Published on: 18 November 2022 at 20:23 IST
Bombay High Court in matter held that the Tender Documents and Letter of Intent (LOI) issued to the successful bidder do not amount to a concluded contract if the tender documents and the LOI contain a reference to a future contract.
The Division Bench of Justices R.D. Dhanuka and Kamal Khata added that the court or the arbitrator cannot suggest that terms of the contract that were not agreed upon by the parties be incorporated into the contract. The court ruled that it could not rewrite the contract or suggest any contract terms to be incorporated by issuing an order issuing an injunction against the parties.
The appellant, Kalpataru Limited (“Kalpataru”), was appointed by the respondent, Middle-Class Friends Co-operative Housing Society Limited (“Society”) the re-development the building of the respondent Society. After the appointment, Kalpataru and the Society exchanged several drafts of the Development Agreement in which Kalpataru had included clauses inconsistent with the LOI and since no Development agreement was executed, and the offer letter was being aggrieved by this termination, Kalpataru filed a petition under Section 9 of the Arbitration and Conciliation Act.
Contending that the LOI and exchanged correspondences between the parties is a concluded contract with hence sought specific performance of the same. This was filed since Documents Arbitration the LOI and Bid contained Clause.
The Single Bench of the High Court dismissed the plea ruling that there was no concluded contract between the parties. Kalpataru filed the appeal against the single bench order u/s 37 of the Arbitration and Conciliation Act before the Division Bench of the Bombay High court.
The main issue amongst others of this case was whether the LOI, Bid Documents and Correspondence constitute to be a concluded contract.
Decision of Court –
The Divisional Bench while upholding the order dated 16 December 2021 observed that the existence of a concluded contract between the parties can be seen on perusal of various provisions of the Tender Document and the Letter of Intent.
These provisions indicate that the execution of the development agreement was not an empty formality but was a ‘condition precedent’ for a concluded contract and since no concluding contract was arrived at; it is not binding on either party.
Further, the Court observed that since the LOI and Bid Documents execution contemplate various further to be of agreements which were executed after negotiations and settlement of various terms, the said LOI serves as a basic understanding between the parties and is an agreement to enter into future agreements and thus the LOI and Bid Documents cannot be specifically performed.
The Bombay High Court concluded that as far as powers granted Section 9 of the Arbitration Act are concerned, they were conferred in aid of or as auxiliary to the final relief that may be granted. If the final relief cannot be granted in terms as prayed for, temporary relief in the same terms can hardly be even granted.
The Bombay High Court arrived at conclusion that the balance of convenience was not in favour of Kalpataru at all and greater prejudice would be caused to the Society if relief is granted to the Kalpataru under Section 9 of the Arbitration Act.