Kerala High Court Rules on Binding Commitments Despite Absence of Formal Agreement

Kerala High Court Rules on Binding Commitments Despite Absence of Formal Agreement

The Kerala High Court has recently established that even in cases where a formal agreement has not been formally executed by the parties involved if they have mutually committed to specific terms and conditions, it is untenable to argue that a binding contract has not been reached between them.

In the context of accepting the arbitration request and appointing an Arbitrator to resolve the dispute between M/S Anantham Online Pvt. Ltd. and the Senior Divisional Commercial Manager of Southern Railway over the execution of a work contract for operating the Vehicle Parking Facility at Thiruvananthapuram Central (Main Entry) Railway for a two-year term, Justice Devan Ramachandran observed that there was no merit in the respondent's argument claiming the absence of a binding contract between the parties.

Despite the absence of a formal agreement, Annexure A1 stipulated that the terms of the 'Letter of Award' (LOA) and any subsequent conditions would be applicable, with both parties obligated to adhere to them. Annexure A6 (the Letter of Award) reiterated this and confirmed the award of a 'contract' to the petitioner under specific conditions. Consequently, Justice Devan Ramachandran rejected the counter-argument asserting the absence of a concluded contract between the parties.

The respondents had issued an invitation to tenderers for the operation of the Vehicle Parking Facility at Thiruvananthapuram Central (Main Entry) Railway Station through a Tender Document. Within this document, Clause 19(1) stipulated that in the event of any delay in executing the agreement, the terms outlined in the tender notification, along with the Letter of Acceptance (LOA), would be considered binding and treated as an agreement. Furthermore, Clause 57 specified that in case of disputes arising between the involved parties, the provisions of the Arbitration and Conciliation Act, 1956, along with its subsequent amendments, as well as the General Conditions of Contract (GCC), would be applicable.

In response to the tender submitted by the petitioner, the respondent issued a Letter of Acceptance (LOA) in acknowledgement and acceptance of the tender. The LOA specified that the contract's duration would commence either from the actual date when the management of the Vehicle Parking Facility began or from the 30th day following the issuance of the said document, whichever occurred earlier.

The dispute arose when the respondent allegedly failed to address unauthorised vehicle parking near the Railway Station. The petitioner sought guidance from the respondent but received a termination letter instead. The respondent claimed the petitioner had not paid the license fee for the second quarter and demanded a formal agreement within a week. Subsequently, the contract was terminated by the respondent.

The petitioner initiated arbitration proceedings, citing the Tender Document as an integral part of the contract, mandating arbitration for dispute resolution.

The Standing Counsel of Southern Railway, S. Biju, argued that there was no concluded contract, as indicated by a letter from the respondent directing the petitioner to execute the agreement.

Upon examination, the Court noted that the Letter of Award (LOA) deemed the contract to begin based on the actual date of facility management or the 30th day from the document, though a formal agreement was required within 15 days. The Court found that despite the absence of a formal agreement, the petitioner was bound by the LOA's terms, including payment and security deposit.

The Court emphasised that a 'contract' was mentioned in the LOA, with the requirement to follow general and special conditions. This affirmed the existence of a concluded contract between the parties. Furthermore, Clause 57 of the Tender Document mandated arbitration.

The Court granted the arbitration request, appointing Advocate K.K. Raziya as the sole arbitrator to resolve the disputes

Advocates Biju Balakrishnan, V.S. Rakhee, K.R. Sunil, Ajmal P., and Gopika P.J. represented the petitioner.