Ori HC | It is only when a purchase order is placed that a ‘contract’ would be entered into and only then arbitration clause would become part thereof

Orissa High Court: S. Muralidhar, CJ. dismissed the petition, declined the appointment of arbitrator and left it open to the petitioners to avail other remedies as may be available to them in accordance with law.

The facts of the case are such that opposite parties 1 and 2 floated a tender having two components viz., technical and financial. According to the Petitioner, the technical bids were wrongly awarded to Opposite Party 4 in violation of the tender conditions.  According to the Petitioner i.e. L2 the tender ought to have been awarded to it as OSMC called for the Petitioner to give its consent to supply the item quoted as per the L-1 approved rate and, the petitioner expressed its willingness to supply the said item at L-1 rates “on the condition that it is awarded the entire quantity mentioned in item 39 for supply”. OSMC via email accepted the matching offer stating that the purchase order would be issued in its favour as per the terms and conditions of the tender. However, the said letter was silent on whether the Petitioner would be given a purchase order for the entire quantity. Thereafter, no purchase order was placed by OSMC with the Petitioner and there was no communication either. Thus, this gave rise to the disputes between the parties and a petition was filed invoking Clause-6.34 of the General Conditions of Contract (Section VI) seeking the appointment of an Arbitrator, under Section 11 (6) of the Arbitration and Conciliation Act, 1996 (A and C Act).

Counsel for petitioner Mr. Kamal Bihari Panda submitted that the applicable procedure in the event of dispute between the parties arising out of the bid document was to be referred to the arbitration in terms of the A and C Act and therefore, this petition was maintainable.

Counsel for respondent OSMC Mr. P K Muduli submitted that as per Clause-6.34.1, the dispute or difference could arise only between the tender inviting authority (i.e. OSMC) and the “successful bidder in connection with/or relating to the contract”. Thus, Opposite Party 4 and not the Petitioner was the successful bidder, the Petitioner could not invoke the above clause. It was further submitted that the dispute that had arisen was not in relation to the contract but in relation to the bidding process.

The Court relied on judgment BSNL v. Telephone Cables Limited, (2010) 5 SCC 213 wherein it was observed

“29. Therefore, only when a purchase order was placed, a ‘contract’ would be entered; and only when a contract was entered into, 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 conditions of contract (Section III) did not become a part of the contract, the conditions in Section III which included the arbitration agreement, would not at all come into existence or operation. In other words, the arbitration clause in Section III 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.”

The court thus observed that since no purchase order was in fact placed with the Petitioner, there was no concluded contract and therefore the question of any dispute arising therefrom being referred to arbitration did not arise.

The Court thus held “the Court declines the prayer of the Petitioner for the appointment of an Arbitrator” [Emcure Pharmaceuticals v. OSMC, 2022 SCC OnLine Ori 1368, decided on 13-05-2022]


Arunima Bose, Editorial Assistant has reported this brief.

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