdiction to review its order is a creation of statute and that no such power is conferred on the arbitral tribunal under the Arbitration & Conciliation Act, 1996. It is the appellant’s contention that the order dated 31st January, 2002 overlooks the earlier order of the Tribunal dated 6th September, 1999 and for this reason, it is not legally sustainable. Reliance has been placed on the pronouncement of the Apex Court Mc. Domat International Inc. v. Burn Standard Co.
14. So far as the jurisdiction of this Court to examine the legality and validity of an award is concerned, it is well settled that the parameters within which such an examination could be laid thereto by this Court are extremely limited. So far as the order dated 6th September, 1999 is concerned, the Arbitral Tribunal has closely scrutinised the material which was placed by the parties before it. I find that it has come in the evidence of the claimants itself, which was recorded thereafter that there is a formal agreement which was supposed to be entered into between the parties. The format of such agreement was enclosed by the Food Corporation of India Along with the affidavit by way of evidence filed by it of Mr. M.S. Viratia, District Manager, Food Corporation of India. Mr. M.S. Biratia admitted in his cross-examination that an agreement for milling of paddy is separately made for each miller and the form is filled up before it is signed by the parties. Furthermore, Mr. Brij Lal, Manager of Food Corporation of India, who has sworn an affidavit as another witness in support of the case of the appellant has also deposed that in the instant case there was no agreement with the respondent whereby the miller was required to give advance rice against which release order of the paddy would be issued. This witness had admitted in his cross-examination that the Food Corporation of India generally enters into an agreement with the rice millers for milling.
15. The appellant has relied on a meeting of the millers held on 10th January, 1995 to urge that terms and conditions of the contract were made known to the millers in this meeting. However, Mr. Biratia in his evidence was unable to point out from the record that the respondent mill was present or represented in any such meeting. He could not even state as to whether any minutes of the meeting were recorded or maintained.
16. It was upon consideration of this evidence of the appellant’s witnesses that the arbitral tribunal came to a conclusion that there was no binding agreement with regard to the material terms and conditions between the parties and consequently held that there was no binding contract which could be spelt out from the correspondence or the conduct of the parties. Based on the evidence placed before it the Arbitral Tribunal has further held that the parties were only negotiating the terms of agreement but had not arrived at any agreement.
17. So far as conduct of the parties is concerned, the appellant has placed a copy of the offer dated 2nd February, 1995 made by the respondent No. 1 to it. This communication deserves to be considered in extenso and reads thus:
It has been come to our notice that some paddy stocks are being received from Punjab to Haryana for casting milling including Jagadhri Centre. We are having a rice mill of one tonne capacity per hour, and want to mill 3000 Mts. paddy into raw rice. The paddy will be lifted either on 2% driage allowance on receipt weight or actual wt. basis. In case there is no storage space with the Corporation for storing paddy, we are ready to provide storage space in our mill to FCI, without any storage charges. Requisite E.M. of Rs. 10,000 vide DD No. 211241 dt. 2-2-95 drawn from Canara Bank, Y. Nagar is also enclosed for n/a.
It is requested that our offer for 3000 Mts. paddy may please be accepted immediately.
18. From the above, it is apparent that respondent No. 1 had not accepted any terms and conditions for milling of paddy but had merely made an offer to provide storage space in its mill to the Food Corporation of India without any storage charges. The respondent No. 1 had also conveyed the capacity of its rice mill and its desire to mill 3000 MT paddy into raw rice. Respondent No. 1 had requested the appellant to accept this offer for this quantity of paddy immediately.
19. There is no dispute that the appellant did not communicate acceptance of the offer from the respondent No. 1 or any terms and conditions to the respondent mill at any point of time. In this background, it cannot at all be contended or held that the finding of the arbitrators to the effect that the parties were not ad idem is incorrect or without jurisdiction. From the evidence placed before the Arbitral Tribunal, it has to be held that there was no concluded contract between the parties and the award dated 31st January, 2002. Such finding is certainly based on the evidence, both oral and documentary, led before the Tribunal.
20. So far as the other ground of challenge based on the Award dated 31st January, 2002 being without jurisdiction for the reason that the same amounted to review of its earlier order of 6th September, 1999, without any power of review being conferred on the Arbitral Tribunal is concerned, in my view, this objection is wholly without merit and deserves to be rejected outright. The arbitral tribunal came to a conclusion that respondent No. 1 had consented to the arbitration in view of what was communicated by it in response to the letter of the claimant dated 6th February, 1998.
21. It is trite that an arbitration agreement may not necessarily be contained in the substantive contract between the parties. In the instant case, even though no formal arbitration agreement had been drawn up, however, in its reply aforenoticed to the appellant’s legal notice, the respondent No. 1 had consented to the reference of the disputes to arbitration of ICA. The very same communication also contained the specific objection on the part of the respondent No. 1 to the effect that there was no concluded contract between the parties and that it had not taken upon itself the responsibility of storage and milling of the rice of the appellant.
22. In my view, therefore, merely because the Arbitral Tribunal had passed order dated 6th of September, 1999, it was not precluded from examining the objection of respondent No. 1 to the effect that there was no substantive agreement or contract between the parties in respect of the storage and milling of paddy was concerned. Such examination does not amount to review of the earlier order of the Tribunal inasmuch as at the latter stage, the Tribunal was required to consider the existence of the substantive contract and not merely the issue of existence or validity of the arbitration agreement which was before it on 6th September, 1999.
23. Certainly, the findings of the arbitral tribunal in the order dated 6th September, 1999 do not come in the way of the arbitral tribunal considering the matter on merits and arriving at a conclusion that there was no concluded contract so far as the substantive clause fixing liability of the parties and relating to storage and milling of paddy is concerned. The objection which was considered by the Tribunal on 6th September, 1999 related to existence of the arbitration agreement, whereas in the final award dated 31st January, 1992, the arbitral tribunal has examined the matter on merits. The principles laid down in Mc. Dermott International Inc. v. Burn Standard Co. Ltd. and Ors. (supra), therefore, have no application to the instant case.
24. Before this Court, other than the offer of the respondent No. 1 contained in its letter dated 2nd February, 1995, the respondent has failed to point out any evidence documentary or otherwise, whereby any conclusion that the parties were at ad idem or had arrived at agreed terms and conditions for storage and milling of the paddy rice could be arrived at.
25. The arbitral Tribunal has placed reliance on the pronouncement of the Apex Court in U.P. Rajkiya Nirman Nigam Ltd. v. Indure Pvt. Ltd. wherein the Apex Court had laid down the principle that mere participation in the arbitration proceedings would not confer jurisdiction on the arbitrator unless there is a concluded contract between the parties. In this behalf, the Court had held thus:
In the draft agreement between the appellant, a State Govt. undertaking, and the respondent, a private respondent effecting material alterations by changing a clause regarding joint liability to individual liability of appellant alone and deleting a clause containing material part of the terms for performance of the contract with the board and then signing the revised agreement – But appellant instead of signing the revised agreement, submitting tender to the Board unilaterally and later withdrawing the same – Respondent invoking the arbitration clause contained in the draft agreement and nominating an arbitrator – Appellant, without prejudice to its rights to question existence and validity of such clause as well as the agreement itself, also nominating an arbitrator – But subsequently application filed by appellant for a declaration that there resisted no arbitration agreement.
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9. …There is no dispute to the proposition of law but to factors have to be kept in mind, viz., when the counter-offer was made by the respondent and whether the unilateral offer amounts to acceptance by submitting the tenders by the appellant to the Board. We find that it does not amount to acceptance of counter-proposal. It is seen that admittedly, Clause (10) which thrusts responsibility on the first respondent was deleted in the counter-proposal. In Clause (12), for joint responsibility unilateral liability was incorporated. In other words the respondent disowned its material responsibilities. Unless there is acceptance by the appellant of those conditions no concluded contract can be said to have emerged. It is seen that the appellant is a government undertaking and unless contract is duly executed in accordance with the Articles of Association, the appellant is not bound by any such contract….As seen, the material alterations in the contract make a world of difference to draw an inference of concluded contract. The joint liability of the parties was made unilateral liability of the appellant. Thereby, the respondent sought to absolve itself from the liability of further performance of the contract with the Board. Similarly, Clause (10) which contains material part of the terms for the performance of the contract with the Board was deleted. Thereby, there is no consensus ad idem on the material terms of the contract which contains several clauses. In the absence of any consensus ad idem on the material terms of the contract to be entered into between the parties, there emerged no concluded contract. Apart from the draft agreement and the counter-proposal, there is no independent contract for reference to arbitration. Clause (14) which is an integral part from the draft agreement proposed by the appellant and the counter-proposal is the foundation for reference to the arbitration.
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12. We find no force in the contention of Shri Nariman that the appellant had submitted to the jurisdiction of the arbitrators and having nominated the arbitrator, they are estopped to go back upon it. Acquiescence does not confer jurisdiction.
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16. Since the tenders – the source of the contract between the parties – had not transformed into a contract, even if the proposal and counter-proposal are assumed to be constituting an agreement, it is a contingent contract and by operation of Section 32 of the Contract Act, the counter proposal of the respondent cannot be enforced since the even of entering into the contract with the Board had not taken place.
17. In Ramji Dayawala & Sons (P) Ltd. v. Invest Import , a two-Judge Bench of this Court considered the existence of the contract and arbitration clause there under. This Court had held that in the facts of a given case acceptance of a suggestion may be sub silentio reinforced by the subsequent conduct. Where there is a mistake as to terms of a document, amendment to the draft was suggested and a counter-offer was made, the signatory to the original contract was not estopped by his signature by denying that he intended to make an offer in the terms set out in the document. Where the contract is in a number of parts it is essential to the validity of the contract that the contracting party should either have assented to or taken to have assented to the same thing in the same sense or as it is sometimes put, there should be consensus ad idem. In that case a sub-contract was signed and executed by the Managing Director of the appellant company but part of the contract was altered subsequently, since counter-proposal was given by the respondent. This Court had held that one such case is where a part of the offer was disputed at the negotiation stage and the original offeree communicated that fact to the offerer saying that he understood the offer in a particular sense; this communication probably amounts to a counter-offer in which case it may be that mere silence of the original offerer will constitute his acceptance. Where there is a mistake as to the terms of the documents as in that case amendment to the draft was suggested and a counter-offer was made, the signatory to the original contract is not estopped by his signature from denying that he intended to make an offer in the terms set out in the document; to wit, the letter and the cable. It can, therefore, be stated that where the contract is in a number of parts it is essential to the validity of the contract that the contracting party should either have assented to or taken to have assented to the same thing in the same sense or as it is sometimes put, there should be consensus ad idem. It was held that there was no consensus ad idem to the original contract. It was open to the party contending novatio to prove that he had not accepted a part of the original agreement though it had signed the agreement containing that part.
18. As found earlier there is no signed agreement by a duly competent officer on behalf of the appellant. The doctrine of “indoor management” cannot be extended to formation of the contract or essential terms of the contract unless the contract with other parties is duly approved and signed on behalf of a public undertaking or the Government with its seal by an authorised or competent officer. Otherwise, it would be hazardous for public undertaking or Government or its instrumentalities to deal on contractual relations with third parties.
19. In view of the fact that Section 2(a) of the Act envisages a written agreement for arbitration and that written agreement to submit the existing or future differences to arbitration is a precondition and further in view of the fact that the original contract itself was not a concluded contract, there existed no arbitration agreement for reference to the arbitrators. The High Court, therefore, committed a gross error of law in concluding that an agreement had emerged between the parties from the correspondence and from submission of the tenders to the Board. Accordingly, it is declared that there existed no arbitration agreement and that the reference to the arbitration, therefore, is clearly illegal. Consequently, arbitrators cannot proceed further to arbiter the dispute, if any. The conclusion of the High Court is set aside.
26. It is trite that unless a clear contract emerges from the correspondence between the parties, it cannot be said that there was not any agreement which was arbitrable between the parties. It was so held in Rickmers Verwaltung GMBH v. Indian Oil Corporation Ltd. In this judicial pronouncement, the Court had laid down the applicable principles thus:
13. In this connection the cardinal principle to remember is that it is the duty of the Court to construe correspondence with a view to arrive at a conclusion whether there was any meeting of mind between the parties which could create a binding contract between them but the court is not empowered to create a contract for the parties by going outside the clear language used in the correspondence, except insofar as there are some appropriate implications of law to be drawn. Unless from the correspondence, it can unequivocally and clearly emerge that the parties were ad idem to the terms, it cannot be said that an agreement had come into existence between them through correspondence. The Court is required to review what the parties wrote and how they acted and from that material to infer whether the intention as expressed in the correspondence was to bring into existence a mutually binding contract. The intention of the parties is to be gathered only from the expressions used in the correspondence and the meaning it conveys and in case it shows that there had been meeting of mind between the parties and they had actually reached an agreement upon all material terms, then and then alone can it be said that a binding contract was capable of being spelt out from the correspondence.
14… Apart from the correspondence relied upon by the learned Single Judge of the High Court, the fax messages exchanged between the parties, referred to above, go to show that the parties were only negotiating and had not arrived at any agreement. There is a vast difference between negotiating a bargain and entering into a binding contract. After negotiation of bargain in the present case, the stage never reached when the negotiations were completed giving rise to a binding contract.
27. It is noteworthy that the Arbitration & Conciliation Act, 1996 itself draws a distinction between the arbitration contract and the substantive contract containing the terms on which the parties agree to bind themselves and discharge their respective obligations.
28. In this factual and legal back ground, it cannot be held that in the instance case, there was any concluded, valid and binding contract between the parties, whereunder disputes had arisen. Even assuming that the contents of the respondent No. 1’s reply to the notice dated 6th February, 1998 which have been noticed hereinabove, constituted a valid arbitration agreement, wherein the appellant is required to show that such disputes had arisen under an agreement between the parties, which could be referred to arbitration. Inasmuch, as there is nothing on record to establish existence of a concluded contract, so far as storage and milling of paddy, between the parties is concerned, it has to be held that there were no disputes which could be referred to arbitration.
29. I, therefore, hold that the challenge to the jurisdiction of the arbitrator in making and pronouncing the award dated 31st January, 2002 on the aforenoticed grounds is wholly devoid of any merit and the Award is based on the admission of the appellant and the documentary evidence placed before arbitral tribunal by it.
There is, consequently, no merit in the present appeal which is hereby dismissed.
The respondent No. 1 is entitled to costs of the present proceedings which are quantified at Rs. 10,000/-.