M/s National Highways and Infrastructure Development Corporation Ltd. v. M/s BSCPL Infrastructure Ltd.
Background
In a road-construction tender for a project in Meghalaya, the appellant authority issued a Letter of Award (LOA) to the respondent bidder, who duly accepted it. Nearly two years later, before the formal Concession Agreement was ever signed, the authority withdrew the LOA because a required No Objection Certificate for the project land from the local district council was never obtained. The dispute was whether the arbitration clause contained in the unsigned draft Concession Agreement governed the disagreement, or whether it had to go to the Delhi courts, as specified elsewhere in the bidding documents.
Decision Breakdown
Following its own recent precedent in a near-identical case (PSA Mumbai Investments v. Board of Trustees of JNPT), the Supreme Court held that under Section 7 of the Indian Contract Act, 1872, accepting a Letter of Award is not the same as an absolute and unqualified acceptance forming a binding contract: several further steps, including execution of the final Concession Agreement, still remained. Because no binding contract had come into existence, the arbitration clause in the still-unsigned draft agreement never took legal effect; instead, the bidding documents' own clause gave exclusive jurisdiction over disputes to the Delhi courts. The Delhi High Court's order appointing an arbitrator was accordingly set aside and the appeal allowed.
Lesson Learnt
In a tendering or bidding process, merely accepting a Letter of Award is usually not the same as signing a complete, binding contract: until every specified step (such as formally executing the final agreement) is completed, terms in the draft agreement, including an arbitration clause, may not yet take effect.