LEGAL ASPECTS ON CONTRACT MANAGEMENT

CONTRACT

Meaning of a contract is an agreement enforceable by law which offers personal rights and imposes personal obligations, which the law protects and enforces against the parties to the agreement.

In Law Dictionary, 5th Edition, Page 291, Black has given the meaning of contract as an agreement between two or more persons which creates an obligation to do or not to do a particular thing.

Section 10 of the Indian Contract Act, 1872 prescribes the essentials of a valid contract. The Essentials of a valid contract are: Identity of minds Legal Agreements Lawful consideration Competency of parties Free consent Lawful object Agreement should not be immoral and opposed to public policy

OFFER (In English Law) / PROPOSAL (In Indian Law) According to Section 2 (a) of the Indian Contract Act, 1872 when one person signifies to another his willingness to do or abstain from doing anything with a view to obtaining the assent from the other party to such act or abstinence, he is said to make a proposal

AGREEMENT
.

According to Section 2(b) of the Indian Contract Act, 1872 a proposal when accepted becomes a promise. According to Section 2 (e) of the Indian Contract Act, 1872 every promise and every set of promises forming consideration for each other is an Agreement According to Section 2(h) of the Indian Contract Act, 1872 a Contract is an agreement enforceable by law.

TIME IS ESSENCE OF CONTRACT

Whether time is the essence of contract is a question of fact and real test is the Parties intention. It depends on the facts and circumstances of each case. An intention to make time of the essence of contract must be expressed the unmistakable language, indicating that the parties wanted to make their rights dependent upon observation of time limits.

SECTION 55
FAILURE TO PERFORM CONTRACT, WHEN TIME IS NOT ESSENCE OF CONTRACT: When time is not of essence of contract, delay in performance does not render the contract void. But the promisee is entitled for compensation from the promisor for any loss occasioned by such failure. However, if the delayed work is accepted without giving any notice of intention to claim compensation, then the promisee can not claim compensation.

When contract expressly provides that the time is the essence of contract, the provision has to be read along with other provisions, which may on construction of the contract, exclude the inference that the completion of the work by a particular date was intended to be the fundamental. Clauses providing for extension of time in certain contingencies or for payment of fine or penalty for delay for the work under taken remain unfinished on the expiry of time provided in the contract such clauses would be construed as rendering ineffective the express provision relating to the time being of the essence of contract. -(Hind Construction Contractors Vs.
State of Maharashtra AIR 1979 SC 720)

TIME IS NOT ESSENCE OF CONTRACT Where contract provides for damages for delayed completion. Extension of time in certain circumstances despite provision making time is of the essence. Provision of default clause. Where time for performance was extended twice or thrice. Contract for supply of goods by a contractor to government where contract itself provided for extension of time.

DOCTRINE OF FRUSTRATION To attract Section 56 of the Indian Contract Act, the following conditions must me fulfilled: There should be a valid and subsisting contract between the promisor and promisee. There must be some part of the contract yet to be performed. The contract after it is entered, becomes impossible to be performed. The impossibility is by reason of some event which the promisor could not prevent. The impossibility is not induced by the promisor or due to his negligence.

LAW CHOSEN BY PARTY The autonomy of the parties is recognised as one of the fundamental principles of Private International Law.
(Dicy and Morris, Conflict of laws 13th Edn., Page 1216-17)

The parties are entitled to agree what is to be the Proper Law of their contract.
(James Miller & Partners Ltd., Vs. Whitworth Street Estates (Maneheskr)Ltd.)

LAW APPLICABLE IN THE ABSENCE OF EXPRESS CHOICE In the absence of express choice of law applicable to the contract, the court has to discover the common intention of the parties from terms and circumstances of the contract. Law of the country with which transaction has its closet and most real connection. Law of the place where contract is made. Law of the place where contract is performed. Law of the place of domicile, residence or business of parties. Law of Principal place of business of the Corporation. Law where subject matter of contract is situated.
(Ravindra N Maitra Vs. LIC AIR 1964 Cal. 141)

PLACE OF SUING Place of Suing subject to the limitation contained in the C.P.C., a suit may be instituted within the local limits of whose jurisdiction the cause of action, in whole or in part, arises (Section 20 C.P.C) A suit for damages for breach for contract may, therefore, be filed either at the place where the contract was made or at the place where the contract was to be performed and its breach took place; or at the place where in performance of the contract any money to which the suit relates was expressly or impliedly payable.

ATTESTATION BY WITNESS Statute may provide that a contract be executed in presence of certain number of witness and the manner it is to be so signed by the executant and witness. S-3 of Transfer of Property Act prescribes that when a document is required to be attested under that Act, such document must be signed by the executant in presence of two witnesses. S-59 Mortgage S-22 Gift of Immoveable Property S-54 Sale of Immoveable Property S-107 Assignment of Actionable claims.

o o o o

PAYMENT OF STAMP DUTY o An instrument not duly stamped is not invalid. o It is incapable of being used as evidence until it is stamped properly. o Executing an instrument not duly stamped is punishable.
(Subramaniam Chettiar Vs. Revenue Divisional Officer 1956 Mad. 454) (Indian Stamp Act 1899 S-35 & S-62)

REGISTRATION OF CONTRACT The obligation to register a document is given by the provision of substantive law namely Transfer of Property Act, 1882 and the Registration Act, 1908. If such document is not registered, the transfer is void and there is no transfer of property. S-17 of Registration Act provides that all instruments specified in that Section must be registered under the Act.

CONTRACT WITH GOVERNMENT ARTICLE 299

A-299 of Constitution of India requires that all contracts made in exercise of the executive power of Union of India or a State must be executed by a person duly authorised in this regard by the President or Governor as the case may be. There can be a contract by correspondence and execution of formal document is not absolutely essential provided the other conditions of Article 299 are satisfied, in the absence of any direction by the President or Governor under Article prescribing the manner of executing the contract. Letter of acceptance signed by the authorised officer on behalf of President of India is a valid acceptance to conclude contract.
(Union of India Vs. Rallia Ram AIR 1963 SC 1685) (1987) Supp SCC 127 AIR 1971 SC 141 AIR 1967 SC 203 at 206

A Lawful Agreement of lease is a contract. If a contract is not in conformity with the provision of Article 299 of the Constitution, such contract, though unenforceable against the Govt., is binding upon the officer who actually made the contract.
(Chatturbhuj Vithal Das Jasani Vs. Moreshwar Parasharam AIR 1954 SC 236)

REMEDIES IN AN ACTION ON CONTRACT

The following remedies are available under the contract. Damages by way of compensation under Section 73, in case of breach of contract. Specific performance of contract under Section 12 of Specific Relief Act. Rescission of Contract under Section 35. Rectification of Contract under Section 31. Cancellation of Contract under Section 39 Suit for Injunction under Section 52. Contract cannot be specifically enforced if money compensation would be an adequate relief for its nonperformance under Section 21.
(Specific Relief Act.)

ORAL CONTRACT
An oral contract by which itself the parties intend to be bound is valid and enforceable unless required by any other law to be in writing. Where a party seeks to enforce oral contract, heavy burden of proof lies on such party to prove that the contract is concluded and terms of contract were meant to be given effect to.

CONTRACT IN WRITING
A written contract may be a single document each party being bound by signing it. A written document may be handwritten in any language, or may be printed or made in any mechanical equivalent of handwriting. Documents in electronic forms are treated as equivalent of writing. A signature may be affixed by way of digital signature in all cases where any law requires any document to be signed.
(The Information Technology Act 2000 S-4 & S-5)

LIQUIDATED DAMAGES NATURE

Liquidated Damages (LD) are those on which the parties agreed upon and fixed in anticipation of the breach. Unliquidated damages (ULD) are such as are required to be assessed. Broach principal for assessment is to put the aggreived party monetarily in the same position as far as possible in which it would have been if the contract had been performed.

LAW RELATING TO DAMAGES ARISING OUT OF BREACH OF CONTRACT. Section 73 of Indian Contract Act envisages compensation for loss or damage caused by breach of contract. When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.

 Section 74 envisages compensation for breach of contract where penalty stipulated for. When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.

MITIGATION OF DAMAGES A Person who sues for damages owes the duty of taking all reasonable steps to mitigate the loss consequent upon the breach and cannot claim as damages any sum which is due to his own neglect. Damages are compensatory and not penal and one who has suffered loss from breach of contract must take every reasonable step what is available to him to mitigate the extent of damages caused by the breach. He can not claim to be compensated by the party in default for loss which is really due not to the breach but to his own failure to behave reasonable after the breach.

Applicability & Enforcement. JUDICIAL CONSENSUS

Brief of case: ONGC Vs. Saw Pipes

Dec 27,1995: Tender supply of 26 & 30 casing pipes Jun 3, 1996: Letter of intent followed by detailed order placed on Saw Pipes Ltd., the last date of Delivery being Nov 14, 1996

Supply order contained LD Clause

DELAY OCCURRED!

EXTENSION GRANTED
Subject to Recovery of L.D. as per terms of Contract

ONGC deducted an amount of US$3,04,970.20 and Rs. 15,75,559/- on account of LD charges constituting Customs Duty, Sales Tax, Freight Charges etc.

Extracts of L.D. Clause

11. Failure and Termination Clause/Liquidated Damages:(a) Recovery from the contractor as agreed liquidated damages are not by way of penalty, a sum equivalent to 1% (one percent) of the contract price of the whole unit per week for such delay or part thereof (this is an agreed, genuine prestimate of damages duly agreed by the parties) which the contractor has failed to deliver thereof is accepted after expiry of the aforesaid period. It may be noted that such recovery of liquidated damages may be up to 10% of the contract price of whole unit of stores which the contractor has failed to deliver within the period fixed for delivery, or

Extracts of L.D. Clause

e) It may further be noted that clause (a) provides for recovery of liquidated damaged on the cost of contract price of delayed supplies (whole unit) at the rate of 1%of the contract price of the whole unit per week for such delay or part thereof up to a ceiling of 10% of the contract price of delayed supplies (whole unit). Liquidated damages for delay in supplies thus accrued will be recovered by the paying authorities of the purchaser specified in the supply order, from the bill for payment of the cost of material submitted by the contractor or his foreign principals in accordance with the terms of supply order or otherwise.

Extracts of L.D. Clause

12 levy of liquidated damages (LD) due to delay in supplies.
LD will be imposed on the total value of the order unless 75% of the value ordered is supplied within the stipulated delivery period. Where 75% of the value ordered has been supplied within stipulated delivery period LD will be imposed on the order value of delayed supply (ies). However where in judgment of ONGC,the supply partial quantity does not fulfill the operating need. LD will be imposed on full value of the supply order.

ARBITRATION PROCEEDINGS

ONGC failed to establish its case that it suffered any loss in terms of money because of delay in supply of casing pipes ONGC ordered to release LD amount with interest @ 12% p.a. from 1st April, 1997 And thereafter, 18% p.a. Pendente lite till payment.

Award challenged by ONGC in Mumbai High Court on various grounds ON May 2, 1999 by filling Arbitration Petition No. 9171999

SINGLE JUDGE DISMISSED ONGCs ARBITRATION PETITION. APPEAL NO. 256/2000 FILED BEFORE DIVISION BENCH OF BOMBAY HIGH COURT ALSO DISMISSED.

ONGC PREFERED APPEAL BEFORE HONBLE SUPREME COURT OF INDIA

GROUNDS OF APPEAL The Arbitrator failed to decided in accordance with the terms of the contract. Arbitrator was wrong in holding that ONGC was required to prove the losses Arbitrator erred in granting interest which was against terms of the contract.

ISSUE BEFORE HONBLE SUPREME COURT OF INDIA Whether the Court would have jurisdiction under Section 34 of the Arbitration and Conciliation Act 1996 to set aside an award passed by the Arbitral Tribunal which is:
Patently illegal or In contravention of the provisions of the Act;or Is against the terms of the contract?

RELEVANT PROVISIONS OF Arbitration and Conciliation Act 1996

Ground for setting aside the Award (Sec.34) In capacity of the party. Invalidity of Agreement under the governing law of Contract. Inability of the aggrieved party to present its case due to nonservice of notice of appointment of Arbitrator or otherwise. Award dealing with a dispute beyond ambit of reference. Composition of Arbitral Tribunal not being in accordance with Agreement/ part-1 of the Act.
Procedure for Arbitration:Part-1 (Sec-2 to 43)

The court Finds that:

The subject matter of dispute not being capable of settlement by Arbitration under the law in force. Arbitral Award is conflict with Public Policy of India.

Award could be set aside if it is contrary to:

Fundamental policy of Indian Law: or The interest of India: or Justice of morality: or In addition, if it is patently illegal. Award could be set aside if it is so and unreasonable that it shocks the conscience of the Court. Such award is opposed to public policy and is required to be adjudged void.

Award could be set aside if it is contrary to:

It would be contrary to the basic concept of justice if an award is in contravention of the provision of the Act, is not interfered with. Procedural law can not fail to provide relief when substantive law gives the right.

Award could be set aside if it is contrary to:

If the award is contrary to the substantive provisions of law or the provisions of the Act or against the terms of the contract, it would be patently illegal, which could be interfered under section 34. However, such failure of procedure should be patent affecting the rights of the parties.

Whether party required to prove the loss when the contract contained L.D Clause? NO.
In the case, the compensation named in the contract is genuine preestimate of loss which the parties knew when they made the contract. If the compensation named in the contract for such breach is genuine pre-estimate of loss which the parties knew when they made the contract to be likely to result from the breach of it, there is no question of proving such loss or such party is not required to lead evidence to prove actual loss suffered by him. Under sectiion 73, when a contract has broken, the party who suffers by such breach is entitled to receive compensation for any loss to him which the parties knew when they made the contract to be likely to result from the breach of it.

ONGCs Appeal Upheld Award Set Aside

The Arbitrator failed to enforce the contract between the parties to uphold the sanctity of the contract which forms the basis of the civilized society and also the jurisdiction of the arbitrators. There is nothing to show that LD was by way of penalty The Contract is to be taken care by specific terms of the contract.

IN THE SUPREME COURT OF INDIA DECIDED ON 29.07.2002

KANHAIYA LAL AGRAWAL ..APPELLANTS

VS.
UNION OF INDIA (UOI) & ORS. .. RESPONDENT

AIR 2002 SC 2766

Brief Facts
Indian Railways invited tenders for supply, delivery and stacking of 75,000 cubic meter Machine Crushed track ballast as per specifications at its depots in Naurozabad and loading it into railway wagons. The supply period was for 24 months. The conditions in the tender notice require that the rates at which supply was to be made had to be stated in words as well as in figures against each item of work as per Schedule attached thereto; that the tenders submitted with any omissions or alteration of the tender document were liable to be rejected. However, permissible corrections could be attached with due signature of tenders. That the tenderer should hold the offer open till such date as may be specified in the tender which was for a minimum period of 90 days from the date of opening of the tender.

The contravention of the conditions would automatically result in forfeiture of security deposit; that the tender was liable to be rejected for noncompliance of any of the conditions in the tender form.

 Five tenders were received. The appellant made his tender on 27.02.2001 with a covering letter that if his offer is accepted within the stipulated time rebate would be offered by him to the effect that in case the contract was given to him within 45 days, 60 days and 75 days, he would extend rebate of 5%, 3% and 2% respectively on the rates tendered by him.

Respondent No. 5 has made a similar offer but after five days of the opening of the tender, while the appellant had made such offer of rebate even at the time of making the tender in the letter accompanying the tender documents.

Railways accepted the tender offered by the appellant on the rates subject to rebate. Agreement was entered into by him on 19.04.2001. Respondent No. 5 filed a writ petition claiming that his tender should have been accepted, as the rates offered by him are the lowest.

Decision of Division Bench

The matter was carried in appeal to the Division Bench. The Division Bench after adverting to several decisions on the question of award of contracts, stated that the tender notice did not contemplate any attachment of conditions by giving rebate which would amount to alteration of the tender document which is impermissible. That the tender should be unconditional and relaxation, if any, should have been notified to all the tenderers to enable them to change their rates; that all the tenderers should have been treated equally and fairly. And on the basis, took the view that the tender of Respondent no. 5 is at a lower rate and hence, acceptable and set aside the order of the learned Single Judge directing fresh negotiations with the parties. The Division Bench directed that supply of material by the appellant be stopped forthwith and balance material be taken from Respondent no. 5 at the rate furnished by him.

Before the Supreme Court of India

The appellant preferred an appeal before the Supreme Court

Observations of Supreme Court

This Court is normally reluctant to intervene in matters of entering into contracts by the Government, but if the same is found to be unreasonable, arbitrary, mala fide or is in disregard of mandatory procedures it will not hesitate to nullify or rectify such action. It is settled law that when an essential conditions of tender is not complied with, it is open to the person inviting tender to reject the same. Whether a condition is essential or collateral could be ascertained by reference to consequence of non-compliance thereto. If non-fulfilment of the requirement results in rejection of the tender, then it would be essential part of the tender otherwise it is only a collateral term.

 Bureaucratic delay is a notorious fact and delay in finalizing tenders will cause hardship to the tenderer. In such circumstances, it a hardened businessman makes an attractive offer of concessional rates if tender is finalized within a shorter period, it cannot be said that the rates offered are subject to conditions. The rates offered are clear and the time within which they are to be accepted is also clear. As long as such offer does not militate against the terms and conditions of inviting tender it cannot be said that such offer is not within its scope. All that is required is that offer made is to be kept open for a minimum period of 90 days. Offer in compliance of that term has been made by the appellant. The concession or rebate given is an additional inducement to accept the offer expeditiously to have a proper return on the investment made by the tenderer in the equipment and not keeping the labour idle for long period which is part of commercial prudence. The commercial aspect of each one of the offers made by the parties will have to be ascertained and, thereafter a decision taken to accept or reject a tender.

 Now the appellant made his offer of concessional rates along with the tender while Respondent No. 5 made such offer after opening of the tenders. It is difficult to conceive that the Respondent No. 5 who is prudent businessman would not be aware of commercial practice of giving rebate or concession in the event of quick finalization of transaction.

What the appellant offered was part of the tender itself while the Respondent No.5 made such offer separately and much later. There was nothing illegal or arbitrary on the part of Railway Administration in accepting the offer of the appellant, which was made at the time of submitting the tender itself.

FINDING
In the result, we allow these appeals by setting aside the orders made by the High Court both by the Division Bench and the learned Single Judge and dismiss the writ petition. No costs.

MAN INDUSTRIES PVT. LTD.

VS

NTPC LIMITED
(BEFORE DELHI HIGH COURT)

 NTPC had invited bids for steel pipes for Make-up Water Supply package for Sipat Super Thermal Power Project, Stage-I vide invitation of bids dated 15.12.2003. The bid was accompanied with bid Security for Rs.10,31,000/- . The work was awarded to M/s. Man Industries vide Notification of Award dated 30.07.2004. As per the stipulations of instructions to bidders, price quoted by the bidders shall be firm.

 NTPC issued a letter dated 19.08.2004 to M/s. Man Industries for submission of the contract performance security.

M/s.MAN Industries requested for revision in the basic price citing multiple increase in the input cost, which was not accepted by NTPC, failed to furnish contract performance security.
NTPC invoked the Bank Guarantee and forfeited the bid security of Rs.10,31,000/The contract was annulled.

 NTPC invited new bids for the same work, which was done by floating fresh tender dated 24.09.2004. Again M/s. MAN Industries sent a DD for an amount of Rs.22,500/- for issue of tender documents in order to participate in the fresh bid. However, NTPC keeping in view of past conduct of M/s. MAN Industries, declined to issue the tender documents vide its letter dated 20.10.2004.

Subsequently M/s. Man Industries filed a petition before Delhi High Court seeking following directions: a) To quash the letter dated 20.10.2004 issued by NTPC; and
b) To direct NTPC to issue bid documents and allow them to participate in the fresh bid. Further in the said writ petition, M/s. MAN Industries have sought for interim order restraining NTPC from i) Opening the bid on 09.11.2004 and ii) Order directing NTPC to issue the bid documents.

Honble High Court vide its order dated 04.11.2004 directed NTPC to issue tender documents to M/s. MAN Industries without prejudice to its rights and contentions and if M/s. MAN Industries submits its bid in stipulated time, the same shall be dealt in accordance with the NIT.

In compliance of the directions of the High Court, the bid documents were issued to M/s. MAN Industries.
During the course of arguments M/s. MAN Industries submitted that in nutshell it is a case of refusal of NTPC to issue the bid documents, purportedly on the ground that M/s. MAN Industries had failed to furnish the performance security in respect of the earlier tender awarded to them is tantamount to black listing without initiating any action in terms of the earlier tender. It was also pleaded by M/s. MAN Industries that there is no stipulation in the fresh NIT whereunder they could be barred from tendering.

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 2754 OF 2002

Chairman & Managing Director NTPC Limited Vs.

M/s.Reshmi Constructions, Builders & Contractors.

..Appellant

...Respondent
(January 5, 2004)

NO DEMAND CERTIFICATE
Name of the Package: Earth Filling in TemporaryTownship package Part-II Letter of Award : LOA No. KYM/CS/89/022/NIT- 005/LOA-065 Dt. 19.03.1990

Name of Contractor : M/s.Reshmi Construction, TC. 4/1298, Keston Road, Kowdiar, PO: Trivendrum-3

1.

This is to Certify that we have received all payment in full and final settlement of the supplied and services rendered and / or all work performed by us in respect of the above referred LOA / Contract and we have no other claims whatsoever final or otherwise outstanding against NTPC. We further confirm that we shall have no claim / demands in future in respect of this contract of whatsoever nature, final or otherwise.
We would now request you to please release our security deposit / contract performance Guarantee.

2.

HOWEVER, on the same day a letter dated 20.12.1990 was written by RESHMI CONSTRUCTION to NTPC Limited stating: We have completed the aforementioned work in the Kayamkulam Super Thermal Power Projects temporary township area at Nangiakulangara by the end of November,1990 itself. We had submitted a pre-final bill in November itself but, the authorities denied the bill and insisted final bill. But when the alleged final was prepared the authorities insisted that a No Demand Certificate should be executed by us in favour of the Corporation. They served us with a printed specimen of the document and insisted that it should be typed in our own letterhead and submitted to the NTPC. We refused to submit such document.

But, the authorities of NTPC threatened that unless and until we execute the said document in favour of the Corporation, the NTPC would not effect payment of our bill. More than six lakhs of rupees is pending for payment vide the alleged final Bill. We have incurred huge losses in the execution of the work purely due to the latches and lapses of rupees has to be paid to our Bankers, creditors, suppliers, workers , truck owners etc etc. under such situation we have no other way than budging to the coercion of the whatever they give merely for the necessity of our survival. We have to comply with the instructions of the authorities of NTPC Limited out of our helplessness in order to receive payment. Hence this letter.

The certificates, undertakings etc, as aforesaid have been executed without prejudice to our rights and claims whatsoever on account of the alleged final bill. The money invested in the bank comprises loans from Federal Bank Ltd., private financiers, etc. as well the firms own funds. .Those additional sums raised by loans have to be paid the bank, financiers etc. Hence under duress, coercion and under undue influence we are signing the bill and execute such documents as aforesaid to receive payment. Under such coercive circumstances the alleged final bill cannot be construed as final bill We are signing the alleged final bill under coercion, undue influence and under protest only without prejudice to our rights and claims whatsoever. There is no accord and satisfaction between the contracting parties.

You are therefore requested to kindly pass the final bill incorporating all the measurements of the items which as sinkage, in and under water execution of works, compensation for suspension of works, reimbursement of cost escalation due to price hike of petroleum products, cost of idling, enhanced rates for quantities executed beyond the contractual period, market rate for excess quantities, extra additional items etc., besides the losses and damages by way of idling of tools and plants, workmen, staff, establishment costs, capital outlay, interest etc., as per actual. We hope and request that your good self may do the needful in the matter.
(Emphasis supplied)

NTPC thereinafter discussed the matter at the company level and in its proceedings it was recorded:

4.0 In case of Reshmi Constructions, Trivendrum, Kerala (1 above) and M/s.CS Prakash, (1(d) above) of Porumbavoor, Kerala, the total payment for the works done were effected, the final bills have been settled without protest and the no dues certificate in the standard proforma have been submitted by the contractors.

5.0 To seek legal opinion in the matter, we have approached Shri BS Krishnan, a leading advocate from Cochin. On detailed study of the claims of the agencies and considering legal conditions, the advocate has advised us to appoint arbitrator/s nominated by CMD of NTPC, immediately. Accordingly, our advocate has written suitable replies to the contractors advocate Shri N.T. John of Trivendrum, informing them that they will hear from NTPC regarding appointment of an arbitrator in terms of the contract conditions.

6.0 Submitted to appoint arbitrator/s for the four contract packages at para 1.0 above. NTPC thereafter by its letter dated 13th February, 1992 replied thereto stating: My client acting upon the notice, though defective, takes it that all your claims are disputed ones and hence are to be resolved by Arbitration. Please note that the reference to arbitration does not mean that there is admission that the disputes are arbitrable. Many of the claims raised are beyond the terms of the contract and the Arbitrator will have no jurisdiction to deal with them. This is a matter which has to be taken up later and not at the stage of appointment of an arbitrator.

As appointing authority, my client refrains from commenting upon in any manner, on the merits or otherwise of the disputes which your notice has set out. It may be noticed that your client has already taken the final bill and has issued no dues certificate. This is not merely accord and satisfaction, but bringing the contract to an end. Your client will hear from my client as regards the appointment of the Arbitrator in terms of the contract conditions shortly.
(Emphasis supplied)

MAIN ISSUES BEFORE THE COURT

On the arguments of learned counsel for the parties, the question that arise for our consideration are:

Whether after the contract comes to an end by completion of the contract work and acceptance of the final bill in full and final satisfaction and after issuing a No Demand Certificate by the contractor, can any party to the contract raise any dispute for reference to arbitration?
Whether in view of letter dated 20.12.1990 sent by the respondent contractor the arbitration clause contained in the agreement can be invoked? Whether the arbitration clause in the agreement has perished with the contract?

OBSERVATION OF THE HONBLE SUPREMENT COURT

. Even when rights and obligations of the parties are worked out the contract does not come to an end interalia for the purpose of determination of the disputes arising thereunder, and thus, the arbitration agreement can be invoked. Although it may not be strictly in place but we cannot shut our eyes to the ground reality that in the cases where a contractor has made huge investment, he can not afford not to take from the employer the amount under the bills, for various reasons which may include discharge of his liability towards the banks, financial institutions and other persons. In such a situation, the Public Sector Undertakiangs would have an upper hand. They would not ordinarily release the money unless a No Demand Certificate is signed. Each case, therefore, is required to be considered on its own facts. Further, necessitas no habet legem is an old age maxim which means necessity knows no law. A person may sometimes have to succumb to the pressure of other party to the bargain who is on a stronger position. We may, however, hasten to add that such a case has to be made out and proved before the Arbitrator for obtaining an award

CONCLUSIONS / FINDINGS OF THE COURT

The situation in the present case, would lead to the conclusion that the arbitration agreement subsists because:
Disputes as regard to final bill arose prior to its acceptance thereof in view the fact that the same was prepared by the respondent but was not agreed upon in its entirely by the appellant herein. The appellant has not pleaded that upon submission of the final bill by the respondent herein any negotiation or settlement took place as a result whereof the final bill, as prepared by the appellant, was accepted by the respondent unequivocally and without any reservation therefore. The respondent herein immediately after receiving the payment of the final bill, lodged its protest and reiterated its claims. Interpretation and / or application of clause 54 of the agreement would constitute a dispute which would fall for consideration of the arbitrator. The effect of the correspondences between the parties would have to be determined by the arbitrator, particularly as regard the claim of the respondent that the final bill was accepted by it without prejudice. The appellant never made out a case that any novation of the contract agreement took place or the contract agreement was substituted by a new agreement. Only in the event, a case of creation of new agreement is made out the question of challenging the same by the respondent would have arisen.

The conduct of the appellant would show that on receipt of the notice of the respondent through its advocate dated 21.12.1991 the same was not rejected outright but existence of disputes was accepted and the matter was sought to be referred to the arbitration. Only when the clarificatory letter was issued the plea of settlement of final bill was raised. The finding of the High Court thaqt a prima facie in the sense that there are triable issues before the Arbitrator so as to invoke the provisions of Section 20 of the Arbitration Act, 1940 can not be said to be perverse or unreasonable so as to warrant interference in exercise of extraordinary jurisdiction under Article 136 of the Constitution of India. The jurisdiction of the arbitrator under the Arbitration Act, 1940, although emanates from the references, it is trite, that in a given situation the arbitrator can determine all questions of law and fact including the construction of the contract agreement. ( See Pure Helium India Pvt. Ltd., Vs. Oil & Natural Gas Commission reported in 2003 (8) SCALE 553) The cases cited by the learned counsel for the appellant (P.K. Ramaiah and Company (supra) and Nathani Steels (supra) would show that the decisions therein were rendered having regard to the finding of fact that the contract agreement containing the arbitrator clause was substituted by another agreement. Such a question has to be considered and determined in each individual case having regard to the fact situation obtaining therein

TATA CELLULAR Vs. UNION OF INDIA (1994) 6 SCC P-651 JUDICIAL REVIEW

THE DUTY OF THE COURT IS TO CONFINE ITSELF TO THE QUESTION OF LEGALITY. ITS CONCERN SHOULD BE: 1. Whether a decision making autority exceeded its powers?
Committed an error of law. Committed a breach of the rules of natural justice. Reached a decision which no reasonable tribunal would have reached or; Abused its powers

2. 3. 4.

5.

It is not for the court to determine whether a particular policy or a particular decision taken in the fulfillment of that policy is fair. It is only concerned with the manner in which those decisions have been taken. The extent of the duty to act fairly will vary from case to case. Shortly put, the grounds upon which an administrative action is subject to control by judicial review can be classified asunder: i) Illegality: This means the decision maker must understand correctly the law that regulates his decision-making power and must give effect to its.

ii)

Irrationality: Namely, Wednesbury unreasonableness. It applies to a decision which is to outrageous in its defiance of logic or of accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at. The decision is such that no authority properly directing itself on the relevant law and acting reasonably could be reached it.
Procedural impropriety.

iii)

The Principles deducible are:

1. 2. 3. The modern trend points to judicial restraint in administrative action. The court does not sit as a court of appeal but merely reviews the manner in which the decision was made. The court does not have the expertise to correct the administrative decision. If a review of the administrative decision is permitted it will be substituting its own decision, without the necessary expertise which itself may be fallible. The terms of the invitation to tender cannot be open to judicial scrutiny because the invitation to tender is in the realm of contract. Normally speaking, the decision to accept the tender or award the contract is reached by process of negotiations through several tiers. More often than not, such decisions are made qualitatively by experts.

4.

5. The Government must have freedom of contract. In other words, a fair play in the joints is a necessary concomitant for an administrative body functioning is an administrative sphere or quasi-administrative sphere. However, the decision must not only be tested by the application of Wednesbury principle of reasonableness ( including its other facts pointed out above ) but must be free from arbitrariness not affected by bias or actuated by malafides.
6. Quashing decisions may impose heavy administrative burden on the administration and lead to increased and unbudgeted expenditure.

In the Supreme Court of India AIR 1991, SC1579 M/s. Poddar Steel Corporation Vs. M/s. Ganesh Engineering Works and others This is a case relating to N.I.T. by Diesel Locomotive Works, Indian Railway in connection with disposal of one lot of Ferrous Scrap. Earnest money of Rs.50,000/- was offered by Bankers cheque of a Bank other than State Bank of India mentioned in the said clause. The case of the appellant has been that its tender was for one and a half crores rupees for the 2000 MT of Ferrous Scrap which was a very fair price and the authorities were absolutely right in accepting the same. With respect to the alleged deficiency in the matter of deposit of the earnest amount, the stand is that a Bankers Cheque is as good as cash and especially so when a verification from the bank in question about its authenticity was made and the Banks assurance to honour the same was obtained. Admittedly, the Tender Committee had taken the precaution of getting the matter confirmed from the appellants bank before deciding to accept this tender.

The requirements in a tender notice can be classified into two categories those which lay down the essential conditions of eligibility and the others which are merely ancillary or subsidiary with the main object to be achieved by the conditions. In the first case the authority issuing the tender may be required to enforce them rigidly. In the other cases it must be open to the authority to deviate from and not to insist upon the strict literal compliance of the condition in appropriate cases.

In the instant case the certified cheque of the Union Bank of India drawn on its own branch must be treated as sufficient for the purpose of achieving the object of the condition and the Tender Committee took the abundant caution by a further verification from the Bank. In this situation, is not correct to hold that the Diesel Locomotive Works had no authority to waive the technical literal compliance of Clause 6, specially when it was in its interest of not to reject the said bid which was the highest.

NOTICE INVITING TENDER (NIT)

Whatever procedure the Govt. proposes to follow in accepting tender must be clearly stated in the Tender Notice. If a Tender Notice contains mistakes it is the duty of the authority issuing the tender either to issue a corrigenda or a fresh Tender Notice. If the original terms of Tender Notice are changed, all the tenderers should be given an opportunity to resubmit their tenders in conformity with the changed terms, eligibility and new conditions can not be imposed which were not disclosed in Tender Notice.
(Dutta Associates P. Ltd., Vs. Mercantile P. Ltd. (1997, 1SCC53)
(Monarch Infrastructure Pvt.Ltd., Vs. Commissioner ULHAS Nagar Municipal Corp. AIR 2000 SC 2272)

OBJECT OF INVITING TENDER

The object of inviting tenders for contracting a work is asunder:

1.
2. 3.

To select highly proficient and competent person to do work. To get the work done at a reasonable low cost. To give opportunity to all the eligible tenderers to submit their tenders.

Inviting of Tenders ensures:i. Fairness ii. Legitimacy iii. Non-discrimination iv. Remove impression of bias, favouritism & Nepotism.

Any departure to this rule should be only in rarest of rare and exceptional cases, where it is not possible to invite tender and supported by sound, compelling rational and cogent reasons.
(Haji T.M. Hussain Rawthar Vs. Kerala Financial Corporation AIR 1988 SC 157)

A condition limiting the tender to persons who had already worked for their employer was not arbitrary, the purpose being to get more experienced persons for increasing efficiency, nor was it arbitrary to restrict the tenders to manufacturers only and excluding manufacturers representatives.
(Modern Marbles Ltd., Vs. Grid Corporation of Orissa Ltd., AIR 1998 Orissa 183.)

The Govt. may give or may direct the authorities to give preference to parties with special capabilities, cooperative societies, public sector undertakings, registered small-scale industrial units, or unit based on a geographical area, especially backward tribal areas.
(MPCT Extraction Vs. State of MP 1997 SCC 592)

AVAILABILITY OF TENDER FORMS Where a contract is qualified, the tender form can not be withheld from him.

(Southern Painters Vs. Fertilizer & Chemicals Travancore Ltd., AIR 1994 SC 1277)

Failure to furnish documents relating to work experience and annual turnover required to be given as pre-condition for supply of Tender Books makes the tenderer to liable to be excluded from consideration

-(GJ Fernandez Vs. State of Karnataka, AIR 1990 SC 958)

A valid acceptance must be absolute, unqualified and without condition.

(Jawahar Lal Barman Vs. UOI AIR 1962 SC 378)

If the acceptance of bid or tender is subject to confirmation or approval of higher authority, the bid or tender can be revoked any time before the condition is fulfilled i.e. before the confirmation or approval as there is no concluded contract.
(Haridwar Singh Vs. Bagun Sumbrai, AIR 1972 SC 1242)

The requirement in Tender Notice may be classified into two categories. 1. Mandatory / Essential Conditions (Which must be enforced rigidly. Non-compliance of which justified rejection of Tender). Furnishing of security deposit in the form of Bank Guarantee. Discrepancy between the rates quoted in words and figures. Non-supply of Balance Sheet.

Documentary proof of experience as required by Invitation of Tender.

Not making full signature in the Tender. Photocpy of demand draft submitted instead of original.

(Monarch Infrastructure (P) Ltd., Vs. Commissioner of Ulhas Nagar Municipal Corporation, AIR 2000 SC 2772)

2.

Ancillary or discretionary conditions. (which may or may not insist strict compliance. Non-compliance does not justify rejecting of Tender.) Deposit of earnest money in the form of Term Deposit Receipt instead of Bank Draft. Submission of character certificate. Experience certification. No dues certificate. Non submission of revenue stamps. Payment of earnest money by certified cheque instead of bank draft.
-(Poddar Shel Corp. Vs. Ganesh Engg. Works, AIR 1991 SC 1579)

CONDITION PRECEDENT AND SUBSEQUENT Where letters of Intent issued on the terms that the contractor would sign the formal contract and would furnish irrevocable bank guarantee of a scheduled bank, which the contractor failed to do, it was held that the two conditions were condition precedent to the formation of contract and revocation of the letters of intent was valid.
(Rickmers Verwaltung GmbH Vs. Indian Oil Corporation AIR 1999 SC 504) Rajsthan Cooperative Dairy Federation Ltd., Vs. Mahalaxmi Mingrate Marketing Services (P) Ltd., ( 1966) 10 SCC 405)

OPENING OF TENDER
The fact that the train ran unusually late and delayed the arrival of Tenderer was not jusstifiable ground for accepting the Tender after the time fixed by the Tender Notice. Rejection of Tender, delayed by five minutes, not invalid.
-(Sailen Konwafr Dutta Vs. Satya Capital Services Ltd., AIR 2000 Guj.152)

Allowing the tenderer after opening of tenders to correct mistakes in the bid which were neither arithmetical nor clerical and which were attributed to faulty computer functioning was invalid.

-(WB Electricity Board Vs. Peter Engineering AIR 2000 SC 682)

DISCRETION OF ACCEPTANCE AND REJECTION OF TENDER If the Government reserves the right to accept or reject the lowest offer, the condition is valid, but if done on policy, should be on the grounds which are rational and reasonable.

-(Union of India Vs.

Hindustan Develop Corp. AIR 1994 SC 988)

A clause in the Tender that tenders may be rejected without assigning reasons is neither illegal nor opposed to Public Policy.

(Adhir Ghosh Vs. State of West Bengal, AIR 1998 Cal. 317)

It is not obligatory on the Govt. to accept the lowest quotation, nor does the highest bidder have any right to compel acceptance when the invitation reserves the right to reject any tender.
-(Union of India Vs. Bhimsen Walaiti Ram AIR 1971 SC 2295)

In order to decide this matter, the entire negotiation and the correspondence on which contract depends must be considered. It is a matter of construction whether the execution of formal / further contract is a condition of the contract or a mere expression of desire of the parties as to the manner in which the transaction already agreed to will go through.
-(Dhulipudi Namayya Vs. UOI AIR 1958 AP 533)

Where a clause in the tender required that the tenderer to execute formal agreement by a specified date, else be liable for forfeit of earnest money, the execution of agreement was a condition precedent to the contract.
-(Lotus Constructions Vs. Govt. of AP AIR 1997 AP 200)

BLACK LISTING OF TENDERER Black listing of Tenderer prevents him from the privilege and advantage of entering into contract with the Govt. His reputation is tarnished by such order. It prevents him from lawful trade. An order of blacklisting has an effect of preventing a person from the privilege and advantage of entering into lawful relationship with the Govt. for purpose of gains. The fact that a disability is created by the order of blacklisting indicates that the relevant authority is to have an objective satisfaction. Fundamentals of fair play require that the person concerned should be given opportunity to represent his case before he is put on the blacklist. -(Eurasian Equipment & Chemical Ltd., Vs. State of West Bengal AIR 1970 SC 266)

DECISION OF EXPERT COMMITTEE

The decision of Expert or technical or commercial committees in the scrutinizing the tenders will not be interfered unless the decision is taken with a malafide intention or is arbitrary. The court should not substitute its own decision for the decision of the expert evaluation committee. (Raunaq International Vs.
IVR Construction Ltd. AIR 1999 SC 393)

The Govt. is not bound to accept the recommendations of the Committees set up for the purpose of evaluating the tenders and may decide to call fresh tenders.
-(Y Kanda Reddy Vs. State of AP AIR 1997 AP 121)

DUE DILIGENCE
Diligence means Vigilant activity attentiveness or care. Due Diligence means such measures of prudence, activity or care or assiduity which man of common prudence generally exercises in their affairs in the country and the age in which they live. A fair proper and due degree of care or activity, measured with reference to the particular circumstances. Such diligence, care or attention as might be expected from a man of ordinary prudence and activity.

KINDS OF DUE DILIGENCE Legal Due Diligence. Financial Due Diligence Technical Due Diligence

DUE DILIGENCE OF CORPORATE ENTITY (COMPANY / CORPORATION)

The following documents and papers shall be necessary for carrying out due diligence of the Corporate Entity. i) Ii) Iii) Name and address of registered office of the company. Certified true and upto date amended copy of : Certificate of incorporation of company. Memorandum and Article of Association of Company. Certificate of Commencement of business (in case of Public Limited Companies.) Audited Balance sheet and Profit and Loss account for the last three years. Latest Income Tax clearance certificate of the company.

o o

o o o o o

Full details of existing charges / mortgages / liens on the assets of the company along with certificate of registration of charge / satisfaction of charge issued by Registrar of Companies. A complete list of pending litigation and arbitration cases for or against the company, clearly stating the following: Suit / Case No. Name of Court / Judicial authority where case is pending. Date of filing the case. Nature of dispute. Quantum of financial liability Present Status of the case. Name, address and phone no. of counsel / advocate of company who are prosecuting / defending the case of company.

STATEMENT OF AFFAIRS OF COMPANY SHALL STATE Full particulars i.e. details description and location of assets and liabilities of the company. Complete list of debtors and creditors with their complete address. List of shareholders of company

Complete name, parentage and address of directors of company.

Complete name, parentage and address of Company Secretary of Company. Bankers Certificate regarding credit worthiness of the company.

CONTRACT MANAGEMENT
PRE CONTRACTUAL PHASE
NIT LEGAL STATUS OF TENDER DUE DILIGENCE NEGOTIATIONS COUNTER PROPOSAL RETENDERING TENDER EVALUATION SPECIAL DILIGENCE ACCEPTANCE OF TENDER LOI/LOA FORMAL EXECUTION OF CONTRACT

CONTRACT EXECUTION PHASE

CONTRACT TERMS & INTERPRETATION TRADE, USAGE AND CUSTOMS e.g. FOB, CIF etc., BANK GUARANTEE EXTRA ITEMS / CHANGE ORDER FORCE MAJURE WITHOUT PREJUDICE EXTENSION OF TIME LIQUIDATED DAMAGES TERMINATION

POST EXECUTION PHASE FULL & FINAL PAYMENT. CLOSING OF CONTRACT WARRANTIESS LATENT DEFECTS RESOLUTION OF DISPUTES

LIMITATION ACT 1963 RELEVANT PROVISIONS

SECTION : 4
EXPIRY OF PRESCRIBED PERIOD WHEN COURT IS CLOSED Where the prescribed period for any suit, appeal or application expires on a day when the court is closed, the suit, appeal or application may be instituted, preferred or made on the day when the court reopens.

SECTION : 5
Extension of prescribed period in certain cases.
Any appeal or any application, other than an application under any of the provisions of Or.21 of the CPC may be admitted after the prescribed period if the appellant or the applicant satisfies the court that he had sufficient cause for not preferring the appeal or making the application within such period.

SECTION : 6 (i) LEGAL DISABILITY

Where a person entitled to institute a suit or make an application for the execution of a decree is at the time from which the prescribed period is to be reckoned, a minor or insane, or an idiot, he may institute the suit or make the application within the same period after the disability has ceased, as would otherwise have been allowed from the time specified therefor in the third column of the Schedule.

SECTION : 11
SUITS ON CONTRACTS ENTERED INTO OUTSIDE THE TERRITORIES TO WHICH THE ACT EXTENDS. (1)Suits instituted in the territories to which this Act extends on contracts entered into in
the State of Jammu &^ Kashmir or in a foreighn country shall be subject to the rules of limitation contained in this Act. 2) No rule of limiation in force in the State of Jammu and Kashmir or in a foreign country shall be a defence to a suit instituted in the said territories on a contract entered into in that State or in a foreign country unless:-

a) the rule has extinguished the contract; and

b) the parties were domiciled in that State or in the foreign country during the priod prescribed by such rule.

SECTION : 11
SUITS ON CONTRACTS ENTERED INTO OUTSIDE THE TERRITORIES TO WHICH THE ACT EXTENDS
1) Suits instituted in the territories to which this Act extends on contracts entered into in the State of Jammu &^ Kashmir or in a foreighn country shall be subject to the rules of limitation contained in this Act. 2) No rule of limiation in force in the State of Jammu and Kashmir or in a foreign country shall be a defence to a suit instituted in the said territories on a contract entered into in that State or in a foreign country unless:a) b) the rule has extinguished the contract; and the parties were domiciled in that State or in the foreign country during the priod prescribed by such rule.

SCHEDULE
Description of suits
10) Against a carrier for compensation for losing or injuring goods.

Period of limitation
3 years

Time from which period begins to run When the loss or injury occurs.

11) Against a carrier for compensation for for non-delivery of, or delay in delivering goods.
14)For the price of goods sold and delivered where no fixed period of credit is agreed upon.

3 years

When the goods ought to be delivered

The date of the delivery of the goods. When the period of credit expires.

3 years

15) For the price of goods sold and delivered to be paid for after the expiry of a fixed period of credit.

3 years

Description of suits

Period of limitation

Time from which period begins to run

27) For compensation for 3 years breach of a promise to do anything at a specified time or upon the happening of a specified contingency. 51) For the profit of 3 years. immovable property belonging to the plaintiff which have been wrongfully received by the defendant. 52) For arrears of rent 3 years

When the time specified arrives or the contingency happens.

When the profits are received.

When arrears become due.

Description of suits

Period of limitation

Time from which period begins to run

The date fixed for the performance or if no such date is fixed, when the plaintiff has noticed that performance is refused. When the contract is broken or (where there are successive breaches) when the breach in respect of which the suit is instituted occurs or (where the breach is continuing ) when in ceases.

54) For specific performance of a 3 years contract

55)For compensation for the 3 years breach of any contract express or implied not herein specially provided for.