BHARAT SANCHAR NIGAM LTD.versusTELEPHONE CABLES LTD.

                    [2010) 3 S.C.R. 291


             BHARAT SANCHAR NIGAM LTD.                          A
                              v.
                TELEPHONE CABLES LTD.
               (Civil Appeal No. 868 of 2010)
                    JANUARY 22, 2010
                                                                B
[R.V. RAVEENDRAN AND K.S. RADHAKRISHNAN, JJ.]

     Arbitration and Conciliation Act, 1996: ss. 7 and 11 -
Government contracts - Tender - Allegation of arbitrariness
in tender process - Aggrieved bidder filed application for C
referring matter to arbitration - Held: On facts, documents
show that arbitration clause was applicable only to contract
awarded by placing a purchase order and not in regard to any
dispute to the tender or bid or non-placing of purchase order
- Thus, arbitration clause did not exist in regard to tender D
stage dispute or pre-contract differences, at a stage when there
was no privily of contract - Since a purchase order was not
placed, there was no contract or agreement and the terms of
arbitration clause did not come into existence - Government
contracts - Tender.                                              E
       Judgment/Order: Observations of courts reserving liberty
to litigant to seek further remedy - Duty of court while making
such observations - Held: Courts should take care to ensure
that reservation of liberty is made only where it is necessary
- Such reservation should always be subject to a remedy F
being available in law, and subject to remedy being sought
in accordance with law - Such liberty should not be allowed
to be misused by litigants.

    Public undertakings: Problems faced by public G
undertakings - Discussed.

    On 27.3.2001, the appellant invited bids for supply of
441 LCKM of cables. The selected bidders were to be
                             291                                H
    292    SUPREME COURT REPORTS              [2010] 3 S.C.R.


A   arranged in the decreasing order ·of 'vendor rating' and
    the bidder with highest Vendor Rating (V-1) was to be
    considered for placing the order for about 30% of the
    tendered quantity and balance quantity was to be
    distributed amongst the remaining selected bidder in ratio
B   of their Vendor Rating.

         There were several bidders including the respondent
    and NICCO. Appellant awarded V-1 rating to NICCO.
    Respondent was treated as one of the 'other bidders' and
    was placed order for a quantity of 0.536 · LCKM.
C   Respondent filed writ petition alleging that the appellant
    had arbitrarily adjudged NICCO as the person with the
    highest Vendor Rating thereby pushing it down to the
    category of 'other bidders' which adversely affected the
    size of its order.
D
        On 29.4.2004, High Court allowed the writ petition
  holding that assessment of Vendor Rating done by the
  appellant in regard to NICCO was not proper and directed
  the appellant to redo the Vendor Rating by following the
E formulae laid down in the tender document, as indicated
  in the judgment. When the High Court passed judgment,
  the contracts were already awarded in respect of most
  of the tendered quantity and only a negligible quantity
  remained, therefore, it issued the direction that if on re-
  assessment the respondent was rated as V-1, then it
F
  should be given the benefit in the balance supplies that
  were yet to be made. The High Court then observed that
  if after adjusting the balance amount, the respondent was
  still ~ntitled to further supplies then it would be open to
G it to pursue its remedies against the appellant for
  compensation/damages as available to it in law.

        The Special Leave Petition filed against the judgment
    of High Court came to be dismissed and thus the
    judgment of High Court attained finality. By the time the
H
  BHARAT SANCHAR NIGAM LTD. v. TELEPHONE              293
               CABLES LTD.
said decision was rendered, appellant as per its policy, A
had already carried forward the balance quantity of the
 tender dated 27.3.2001 to the next tender issued in 2002
 and had even placed the purchase orders on the
 successful bidders against the said tender issued in
 2002. According to the appellant, no balance quantity was B
 available and no order for any further quantity could be
 placed with the respondent, even if the respondent was
 to be given V-1 rating on a re-evaluation. The respondent
 was aggrieved that the appellant did not adjudge it as V-
 1 and did not place orders for further quantities, as per C
 the direction of the High Court. According to the
respondent, on account of failure on the part of appellant
to adjudge it with V-1 rating, and consequential failure to
place a purchase order for 30% tendered quantity, it was
denied the opportunity to manufacture and supply a
                                                            0
quantity of 5.306 LCKM of cables, resulting in a loss of
profit at the rate of Rs.200/- per CKM (or Rs.2 crores per
LCKM) on the quantities for which it did not get an order;
and therefore it was entitled to Rs.10,61,20,000/- as
damages from the appellant. The respondent issued a
notice dated 26.10.2005 calling upon the appellant to pay E
the said amount as compensation. Appellant rejected the
claim by its reply dated 10. 7.2006. Respondent therefore
filed a second writ petition on 27 .9.2006 seeking a
direction to the appellant to comply with the decision
rendered on 29.4.2004 by paying a sum of F
Rs.10,61,20,000/-. However same was dismissed as
withdrawn reserving liberty to take appropriate civil
liberties. Therefore, respondent filed application for
referring the matter to arbitration. High Court allowed the
said application and appointed a retired Judge of the G
Delhi High Court as an Arbitrator.

    In appeal to this Court, the questions which arose for
consideration was whether there existed an arbitration
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    294      SUPREME COURT REPORTS              [2010] 3 S.C.R.


A   agreement between the parties and if there was an
    arbitration agreement, whether the respondent, having
    availed the public law remedy in regard to its grievance,
    would be entitled to again seek remedy by way of
    arbit.ration.
B
          Allowing the appeal, the Court

          HELD: 1.1. The bid documents did not constitute a
    contract, or an agreement or an agreement to enter into
    a contract. It was merely an invitation to make an offer. It
C   informed the prospective bidders, how they should make
    their bids; how the bids would be processed by the
    appellant; how contracts would be entered by placing
    purchase orders; and what terms would govern the
    contracts, if purchase orders were placed. As per the
D   scheme of Bid documents, there is a clear division of the
    terms that would govern the tender process, and the
    terms that would govern the contract, when the bids are
    accepted. One part regulated the tender process that led
    to placing of purchase orders. That part contained a
E   provision as to what should be the forum of dispute
    resolution, if there was a dispute at the tender or bidding
    stage. The other part stipulated the terms and conditions
    which would govern the contract, if and when purchase
    orders were placed. That part also contained a provision
F   as to what should be the forum if there was a dispute after
    the contract was entered. Clause 30 of Instructions to
    Bidders makes it clear that in regard to tender-stage
    disputes, the forum will be Civil Courts. Clause 20 of
    General Conditions on the other hand was intended to
    operate when contracts were made and it specified that
G   if disputes arose in regard to the contracts, the forum for
    dispute resolution would be the Arbitral Tribunal. [Paras
    12 and 13) [306-D; 307-A-D]

      1.2. Clause 1 of the General Conditions of Contract
H (Section Ill) makes it clear that the General Conditions of
  BHARAT SANCHAR NIGAM LTD. v. TELEPHONE                295
               CABLES LTD.
Contract contained in Section Ill of the document shall        A
apply in contracts made by the purchaser for the
procurement of goods. Clause 20 of Section Ill states that
arbitration is available in regard to 'any question, dispute
or difference arising under this agreement or in
connection therewith'. Therefore, it is evident that the       B
General Conditions of Contract (Section Ill) and clause 20
therein providing for arbitration, would not apply in
regard to any dispute in regard to the tender or bid, or
non-placing of a purchase order, but would apply only
in regard to any contract awarded by appellant by placing      C
a purchase order. A contract is entered in pursuance of
the bid, when a Pllrchase order is placed by appellant on
a bidder. When a purchase order is not placed, there is
no contract or agreement and if there is no contract .or
agreement, the terms of General Conditions including the       .·
                                                               D
arbitration clause do not come into existence. In other
words there is no arbitration agreement at all. The
appellant intended to have arbitrations only where it had
entered into contracts and there were disputes relating
to such contracts. It did not intend to have arbitrations
in regard to tender stage disputes or pre-contract             E
differences, at a stage when there was no privity of
contract. [Para 14] [307-E-H; 308-A]

     1.3. Section II (Instructions to Bidders) and Section
IV (Special Conditions) which are relevant at the bid stage F
do not contain any arbitration clause. The Instruction to
Bidders contains a specific provision that if there is a
dispute or claim arising out of the tender till (issue of
authorization for) placement of the purchase order, only
courts will have jurisdiction. Of course, as and when G
appellant placed a purchase order on a bidder, the
purchase order contained a term that the General
conditions of contract, forming part of the bid documents
would be a part of the contract documents, and
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    296    SUPREME COURT REPORTS              [2010] 3 S.C.R.


A consequently the arbitration clause applied to the
  contracts entered between appellant and the bidders.
  Therefore, only when a purchase order was placed, a
  'contract' would be entered; and only when a contract
  was entered, the General Conditions of Contract
B including the arbitration clause would become a part of.
  the contract. If a purchase order was not placed, and
  consequently the general conditions of contract (Section
  Ill) did not become a part of the contract, the conditions
  in Section Ill which included the arbitration agreement,
c would not at all come into existence or operation. In other.
  words, the arbitration clause in Section Ill was not an
  arbitration agreement in praesenti, during the bidding
  process, but a provision that was to come into existence
  in future, if a purchase order was placed. In this case, the
0 dispute raised is in regard to a claim for Rs.10,61,28,000/
  - as damages on account of the appellant not placing a
  purchase order, that is loss of profit @ Rs.200/- per CKM
  for a quantity of 5.306 LCKM. Obviously the respondent
  cannot invoke the arbitration clause in regard to that
E dispute as the arbitration agreement was non-existent in
  the absence of a purchase order. The arbitrat!.gn
  agreement was available in regard to the contract for 0.536
  LCKM. But in the absence of any purchase order in
  respect of 5.306 LCKM by the appellant on the
  respondent, respondent cannot seek recourse to the
F arbitration agreement .contained in clause 20 of Section
  Ill of the bid document, in regard to a dispute relating to
  that quantity for which order was not placed. It is not
  sufficient to show that there was an arbitration agreement
  in regard to some contract between the parties. To
G constitute an arbitration agreement for the purpose of
  Sections 7 and 11 of the Arbitration and Conciliation Act,
  two requirements should be satisfied. The first is that
  there should be an arbitration agreement between the
  parties to the dispute. The second is that it should relate
H to or be applicable to the dispute in regard to which
   BHARAT SANCHAR NIGAM LTD. v. TELEPHONE              297
                CABLES LTD.

appointment of Arbitrator is sought. In the absence of an    A
arbitration agreement, the application under section 11 of
the Act was not maintainable. [Paras 15, 17, 18) [308-C-
E; 309-F-H; 310-A-F]

   Dresser Rand S.A. vs. Bindal Agro Chem. Ltd. (2006) 1     B
SCC 751; Yogi Agarwal v. Inspiration Clothes & U 2009 (1)
sec 362, relied on.
       2. Where the terms of the bid documents barred any
 claim being made on account of the rejection or non-
 acceptance of any bid, the bid inviter would not incur any C
 liability to any aggrieved bidder, and the bidder would not
 have any cause of action in private law. But as the bids
 were invited by the appellant, which is 'State' for the
 purpose of Article 12, a writ petition was enter.        . .:,
 when respondent alleged arbitrariness in the process of D
 assigning vendor-rating. 'n the absence of a finding in
 regard to arbitrariness, bias or malafides in the decision
 but only a mere error in assessment, the High Court
 ought not to have interfered in the tender process. In fact,
 it did not set aside the contract awarded to NICCO. But E
 the High Court chose to issue a direction for re-
assessment of the vendor rating and if respondent was · ·
found to have V-1 rating, then place a purchase order for
the quantity that remained over after all the· purchase
orders. This was unobjectionable as a public law remedy. F
 Having done so, there was no justification for the High
Court to make any observation regarding compensation,
as that was impermissible on the facts ·and
circumstances, either in public law or private law. In fact,
it was not based on any prayer. That unwarranted G
observation while disposing of the first writ petition,
though it did not cast any liability on the appellant, was
sufficient to persuade the designate of the Chief Justice
while exercising jurisdiction under section 11 of the Act
to assume that the High Court in the order dated             H
    298     SUPREME COURT REPORTS               [2010] 3 S.C.R.


A   29.4.2004 had ordered the respondent to pursue the
    remedy against the appellant for compensation/damages
    and therefore, an arbitrator should be appointed to decide
    the claim. [Para 22) [312-A-F]

B        3. Instances abound where observations of the court
    reserving liberty to a litigant to further litigate have been
    misused by litigants to pursue remedies which were
    wholly barred by time or to revive stale claims or create
    rights or remedies where there were none. Courts should
    take care to ensure that reservation of liberty is made
C   only where it is necessary, such reservation should
    always be subject to a remedy being available in law, and
    subject to remedy being sought in accordance with law.
    [Para 23] [312-G-H]                              ·

D      4. The public undertakings are subjected to
  vexatious litigations and other travails which their
  competitors in the private sector do not normally face.
  When public undertakings .used to have monopoly and
  discharged public duties, control by the government and
E legislature and judiclal review by the Judiciary was an
  absolute necessity to safeguard public interest and
  ensure transparency and accountability. But when public
  undertakings are required to compete with private sector,
  in commercial areas, controls by the executive and
F legislature (sometimes referred to as political bondage)
  and judicial review qf their action, became a handicap
  which impedes theii-.. progress. A public undertaking is
  required to ensure fairness, non-discrimination and non-
  arbitrariness in t'1eir dealings and decision making
G process. Their action is open to judicial review and
  scrutiny under the Right to Information Act, 2005. They
  are required to take out advertisements and undergo
  elaborate and time-consuming selection processes,
  whether it is purchase of materials or engaging of
  contractors or making appointments. Just to ensure that
H
  BHARAT SANCHAR NIGAM LTD. v. TELEPHONE                 299
               CABLES LTD.
everyone is given a fair and equal opportunity, public          A
undertakings are required to spend huge a111Dunts and
enormous time in elaborate tender processes. ~ propoS'al
for a purchase of the value of Rupees Ten lakhs may
involve a 'material procurement expenditure' of Rupees
Two Lakhs in advertisements and tender evaluation cost,         B
and a total tender process period ranging from three to
six months. A competing private undertaking ~an go
straight into market and negotiate directly and get the
same material for Rupees five lakhs without \any
expenditure in a week. Public undertakings to a~oid             c
being accused of malafides, bias or arbitrariness spend
most of their time and energy in covering their back
rather than in achieving development and progress.
When courts grant stay, the entire projects or business
ventures stand still or get delayed. Even if ultimately the
                                                                Q
stay is vacated and the complaint is rejected as false, the
damage is done as there is enormous loss to the public
undertaking in terms of time and increase in costs. The
private sector is not open to such scrutiny by courts.
When the public sector is tied down by litigations and
controls, the private sector quietly steals a march, many       E
a time at the cost of the public sector. If the public sector
has to survive and thrive, they should be provided a level
playing field. [Para 24] [313-B-H; A-C]

                     Case Law Reference:                        F
    (2006) 1 sec 751         relied on            Para 16
    2009 (1) sec 362         relied on            Para 18

     CIVIL APPELLATE JURISDICTION: Civil Appeal No. 868         G
of 2010.

    From the Judgment & Order dated 1.8.2008 of the High
Court of Delhi at New Delhi in AP. No. 461 of 2007.

                                                                H
      300       SUPREME COURT REPORTS                 [2010] 3 S.C.R.


  A       Randhir Seri, 1-alit Bhardwaj and Ashok Mathur for the
      Appellant.

          C.A. Sundaram, Manu Nair, Arun Mohan, Rohini Musa,
      Abhishek Gupta, Anandh Kannan and Zafar lnayat (for Suresh
      A. Shroff & Co.) for the Respondent.
  8
            The Order of the Court was delivered by

                                 ORDER

  C        R.V. RAVEENDRAN, J. 1. Leave granted. Heard the
      parties.

        2. The appellant, by 'Notice Inviting Tenders' dated
   27.3.2001, invited bids for supply of 441 LCKM of different
   sizes of Polythene Insulated Jelly Filled cables ('PIJF cables'
 D for short). The tender procedure (vide clause 13 of Speci'al ·
   Conditions of Contract) required an evaluation of the bids, so
   as to limit the number of bidders selected for placing orders
   against the tender, to two-third of the participating and eligible
   bidders in each group; and the bidders for placement of orders
 E were to be selected from the list of technically and commercially
   responsive bidders in each group arranged in decreasing order
   of 'Vendor Rating' starting from the highest. The bidder with the
   highest Vendor Rating (V-1) was to be considered for placing
   the order for about 30% of the tendered quantity and the balance
 F quantity was to be distribu.ted among the remaining selected
   bidders in each group in direct ratio of their Vendor Rating.
   Thus the quantity for which a purc;hase order was to be placed
   by BSNL on a bidder depended upon the 'Vendor Rating' of
   such a bidder.

· G The first round of litigation

            3. There were several bidders including the respondent and
      NICCO Corporation Ltd. BSNL awarded the highest vendor
      rating (V-1), to NICCO. The respondent claimed that on a proper
 H
   BHARAT SANCHAR NIGAM LTD. v. TELEPHONE                   301
       CABLES LTD. [R.V. RAVEENDRAN, J.]

evaluation of bidders, it should have been given the highest       A
Vendor Rating (V-1) in regard to 10P x 0.5 (UA) size cable
instead of NICCO; that if it had been adjudged as V-1, it would
have secured a Purchase Order for a quantity of 5.842 LCKM
from BSNL; that as NICCO was adjudged as V-1, the appellant
treated the respondent as one of the 'other bidders' and           B
consequently placed an order only for a quantity of 0.536
LCKM; and that resulted in a shortfall of 5.306 LCKM in the
order placed on it. The respondent therefore filed Writ Petition
[CJ No.5808/2001 in the Delhi High Court on 18.9.2001 alleging
that BSNL had arbitrarily adjudged NICCO as the person with        c
the highest Vendor Rating thereby pushing it down to the
category of 'other bidders' which adversely affected the size
of its order. It prayed for the following reliefs :

      (a)   to quash the Advance Purchase Orders dated
            11.9.2001 issued by BSNL to NICCO.                     D

      (b)   to issue a direction to BSNL to issue fresh Advance
            Purchase Orders in terms of the Vendor Rating as
            on 22nd May, 2001 (date of the opening of the
            Tender) to it (respondent herein); and                 E

      (c)   to quash the Revised Delivery Rating of NICCO as
            set out in the Internal Office memo dated 27.7.2001.

     4. A Division Bench of the Delhi High Court allowed the
said writ petition by order dated 29.4.2004 (reported in (2004)    F
Delhi Law Times 112). It held that assessment of Vendor Rating
done by BSNL in regard to NICCO was not proper. It therefore
directed BSNL to redo the Vendor Rating by following the
formulae laid down in the tender document, as indicated in the
judgment. As the High Court was aware that by then contracts       G
had already been awarded in respect of most of the tendered
quantity and only a negligible quantity remained, it issued the
following consequential direction :

    "In this court's order dated 9.10.2002, it is recorded that    H
        302      SUPREME COURT REPORTS                    [2010] 3 S.C.R.


    A         there are some supplies which are to be made for which
              no orders have been placed .... If the petitioner is rated
              as V-1, then it shall be given the benefit in the balance
              supplies that are yet to be made."

    B   The High Court then proceeded to make the following
        observation, even though there was no claim for compensation/
        damages in the writ petition : ·

              "If after adjusting the balance amount the petitioner is still
              entitled to further supplies then it will be open to the
    C         petitioner to pursue its remedies against the respondents
              for compensation/damages that may be available to it in
              law."

      · The special leave petition filed by BSNL against the said
        judgment was dismissed by this court on 1.4.2005. The
    0
        decision of the High Court thus attained finality.

        The second round of litigation

            5. By the time the said decision was rendered on
    E 29.4.2004, BSNL, as per its policy, had already carried forward
      the balance quantity of the Tender dated 27.3.2001 to the next
      tender issued in 2002 and had even placed the purchase
      orders on the successful bidders against the said tender issued
      in 2002. (BSNL claimed that its counsel had erroneously
    F submitted to the court during hearing of the first writ petition that
      some quar.:ity still remained to be ordered. Be that as it may).
      Therefore, according to BSNL, no balance quantity was
      available and no order forany further quantity could be placed
      with the respondent, even if the respondent was to be given V-
    G 1 rating on a re-evaluation. The respondent was aggrieved that
      the BSNL did not adjudge it as V-1 and did not place orders
      for further quantities, as per the direction of the High Court.
      According to the respondent, on account of the failure on the
      part of BSNL to adjudge it with V-1 rating, and consequential
      failure to place a purchase order for 30% tendered quantity, it
    H




•
  . BHARAT SANCHAR NIGAM LTD. v. TELEPHONE                     303
        CABLES LTD. [R.V. RAVEENDRAN, J.]

  was denied the opportunity to manufacture and supply a quantity      A
  of 5.306 LCKM of cables, resulting in a loss of profit at the rate
. of Rs.200/- per CKM (or Rs.2 crores per LCKM) on the
  quantities for which it did not get an order; and therefore it was
  entitled to Rs.10,61,20,000/- as damages from BSNL.
                                                                       B
     6. The respondent issued a notice dated 26.10.2005
calling upon the appellant to pay the said amount as
compensation. The demand was reiterated on 28.4.2006.
BSNL rejected the claim by its reply dated 10.7.2006. The
respondent therefore filed a second writ petition (WP [C]              C
No.18393/2006) on 27.9.2006 seeking a direction to the
appellant to comply with the decision rendered on 29.4.2004
by paying a sum of Rs.10,61,20,000/- with interest from the date
of demand (26.10.2005) till the date of payment, with costs of
Rs.20,000/-. The said writ petition came up for consideration
on 11.12.2006 before a learned Single Judge of the High Court          D
and arguments were heard for some time. When the respondent
found that it would not be possible for it to get a direction for
payment of compensation in the writ petition, it sought to
withdraw the petition, with liberty to take appropriate civil
remedies. The second writ petition was therefore dismissed as          E
withdrawn reserving liberty as prayed.

The third round of litigation

      7. Thereafter, the respondent issued a notice dated
30.6.2007 through counsel, to BSNL suggesting that the                 F
disputes between them (for payment of R.s.10,61,20,000/- as
damages to respondent) be referred to arbitration. BSNL by
its reply dated 17.7.2007 rejected the request for arbitration.
The respondent therefore filed an application under section
11 (6) of the Arbitration and Conciliation Act, 1996 ('the Act' for    G
short) in Arbitration Petition No. 461/2007 for appointment of
an Arbitrator to decide its claim for Rs.10,61,21,000/-. The
appellant resisted the said petition on the ground that there
could be no arbitration in regard to the said claim. A learned
Single Judge of the Delhi High Court, by the impugned order            H
     304          SUPREME COURT REPORTS              (2010] 3 S.C.R.


 A dated 1.8.2008, has allowed the said application and
   appointed a retired Judge of the Delhi High Court as an
   Arbitrator.

     Questions for consideration
 B       8. On the contentions urged, two questions arise for
     consideration:

           (i)     Whether there exists an arbitration agreement
                   between the parties ?
 c         (ii)    Even if there is an arbitration agreement, whether
                   the respondent, having availed the public law
                   remedy in regard to its grievance, will be entitled
                   to again seek remedy by way of arbitration?

 D Relevant provisions of the bid documents

        9. The Bid Documents in regard to the tender issued on
   27.3.2001 consisted of twelve sections. Section I consisted of
   Notice Inviting Tender.s. Section II consisted of Instructions to
.E Bidders. Section Ill consisted of General Conditions of Contract.
   Section IV consisted of Special Conditions of Contract.
   Sections V and VI consisted of Schedule of Requirements and
   Technical Specifications. Schedule VII consisted of Bid Form
   and Price Schedules. Schedule XI contained the Price
 F Variation Table. Sections VIII, IX, X and XII contain(i!d formats
   of Bid Security form, Performance security bond, Bidder's
   Authorization Letter and Declaration.

        10. Definition clause 1(f) of Instructions to Bidders defined
   'Purchase Order' as meaning "the order placed by the
 G Purchaser on the Supplier, signed by the Purchaser including
   all attachments and. appendices thereto and all documents
   incorporated by reference therein. The purchase order shall be
   deemed as 'Contract' appearing in the document." Clause 28 ·
   of Instructions to Bidders clarified that the issue of purchase
 H order shall constitute the award of contract on the bidder.. ·
  BHARAT SANCHAR NIGAM LTD. v. TELEPHONE                      305
      CABLES LTD. [R.V. RAVEENDRAN, J.]
Clause 26 of Instructions to bidders made it clear that BSNL          A
could reject any or all bids. The said clause is extracted below:

     ''The Purchaser reserves the right to accept or reject any
     bid, and to annul the bidding process and reject all bids,
     at any time prior to award of contract without assigning any     B
     reason whatsoever and without thereby incurring any
     liability to the affected bidder or bidders on the grounds
     of purchaser's action."

Clause 30 of the Instructions to bidders related to jurisdiction
and the same is extracted below :                                     C

     "COURT JURISDICTION: The contract shall be governed
     by Indian laws and courts at Delhi/New Delhi will have
    jurisdiction to entertain any dispute or claim arising out
    of this tender till issue of authorization letters to Circles     D
     for placement of Purchaser Orders(P.0.s)"

                                            (emphasis supplied)

      11. Section Ill (General Conditions of Contract) started with
the preamble (in clause 1) that the General Conditions shall          E
apply to contracts made by BSNL for the procurement of goods.
Clause 20 of the General Conditions of Contract provided for
arbitration and relevant portion thereof is extracted below :

     "20. ARBITRATION:
                                                                      F
      (20.1.) In the event of any question, dispute or difference
      arising under this agreement or in connection therewith
     except as to the matters, the decision of which is
     specifically provided under this agreement, the same shall
     be referred to sole arbitration of the CMD, BSNL, New G
     Delhi or in case his designation is changed or his office
     is abolished then in such case to the sole arbitration of the
     officer for the time being entrusted (whether in addition to
     his own duties or otherwise) with the functions of the CMD,
   , BSNL or by whatever designation such an officer may be ·H
    '~
      306      SUPREME COURT REPORTS                  [2010] 3 S.C.R.


 A          called (hereinafter referred to as the said officer), and if
            the CMD, BSNL or the said officer is unable or unwilling
            to- act as such, then to the sole arbitration of some other
            person appointed by the CMD, BSNL or the said officer.
            The agreement to appoint an arbitrator will be in
  B         accordance with the Arbitration and Conciliation Act,
            1996 ........ "

      The first question

          12. At the outset, what should be noticed is that there was
   C no contract or agreement between the parties (except in regard
     to the contracted quantity of 0.536 LCKM for which an order
     was placed by BSNL, but which is not the subject matter of the
     present dispute). Bid documents did not constitute a contract,
     or an agreement or an agreement to enter into a contract. It was
 o   merely an invitation to make an offer. It informed the prospective
     bidders, how they should make their bids; how the bids would
     be processed by BSNL; how contracts would be entered by
     placing purchase orders; and what terms would govern the
     contracts, if purchase orders were placed. Some sections of
   E the bid documents governed the tender process which
     preceded the placing of purchase orders. Some sections
     contained the forms in which the bid should be made by the
     bidder. Other sections of b!d documents contained provisions
     which would govern the contracts, when purchase orders were
   F placed by BSNL by accepting the bid. For example, Section I
     (Notice Inviting Tenders) and Section II (Instructions to bidders)
     had nothing to do with the performance of the contract. They
     relate to the pre-contract process of bidding, that is who would
     be eligible to make bids and how the bids should be made.
   G On the other hand, Section Ill had nothing to do with the bidding
     process or selection of suppliers, but contained provisions
     which woul~ govern the performance - that is the terms and
     conditions of the contract - if and when contracts were entered
     by placing purchase orders. The arbitration clause (clause 20)
''   is a part of Section Ill of the Bid documents.
   H
    BHARAT SANCHAR NIGAM LTD. v. TELEPHONE                      307
        CABLES LTD. [R.V. RAVEENDRAN, J.]
       13. As per the scheme of Bid documents, there is a clear         A
 division of the terms that will govern the tender process, and
 the terms that will govern the contract, when the bids are
 accepted. One part regulated the tender process that led to
 placing of purchase orders. That part contained a provision as
 to what should be the forum of dispute resolution, if there was        B
 a dispute at the tender or bidding stage. The other part
 stipulated the terms and conditions which will govern the
 contract, if and when purchase orders were placed. That part
 also contained a provision as to what should be the forurri if
 there was a dispute after the contract was entered. Clause 30          C
 of Instructions to Bidders makes it clear that in rege1rd to tender-
 stage disputes, the forum will be Civil Courts. Clause 20 of
 General Conditions on the other hand was intended to operate
 when contracts were made and it specified that if disputes
 arose in regard to the contracts, the forum for dispute resolution     D
 will be the Arbitral Tribunal.

       14. Clause 1 of the General Conditions of Contract
   (Section Ill) makes it clear that the General Conditions of
   Contract contained in Section Ill of the document shall apply in
   contracts made by the purchaser for the procurement of E
· goods. Clause 20 of Section Ill, that is the arbitration clause
   makes it clear that arbitration is available in regard to 'any
  question, dispute or difference arising under this agreement
  or in connection therewith'. Therefore, it is evident that the
  General Conditions of Contract (Section Ill) and clause 20 F
  therein providing for arbitration, will not apply in regard to any
  dispute in regard to the tender or bid, or non-placing of a
  purchase order, but will apply only in regard to any contract
  awarded by BSNL by placing a purchase order. A contract is
  entered in pursuance of the bid, when a purchase order is G
  placed by BSNL on a bidder (vide clauses 1(f) and 28 of
  Section II - Instructions to Bidders). When a purchase order is
  not placed, there is no contract or agreement and if there is no
 contract or agreement, the terms of General Conditions
  including the arbitration clause do not come into existence. In
                                                                     H
    308       SUPREME COURT REPORTS                   [2010] 3 S.C.R.


A other words there is no arbitration agreement at all. BSNL
  intended to have arbitrations only where it had entered into
  contracts and there were disputes relating to such contracts. It
  did not intend to have arbitrations in regard to tender stage
  disputes or pre-contract differences, at a stage when there was
B no privity of contract.

        15. It is also very significant that Section II (Instructions to
  Bidders) and Section IV (Special Conditions) which are relevant
  at the bid stage do not contain any arbitration clause providing
  that if there is any dispute between BSNL and a bidder in
C regard to the bid/tender process, the dispute will be settled by
  arbitration. On the other hand, the Instruction to Bidders
  contains a specific provision that if there is a dispute or claim
  arising out of the tender till (issue of authorization for) placement
  of the purchase order, only courts will have jurisdiction. Of
D course, as and when appellant placed a purchase order on a
  bidder, the purchase order contained a term that the General
  conditions of contract, forming part of the bid documents would
  be a part of the contract documents, and consequently the
  arbitration clause applied to the contracts entered between
E BSNL and the bidders.

        16. We may in this behalf usefully refer to the decision in
    Dresser Rand S.A. vs. Bindal Agro Chem.Ltd (2006) 1 SCC
    751 wherein this Court held:

F         "27. The tender document or the invitation to bid of
          BINDAL (containing the "instructions to bidders" and the
          "general conditions of purchase"), by itself, is neither an
          agr~ement nor a contract. The instructions to bidders
          informed the intending bidders how the bid should be
G         made and laid down the procedure for consideration and
          acceptance of the bid. The process of bidding or
          submission of tenders would result in a contract when a
          bid or offer is made by a prospective supplier and such
          bid or offer is accepted by BINDAL. The second part of
H         the Invitation to Bid consists of the 'General Conditions of
  BHARAT SANCHAR NIGAM LTD. v. TELEPHONE                       309
      CABLES LTD. [R.V. RAVEENDRAN, J.]
     Purchase', that is, the conditions subject to which the          A
     purchase order will be placed or offer will be accepted. The
     'General Conditions of Purchase' were made available as
     a part of the Invitation to bid, so as to enable the
     prospective suppliers to ascertain their obligations and
     formulate their offers suitably."                                8

       "32. Parties agreeing upon the terms subject to which a
       contract will be governed, when made, is not the same as
       entering into the contract itself. Similarly, agreeing upon the
       terms which will govern a purchase when a purchase order C
       is placed is not the same as placing a purchase order. A
       prelude to a contract should not be confused with the
       contract itself. The purpose of Revision No. 4 dated
       10.6.1991 was that if and when a purchase order was
       placed by BINDAL, that would be governed by the "general D
       conditions of purchase" of BINDAL, as modified by
       Revision No. 4. But when no purchase order was placed,
       neither the 'general conditions of purchase' nor the
       arbitration clause in the 'General Conditions of Purchase'
       became effective or enforceable."
                                                                       E
       17. Therefore, only when a purchase order was placed, a
 'contract' would be entered; and only when a contract was
 entered, the General Conditions of Contract including the
arbitration clause would become a part of the contract. If a
 purchase order was not placed, and consequently the general F
 conditions of contract (Section Ill) did not become a part of the
 contract, the conditions in Section Ill which included the
 arbitration agreement, would not at all come into existence or
 operation. In other words, the arbitration clause in Section Ill
was not an arbitration agreement in praesenti, during the G
bidding process, but a provision that was to come into
existence in future, if a purchase order was placed. In this case,
the dispute raised is in regard to a claim for Rs.10,61,28,000/
- as damages on account of BSNL not placing a purchase
order, that is loss of profit @ Rs.200/- per CKM for a quantity H
     310      SUPREME COURT REPORTS                [2010] 3 S.C.R.


A    of 5.306 LCKM. Obviously the respondent cannot invoke the
     arbitration clause in regard to that dispute as the arbitration
     agreement was non-existent in the absence of a purchase
     order.

·8         18. The respondent contended that BSNL has entered into
  a contract with it in respect of a quantity (0.536 LCKM), and
  as the dispute raised was whether the contract quantity should
  be more, the arbitration clause was in force and available. The
  contention has no merit. The arbitration agreement was
C available in regard to the contract for 0.536 LCKM. But in the
  absence of any purchase order in respect of 5.306 LCKM by
  BSNL on the respondent, respondent cannot seek recourse to
  the arbitration agreement contained in clause 20 of Section 111
  of the bid document, in regard to a dispute relating to that
  quantity for which order was not placed. It is not sufficient to
D show that there was an arbitration agreement in regard to
  some contract between the parties. To constitute an arbitration
  agreement for the purpose of Sections 7 and 11 of the Act, two
  requirements should be satisfied. The first is that there should
  be an arbitration agreement between the parties to the dispute.
E The second is that it should relate to or be applicable to the
  dispute in regard to which appointment of Arbitrator is sought
  (See Yogi Agarwal v. Inspiration Clothes & U - 2009 (1) SCC
  362). For the foregoing reasons, we hold that in the absence
  of an arbitration agreement, the application under section 11
F of the Act was not maintainable.

     Some collateral issues

         19. This case makes it necessary to refer to two areas of
  . concern. The first relates to misuse by litigants, of routine
G observations made by courts reserving liberty to a litigant to
    seek further remedy, while disposing the matters, to claim non-
    existent rights and remedies. Second relates to the unenviable
    position to which public undertakings are reduced, for lack of
    freedom and unnecessary litigation.
H
   BHARAT SANCHAR NIGAM LTD. v. TELEPHONE                         311
       CABLES LTD. [R.V. RAVEENDRAN, J.]

Misuse of liberty reserved for further a·ction                            A

      20. In the first writ petition filed by the respondent, the issue
 was whether the BSNL while evaluating the bidders had
 committed an error in adjudging NICCO as V-1 (vendor with
 the highest rating). The assessment of vendor rating (VR) was            B
                                             =
 governed by the following formula : VR 0.6PR + 0.3DR + 0.1
 QR (PR, DR and QR referring to price rating, delivery rating
 and quality rating). The formula for arriving at PR was simple.
 QR did not involve any formula. But the formula prescribed to
 arrive at DR was complicated. The High Court found.that the              C
 delivery rating (DR) of NICCO was modified by BSNL on a
 representation by NICCO, which led to NICCO, being adjudged
 as V-1. The High Court found that the modification of Delivery
 Rating was not warranted and consequently held that the vendor
 rating of NICCO was not proper. But it did hold that there was           D
 any malafides, bias or arbitrariness in the process of
 assessment of vendor rating by BSNL. In other words, the
 rating of NICCO as V-1 was apparently on account of a
 bonafide error in assessment or wrong understanding of the
 principles relating to assessment of Vendor Rating. The High
 Court directed correction of that error. The High Court was also         E
 aware that by the time it decided the writ petition, BSNL had
 completed the process of placing of purchase orders and only
a very small quantity remained unallotted (In fact according to
BSNL even this quantity had been transferred to next year's
tender). Consequently, the High Court while disposing of the              F
first writ petition directed the BSNL to reassess the vendor
rating, and if as a result the respondent secured V-1 rating, to
allot to it, any unallotted quantity of cables. So far so good.

    21. But the High Court did not stop there. It proceeded to            G
observe at the end of the order that after giving effect of balance
supply, if the respondent was entitled to further supplies, it will
be open to the respondent to pursue its remedies against the
appellant for compensation/damages that may be available
to it in law.                                                             H
    312      SUPREME COURT REPORTS                   [2010] 3 S.C.R.


A        22. Where the terms of the bid documents barred any
   claim being made on account of the rejection or non-
   acceptance of any bid, the bid inviter would not incur any liability
   to any aggrieved bidder, and the bidder would not have any
   cause of action in private law. But as the bids were invited by
B BSNL, which is 'state' for the purpose of Article 12, a writ
   petition was entertained, when respondent alleged arbitrariness
   in the process of assigning vendor-rating. In the absence of a
   finding in regard to arbitrariness, bias or malafides in the
   decision but only a mere error in assessment, the High Court
c ought not to have interfered in the tender process. In fact, it did
   not set aside the contract awarded to NICCO. But the High
   Court chose to issue a direction for re-assessment of the
   vendor rating and if respondent was found to have V-1 rating,
   then place a purchase order for the quantity that remained over
   after all the purchase orders. This was unobjectionable as a
D. public law remedy. Having done so, there was no justification
   for the High Court to make any observation regarding
   compensation, as that was impermissible on the facts and
   circumstances, either in public law or private law. In fact, it was
   not based on an¥ prayer. That unwarranted observation while
E disposing of the first writ petition, though it did not cast any
   liability on BSNL, was sufficient to persuade the designate of
   the Chief Justice while exercising jurisdiction under section 11
   of the Act to assume that the High Court in the order dated
   29.4.2004 had ordered the respondent to pursue the remedy
F against the appellant for compensation/damages and therefore,
   an arbitrator should be appointed to decide the claim.

       23. Instances abound where observations of the court
  reserving liberty to a litigant to further litigate have been
G misused by litigants to pursue remedies which were wholly
  barred by time or to revive stale claims or create rights or
  remedies where there were none'. It is needless to say that
  courts should take care to ensure that reservation of liberty is
  made only where it is necessary, such reservation should
H
   BHARAT SANCHAR NIGAM LTD. v. TELEPHONE                    313
       CABLES LTD. [R.V. RAVEENDRAN, J.]
always be subject to a remedy being available in law, and           A
subject to remedy being sought in accordance with law.

Position of public undertakings

      24. The second issue relates to the vulnerable position of
 public undertakings. More and more they are subjected to           B
 vexatious litigations and other travails which their competitors
 in the private sector do not normally face. When public
 undertakings used to have monopoly and discharged public
 duties, control by the government and legislature and judicial
 review by the Judiciary was an absolute necessity to safeguard     C
 public interest and ensure transparency and accountability. But
 when public undertakings are required to compete with private
 sector, in commercial areas, controls by the executive and
 legislature (sometimes referred to as political bondage) and
 judicial review of"their action, became a handicap which           D
 impedes their progress. A public undertaking is required to
 ensure fairness, non-discrimination and non-arbitrariness in
 their dealings and decision making process. Their action is
open to judicial review and scrutiny under the Right to
 Information Act, 2005. They are required to take out               E
 advertisements and undergo elaborate and time-consuming
 selection processes, whether it is purchase of materials or
engaging of contractors or making appointments. Just to ensure
that everyone is given a fair and equal opportunity, public
undertakings are required to spend huge amounts and
                                                                    F
enormous time in elaborate tender processes. A proposal for
a purchase of the value of Rupees Ten lakhs may involve a
'material procurement expenditure' of Rupees Two Lakhs in
advertisements and tender evaluation cost, and a total tender
process period ranging from three to six months. A competing
private undertaking can go strai.ght into market and negotiate      G
directly and get the same material for Rupees five lakhs without
any expenditure in a week. Public undertakings to avoid being
accused of malafides, bias or arbitrariness spend most of their
time and energy in covering their back rather than in achieving
                                                                    H
    314        SUPREME COURT REPORTS                [2010] 3 S.C.R.


A development and progress. When courts grant stay, the entire
  projects or business ventures stand still or get delayed. Even
  if ultimately the stay is vacated and the complaint is rejected
  as false, the damage is done as there is enormous loss to the
  public undertaking in terms of time and increase in costs. The
B private sector is not open to suon scrutiny by courts. When the
  public sector is tied down by litigations and controls, the private
  sector quietly steals a march, many a time at the cost of the
  public sector. We are not advocating less of judicial review. We
  are only pointing out that if the public sector has to survive and
C thrive, they should be provided a level playing field. How and
  when and by whom is the question for which answers have to
  be found. Be that as it may.

    Conclusion :

D           25. In view of our finding on the first issue, the second
    question .does not survive for consideration.

        26. Therefore, we allow this appeal, set aside the order
    and dismiss the application under Section 11 of the Arbitration
E··• Act.
    D.G.                                            Appeal allowed.