Maharashtra State Electricity Distribution Company Limited (MSEDCL) & Ors. vs R Z Malpani

Held: Impugned order set aside – Arbitration clause contained in some document may be incorporated in the contract between the parties only by a specific reference to the arbitration clause – The intent of the parties to incorporate the arbitration clause has to be explicitly clear and a mere general ‘reference’ to the tender conditions would not suffice – Present is a case of ‘reference’ and not ‘incorporation’ – There is no mention of any arbitration or dispute resolution clause in the LOI itself, neither does it purport specific incorporation thereof from the tender documents – As such, the arbitration clause contained in the tender documents could not be said to have been incorporated in the LOI to evince the existence of an arbitration agreement between the parties on its conjoint reading with the tender documents – The scope of inquiry at the stage of s.11 is extremely limited and only pertains to an examination about prima facie existence of an arbitration agreement – Courts should follow the principle of ‘When in doubt, do refer’ and lean towards referring matters to arbitration when the arbitration agreement is prima facie existent – However, it is only in the rarest of rare cases where even on a prima facie view, without going into disputed facts between the parties, there appears to be no existence of arbitration agreement between the parties, the Court can reject the application for appointment of an arbitrator and reference of the parties to arbitration – The instant case is a fit case where even without going into the disputed facts and merely on a prima facie view of the matter, there is no existence of arbitration agreement – Moreover, LOI in the instant case was indicative of a preliminary document in course of the contract and was not intended to be an end-all-be-all contract between the parties, it did not create contractual obligations or legal relationship between them. [Paras 38, 39, 41, 42] Letter of Intent (LOI) – Does not, in and of itself, create a legal relationship or contractual obligations until there is a clear, unambiguous final acceptance by parties – High Court inter alia found that the offer made by the Respondent in response to the Tender was accepted by the LOI which resulted in a duly concluded contract and; existence of arbitration agreement can be discerned from correspondence between the parties: Held: Finding of the High Court that Appellant in its reply to the Respondent’s arbitration notice ‘did not question the formation of arbitration agreement on any ground other than the fact that the project did not proceed further’ is prima facie erroneous and is set aside – Therefore, there is no admission of any concluded contract, much less an arbitration agreement between the parties by the Appellant in its reply – Appellant throughout maintained that there was no concluded contract between the parties and as such, no reference to arbitration can be made u/cl.23 of Special Conditions of Contract contained in the tender documents merely because of a general reference to the tender documents in the LOI – Further, a letter of intent does not, in and of itself, create a legal relationship or contractual obligations until there is a clear, unambiguous final acceptance by the parties – When the intent of the parties can be evinced from the letter of intent or the tender specifications and it is clear that the letter of intent is to be followed by a final award or a concluded agreement, it cannot be said that the letter of intent itself binds the parties to the terms of the tender – Contractual obligations cannot be foisted upon a party without a clear indication of its intent to enter into a binding concluded contract – LOI in the facts of the instant case was a promise to make a promise and not a promise itself and no agreement had concluded between the parties – It contemplated a work order to be issued at a subsequent stage – Neither the specifications of the tender documents, nor the LOI provides that the LOI itself would result in a concluded contract – The intent behind the LOI is explicitly clarified as merely to ensure that preliminaries are complied with so that the work may begin upon issuance of a work order – From a holistic reading of the tender documents, the LOI and other subsequent communication between the parties, the LOI does not evince the commercial intention of the Appellant to create a binding legal relationship, it informs the Respondent that the work was entrusted to them upon opening of bids and lays down preliminary conditions to be fulfilled in contemplation of a future work order and agreement in order to ensure that prior to the work order being issued, everything is set in place and the work may begin at once upon such issuance – On facts, LOI did not have the effect of creating a binding legal relationship between the parties – Arbitration and Conciliation Act, 1996. [Paras 29, 31, 33-36]

Words and Phrases – “Tender” – “Letter of Intent”: Held: Letter of Intent is an expression of one party’s intent to enter into a contract with the other party in the forthcoming future – When the intent of the parties can be evinced from the letter of intent or the tender specifications and it is clear that the letter of intent is to be followed by a final award or a concluded agreement, it cannot be said that the letter of intent itself binds the parties to the terms of the tender – Contractual obligations cannot be foisted upon a party without a clear indication of its intent to enter into a binding concluded contract – Therefore, what needs to be distinguished is whether the intent of the parties is to make a ‘promise’ or a ‘promise to make a promise’ – A tender is essentially in the nature of an ‘invitation to offer’ and submission of a bid by the tenderer is an ‘offer’ – By means of a letter of intent, however, it must be examined by the Court whether the party extending the letter of intent is in consensus ad idem with the other party and intends to create a conclusive and binding agreement. [Para 31] Arbitration and Conciliation Act, 1996 – Scope of examination at the stage of s.11 proceedings – Discussed.