Final Purchase Order Not Issued, Still Contractor Entitled For Cost Of Preparatory Work Done : Delhi High Court

The Delhi High Court has held that A party is liable to be compensated for the costs of preparatory work carried out at the instance of the employer even when the final purchase order is not issued in its favour. The bench of Justice Sachin Datta upheld an arbitral award wherein the arbitral tribunal had awarded compensation to a party on the ground that it had carried out certain preparatory works upon the instructions of the employer, therefore, it is liable to be compensated when the employer decides to not issue the final purchase order. It held that in such a scenario, the aggrieved party would have the right under Section 70 of the Indian Contract Act to claim compensation and mere absence of a concluded contract between the parties would be inconsequential. Facts The petitioner had issued a notice inviting tender (NIT) dated 13.04.2016 in respect of survey, planning, supply, installation, testing, commissioning, integration with existing core network and Operation and Maintenance for five years (extendable by two years) of 2G GSM BSS Network in uncovered villages of Arunachal Pradesh and Karbi Anglong and Dima Haso Districts of Assam along with VSAT, HUB and radio backhaul. Pursuant thereto, the respondent submitted it bid which was accepted by the petitioner and it was declared as the successful bidder on 25.04.2017. Thereafter, the respondent was directed to carry out certain preparatory actions which resulted in the respondent incurring some expenses. Thereafter, an Advance Purchas Order (APO) was issued in favour of the respondent on 21.03.2018. Consequently, the respondent started deploying resources for the performance of the project work, however, the petitioner did not issue the Purchase Order and ultimately withdrew the APO vide letter dated 10.02.2020. Aggrieved thereby, the respondent invoked the arbitration clause and the parties were referred to arbitration. The arbitral tribunal partly allowed the claims of the respondent. It decided in favour of the petitioner, the issues regarding lack of concluded contract between the parties and legality of withdrawal of APO, however, it held that the respondent had carried out certain work/preparatory actions at the instance of the petitioner, therefore, it would be entitled to recover those despite the absence of a concluded contract between the parties. Aggrieved by the award, the petitioner challenged it under Section 34 of the A&C Act. Grounds of Challenge The petitioner challenged the impugned award on the following grounds: The tribunal has wrongly decided that the respondent had carried out certain preparatory works such as deployment of labour and other resources at the instance of the petitioner. This finding is perverse as it is not borne out by the arbitral record. the impugned award errs in law granting reimbursement of certain alleged expenditure undertaken by the respondent despite finding that no concluded contract had come into existence between the parties Analysis by the Court The Court observed that the arbitral tribunal held that there was not concluded contract between the parties and the withdrawal of APO by the petitioner was also valid, however, it at the same time, held that the after the issuance of APO, the respondent had carried out certain preparatory work at the instance of the petitioner for which it is liable to be compensated despite the lack of a concluded agreement between the parties. The Court held that the finding of the arbitral tribunal is based on appreciation of evidence and the tribunal has taken a plausible view which does not call for any interference within the limited scope of Section 34 of the A&C Act. The Court remarked that the arbitral tribunal rightly held that a party which has incurred expenses pursuant to the instruction received from the other party is liable to be compensated by that other party notwithstanding lack of a concluded agreement between the parties. The Court held that absence of a contract would not deprive the contractor from a reasonable remuneration for the work performed. It held that the principle of quantum meruit is enshrined under Section 70 of the Indian Contract Act which demands that a party which has done work and incurred expenses at the instance of another party must be reimbursed notwithstanding the lack of a contract between them. The Court also rejected the contention of the respondent regarding the quantum of amount awarded by the tribunal. It observed that the decision of the tribunal regarding quantum of damages was based on perusal of a substantial documentary evidence which includes appointment/transfer letters of the employees, salary slips, etc, therefore, the finding does not call for any interference. Accordingly, the Court dismissed the challenge to the award. Case Title: BSNL v. Vihaan Networks LimitedCitation: 2023 LiveLaw ...

Final Purchase Order Not Issued, Still Contractor Entitled For Cost Of Preparatory Work Done : Delhi High Court

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