JUDGMENT
G.R. Majithia, J.
1. This revision petition is directed against the order of the Subordinate Judge 1st Class, Chandigarh dated May 19, 1977, dismissing the application filed by the petitioner under Section 33 of the Arbitration Act, 1940 (for short, the Act) challsnging the existence of the Arbitration Agreement.
2. The facts: –
The petitioner is a public limited company with its registered Head Office at Yamunanagar in Haryana It is the proprietor of Indian Sugar and General Engineering Corporation, an engineering unit engaged in the manufacture of sugar and other machinery. The Government of Haryana wanted to set up two sugar plants in the State in the co-operative sector one at Karnal and the other at Sonepat. The State Government constituted a Sugar Mill Machinery Purchase Committee (hereinafter referred to as the Committee) to advise it with regard to the placing of orders for the purchase of plant and machinery. The Committee invited tender from the Indian Sugar and General Engineering Corporation vide letter dated July 18, 1973 for supply of plants and machinery for Karnal and Sonepat Co-operative Sugar Mills. The tender notice contained the terms and conditions of the supply. Clauses 6 and 12 of the tender notice provided that orders were to be placed and agreement entered into by a co-operative society. Indian Sugar and General Corporation in response to the tender notice dated July 18, 1973, submitted its quotations in quadruplicate for the supply of plant. Along with the quotations, printed terms of business were also enclosed. In clause 8 of the quotation, terms of payment were also specified. A meeting was held between the representatives of the petitioner and the Committee on August 21,1973, in which certain discussions about the specifications of the plant and terms of escalation in price etc took place. A memo of revised terms as a result of the discussion was prepared and handed over to the Committee. On September 28, 1973, the Chairman of the Committee sent a following telegram to the petitioner :-
“Reference discussion with Chairman, Plant Purchase Committee last week Your revised quotation to supply one sugar mill plant at Karnal on turnkey basis is accepted. Please depute authorised representative along with draft agreement to complete formalities of the contract.”
The petitioner acknowledged the receipt of the telegram from the Committee on October 10, 1973 and sent the following telegram to the Committee: –
“Re your telegram 28th September deputing representative Monday 15th October with draft agreement ”
On October 15, 1973, representatives of the petitioner came to Chandigarh with the draft agreement but were informed that the Chairman of the Committee had fallen ill, detailed discussions could not be held. The petitioner sent six copies of the draft agreement along with their letter dated October 26, 1973. On November 30, 1973, the Registerar, Co-operative Societies, Haryana, Chandigarh sent a letter to the Indian Sugar & General Engineering Works Ltd., Yamunagar, which reads as under :-
“This has reference to your letter No.———–Dated———–. A copy of the draft agreement which is proposed to be executed between you and the Kama! Co-operative Sugar Mill Society is enclosed. There are a few clauses in the draft agreement about which the representatives of the buyer society would like to have discussion with your authorised representative. Kindly let us know immediately some date in the second week of December when your representative could visit Chandigarh so that a meeting for the purpose may be fixed at Chandigarh.”
The terms of the draft agreement sent by Committee differed from the revised offer of the petitioner with respect to various matters. On December 31, 1973, the petitioner wrote to the Chairman of the respondent-Committee that instead of accepting its fresh offer contained in the draft agreement, the respondent-Committee sent a counter offer by sending a draft agreement vide their letter No. SMA/14816, dated November 30, 1973. In its letter date December 31, 1973, the petitioner offered that instead of increasing the price, they were prepared to leave the prices as these were if the clause providing for escalation in prices was left without any ceiling. On January 10, 1974, the Chairman of the respondent-Committee invited the authorised representative of the petitioner Company for discussion. On January 21, 1974, the respondent-Committee served a registered notice upon the petitioner to sign a formal agreement. On February 2, 1974. the petitioner replied the aforesaid letter and denied that there was any concluded contract arrived at between the parties and in the letter it was stated thus: –
“It was a specific term of our offer that until the terms of contract were duly agreed to, accepted and signed by us, there was no binding arrangement. Even your telegram of 10th January 1974 which refers to ‘your offer for sugar mill plant’ clearly shows that both parties proceeded on the footing that the matter was under negotiation and at no stage finally concluded. It is not correct that we had agreed to deliver the factory ready for commercial commissioning by 1st November, 1975. The terms of the offer with regard Co the setting up of the factory as you well know were still under negotiations and discussions.”
3. On January 16, 1976, a communication was received by the petitioner from the respondent Committee intimating that the former had failed to execute the job at the contract rate on the agreed terms and conditions and the Sugar Mill authorities had to make risk purchase, the excess of which worked out to Rs. 1,96,84,175/-. A dispute having arisen between the parties, the respondent Committee had referred the dispute to arbitration in terms of clause 20 of the tender. This notice led to the filing of the petition under Section 33 of the Act.
4. The respondent Committee maintained that a valid agreement containing the arbitration clause came into existence as a result of numerous communications which exchanged between the parties.
5. From the pleadings of the parties, the following issues were framed by the trial Judge :-
1. Whether Shri S C. Jolly is authorised to sign, verify and file the written statement ? OPA
2. Whether there is a concluded agreement in existence to refer the dispute to arbitration ? OPR
3. Whether the petition has been properly valued for the purposes of jurisdiction ? OPA
4. Relief.
6. Issue No. 1 was found in favour of the petitioner Issue No. 2 was answered against the petitioner. Issue No. 3 was not pressed and was answered in the affirmative.
7. In view of the finding under issue No. 2, that a concluded agreement had come into existence between the parties, the application under Section 33 of the Act to refer the dispute to arbitration was dismissed by the trial Judge.
8. Clause (a) of Section 2 of the Act defines ‘arbitration agreement’. It means “a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not”. The essentials of an arbitration agreement are :
(i), there should be a valid and binding agreement, the parties must be ad idem (of the same mind);
(ii) there should be an intention to refer the disputes to arbitration and to be bound by the decision of the arbitrator ;
(iii) the agreement must be in respect of present or future disputes ; and
(iv) the agreement must be in writing but signatures of the parties are not essential.
The arbitration agreement is not required to be in any particular from. What is required to be ascertained is whether the parties have agreed that if dispute arises between them in respect of the subject-matter of contract, such a dispute shall be referred to arbitration, then such an arrangement would spell out an arbitration agreement. It is the substance and not the form of an arbitration clause which is material.
9. In the instant case, it is to be seen whether any valid agreement containing the arbitration clause had come into existence. The resume of events, stated supra, indicates that no concluded agreement had come into existence between the parties. The respondent Committee was constituted by the State Government only to hold negotiations with the prospective sellers for sale of plant and machinery to the Co-operative Sugar Mills to be set up in Haryana. The purchase was to be made by the Cooperative Society through the instrumentality of the respondent- Committee. The contract, if any, has to be entered between the seller and the Co oprative Society as is evidenced by the draft agreement sent by the respondent. The draft agreement contained a recital that the tender submitted by the petitioner-Company was to be accepted by the Co-operative Society by executing the agreement. The agreement was not finalised between the seller and Co-oprative Society because the parties were not in agreement with regard to the various terms and conditions of supply.
10. The learned Subordinate Judge is principally swayed by the terms of business incorporated in FORM SIS/21/3/73 appended to the quotation sent by the petitioner. The terms of business also included clause (2), which is in the following terms :-
2 Acceptance of order :
No order whether based on this offer or otherwise, shall be binding on us until it has been sent to us in writing and accepted by us in writing.”
Clause (2) of the Terms of Business would be operative only when the offer is finally accepted by the petitioner in writing. The quotation submitted by the petitioner was not accepted. The parties were negotiating the terms of contract and, in fact, the negotiations failed. Since the negotiations did not culminate in the execution of valid binding contract, the terms of business have to be read as a whole and one clause cannot be read in isolation and divorced from the context. The learned Subordinate Judge has read the correspondence exchanged between the parties out of context. The respondent. Committee had been insisting upon the petitioner to sign the draft agreement or to send a revised agreement as is indicated by telegram, Ex. A. 21, by January 15, 1974 Till that date obviously no binding contract had come into existence between the parties. The reliance upon the terms of business by the learned Subordinate Judge to come to a conclusion that a binding contract had come into existence between the parties was obviously unwarranted. As stated above, none of the essential ingredients of the arbitration agreement is fulfilled in the instant case. In the absence of a valid arbitration agreement between the parties no dispute could be referred to the arbitrator. The petitioner on the material produced on record had established that there was no valid arbitration agreement arrived at between the parties; The learned Subordinate Judge was in error in holding to the contrary
11. For the reasons aforesaid, the revision petition is allowed and the order of the learned Subordinate Judge dated May 9 1977 is set aside. The parties are directed to bear their own costs.