Invocation Of Arbitration Clause In Tender Document Is Possible Only If Purchase Order Is Placed: Odisha High Court

In Emcure Pharmaceuticals Ltd v. The Managing Director, Odisha State Medical Corporation and Others, (ARBP No.69 of 2021), the Orissa High Court ruled that until a purchase order is issued by the tenderee following the acceptance of an offer to supply, no completed ‘contract’ arises between the parties and the arbitration clause in the tender document is not triggered.

Brief Facts Of The Case: OSMC submitted a bid for medical medication supply. Emcure Pharmaceuticals Ltd bid on OSMC’s tender. The tender was not awarded to the petitioner. The petitioner then complained to OSMC that OSMC accepted the other party’s bid in violation of the tender requirements and that the tender should have gone to the petitioner. OSMC wrote a letter to the petitioner asking approval to supply an item at a specified allowed rate. The petitioner agreed on the condition that it be given a contract to supply the total tender amount. OSMC approved the petitioner’s bid and said a purchase order would be issued in its favour per the tender’s terms and conditions, without stating whether it would be for the total quantity covered by the tender.

OSMC did not buy from the petitioner. Emcure Pharmaceuticals Ltd exercised the arbitration clause in the tender contract and sent OSMC a notification requesting an arbitrator since it wasn’t granted the tender to deliver the complete quantity. Emcure Pharmaceuticals filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 (A&C Act) before the Orissa High Court seeking appointment of an Arbitrator to hear the parties’ disputes.

OSMC contested the Orissa High Court’s arbitration petition. OSMC argued that only a disagreement between the tender inviting authority and the selected bidder may be arbitrated. OSMC said the petitioner couldn’t utilise the arbitration provision since it wasn’t the winning bidder. OSMC said that it had not signed a contract with the petitioner and that the disagreement was over the bidding procedure. OSMC argued that since no purchase order was made with the petitioner, no contract was consummated and no dispute arose that could be arbitrated. Emcure Pharmaceuticals argued that conflicts resulting from bid papers must be arbitrated under the A&C Act. The petitioner argued that the Court may appoint the Arbitrator. The petitioner claimed OSMC accepted his restricted or conditional offer, completing the contract. The petitioner said the subject of whether to select an arbitrator should be addressed to the Arbitral Tribunal, not the Court.

Judgement: The court ruled that only a dispute between OSMC and the “winning bidder” may be arbitrated under the tender’s arbitration provision. The court noted that although OSMC approved the petitioner’s offer to supply, OSMC stipulated that the purchase order would be issued following the tender’s terms. The court said OSMC never issued the purchase order. The Single Bench of Chief Justice Dr. S. Muralidhar said the arbitration clause in the tender document was not an agreement in praesenti, but a future provision if a purchase order was made. The court denied the petitioner’s arbitration request. The court said the petitioner might pursue alternative legal remedies.



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