BHARAT SANCHAR NIGAM LTD v. VIHAAN NETWORKS LTD

Judgment

1. The Appellant has filed the present appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (‘the Act’), being aggrieved by the FAO(OS) (COMM) 269/2023 Signature Not Verified Signed By:AWANISH CHANDRA MISHRA Signing Date:28.04.2025 12:08:05 judgment dated 03.10.2023 passed in OMP (COMM.) No. 405/2023 by the learned Single Judge of this Court (‘impugned judgment’). 2. The impugned judgment has dismissed a petition under Section 34 of the Act and upheld the award dated 16.06.2023 whereby the learned Sole Arbitrator has awarded ₹33.69 plus ₹9.83 crores alongwith interest in favour of the Respondent herein. 3. The learned Single Judge, by way of impugned judgment, has held that in view of substantial evidence and observations made by the learned Tribunal, there is no ground to interfere with the award under Section 34 of the Act.

FACTUAL BACKGROUND: 4. The present dispute arises out of the invitation for bid vide Notice Inviting E-Tender (‘NIT’) dated 13.04.2016 in respect of survey, planning, supply, installation, testing, commissioning, integration with existing core network and Operation & Maintenance for five years of 2G GSM BSS Network in uncovered villages of Arunachal Pradesh and Karbi Anglong and Dima Haso, districts of Assam alongwith radio V-SAT backhaul. The said bid was invited by Appellant pursuant to calling upon by Universal Services Obligation Fund (‘USOF’), Department of Telecommunication, Government of India, in 2014. 5. Pursuant to the NIT, the Respondent as the bidder carried out pre-bid testing and technical evaluation of its equipment during the period from

17.10.2016 to 24.03.2017. 6. On 25.04.2017, the Respondent was found to be a successful L1 bidder and, thereafter, Respondent entered into price negotiations and agreed to grant discount of 11% on the quoted price of all OPEX Items. FAO(OS) (COMM) 269/2023 Signature Not Verified Signed By:AWANISH CHANDRA MISHRA Signing Date:28.04.2025 12:08:05

7. As the villages of Arunachal Pradesh, where the work was to be done were some of the remotest villages of the country with no connectivity and with poor road network, the terrain was one of the toughest to execute the project. Further, the area of this village was nearing China border and was hit by insurgency. Hence, Respondent undertook pre-planning and preparation during the course of finalization of the bid. 8. On 01.03.2018, the Appellant directed the Respondent to initiate all preparatory actions and to give unequivocal and unconditional acceptance for field test with live traffic (‘FTL’) for three months. In response, the Respondent on 15.03.2018 accepted the additional field test requirement and sought the issuance of the Advance Purchase Order (‘APO’). 9. On 21.03.2018, APO was issued by the Appellant which was unconditionally accepted by the Respondent. The Respondent also submitted Performance Bank Guarantee (‘PBG’). 10. Upon allocation of sites, the Respondent started deployment of resources in the target area and performed all project related works as per the requirements of the tender and testing mandate of the Appellant. However, the Appellant did not issue the advance purchase order and ultimately withdrew the APO on 10.02.2020, after a delay of about four years. The Respondent claimed the loss and damages suffered due to withdrawal of APO by invoking arbitration under clause 36 of the APO. It is the case of the Appellant that on 11.09.2019, USOF informed the Appellant that DCC (Digital Communication Commission) had decided to float a fresh tender on the 4G technology and accordingly, USOF on 04.12.2019, terminated the agreement signed between USOF and the Appellant w.e.f. 11.09.2019. In view of the termination of the agreement between USOF and BSNL, under which the tender was floated, and the FAO(OS) (COMM) 269/2023 Signature Not Verified Signed By:AWANISH CHANDRA MISHRA Signing Date:28.04.2025 12:08:05 Respondent was found to be L1, the APO placed upon the Respondent had to be withdrawn and the PBG for ₹29.73 crores was returned to the Respondent. The learned Arbitral Tribunal passed the award on 16.06.2023 holding that there was no enforceable contract between the parties and withdrawal of the APO by the Appellant cannot be said to be arbitrary. Accordingly, the learned Arbitral Tribunal rejected all the claims of the Respondent except Claim No. III (A) and III (B) wherein an amount of ₹33.69 crores and ₹9.83 crores respectively had been awarded alongwith interest @10% per annum from the date of invocation of arbitration till the date of payment. 11. The Appellant being aggrieved by the award preferred a petition under Section 34 of the Act which was dismissed on the date of admission after hearing the Appellant as well as Respondent who appeared on caveat, by way of the impugned judgment, thereby confirming the award. Being aggrieved by the impugned judgment, the Appellant has preferred the present appeal. SUBMISSIONS ON BEHALF OF THE APPELLANT

12. Mr. Dinesh Agnani, the learned Senior Counsel appearing for the Appellant has submitted that the learned Single Judge failed to consider that the award of ₹43.52 crores towards Claim No. III (A) for reimbursement of salary and Claim No. III (B) for reimbursement of cost for purchases for carrying out testing was wholly perverse and contrary to the settled law and provisions of contract and thus, in the teeth of public policy. 13. The learned Senior Counsel for the Appellant has submitted that despite the award observing that there was no enforceable contract that came into existence between the parties and the APO was only an intention of the FAO(OS) (COMM) 269/2023 Signature Not Verified Signed By:AWANISH CHANDRA MISHRA Signing Date:28.04.2025 12:08:05 Appellant to have a contract with the Respondent; the award of ₹43.52 crores alongwith interest @10% per annum was patently illegal. 14. It was further submitted that the award of claims for reimbursement of the salary and cost is contrary to the terms of the tender, especially clause 26 of the General Instructions to Bidders (GIB) which permitted the Appellant to reject any bid at any time prior to the award of contract without assigning any reason whatsoever and without incurring any liability to the effected bidder. Despite this, bar on liability under the contract, the award has without dealing with the said clause, awarded Claim III (A) and III (B). 15. The learned Senior Counsel for the Appellant has further submitted that the impugned judgment has wrongly upheld the award relying on the doctrine of ‘Quantum Meruit’ based on the provisions of Section 70 of the Indian Contract Act, 1872 (‘Contract Act’) to observe that the Respondent was entitled to reimbursement of the cost incurred in payment of salary and the amount incurred in carrying out field testing. It was submitted that the award based on quantum meruit was entirely perverse and illegal as the FTL cannot be said to be ‘work’ under the NIT and there was no work carried out for setting up of 2G GSM BSS Network by the Respondent. The field test with live traffic was a requirement raised by USOF in its letter dated 11.10.2017 which was communicated to the Respondent much prior to the issuance of the APO and the Respondent had agreed to carry out the said FTL without any reservation. Although the award rejected the claim towards the cost incurred for carrying out the field test, the claim towards the cost incurred by the Respondent for payment of salary and other purchases was allowed based on the principle of quantum meruit which is patently illegal. The learned Senior Counsel for the Appellant has submitted that the impugned judgment has not appreciated that FAO(OS) (COMM) 269/2023 Signature Not Verified Signed By:AWANISH CHANDRA MISHRA Signing Date:28.04.2025 12:08:05 the distinction between field test with live traffic and expenditure incurred in this regard was perverse and contrary to the records. As the field test with live traffic was to be carried out by all the bidders to demonstrate the quality of equipment and network system, the Respondent had expressed its willingness to do so without any financial ramifications and only, thereafter, the APO was issued. Further, the field test with live traffic even though carried out after the issuance of APO, would not amount to ‘work’ under the contemplated contract when the same was undertaken by the Respondent to demonstrate the efficiency of its own equipment and quality of services to be provided by it. The impugned judgment did not consider that the award relies upon the case laws wherein the doctrine of quantum meruit was applied in respect of transactions which were related to the main work for which the parties had intended to enter into a contract, but for some reason could not enter into the same. The same principle is not applicable in the facts of the present case as the field test with live traffic was voluntarily carried out by the Respondent to ascertain the coverage and quality of the service and equipment which were to be rolled out upon issuance of the advance purchase order. Hence, the principle of quantum meruit under Section 70 of the Contract Act would not be applicable, even though, there was no legally enforceable contract. 16. The learned Senior Counsel for the Appellant has submitted that the principle under Section 70 of the Contract Act is not applicable as the Respondent has not done anything for the Appellant as the Respondent voluntarily and with all due knowledge agreed to carry out field test with live traffic for three months to satisfy the quality and coverage of equipment and service, without any financial compensation and that the Appellant has not enjoyed any benefit out of the said field test carried out by the Respondent. FAO(OS) (COMM) 269/2023 Signature Not Verified Signed By:AWANISH CHANDRA MISHRA Signing Date:28.04.2025 12:08:05

17. Further, it was submitted that the award was based on unverified and unauthentic material/evidence and the awarded amount is highly exorbitant and amounts to unjust enrichment of the Respondent at the cost of public exchequer. Hence, the award deserved to be set aside under Section 34 of the Act. SUBMISSIONS ON BEHALF OF THE RESPONDENT 18. Mr. Rajeev Nayyar, learned Senior Counsel alongwith Mr. Omar Ahmed, learned counsel for the Respondent has submitted that the impugned judgment does not require any interference as the Appellant has failed to demonstrate any ground to set aside the impugned judgment and the award, in view of limited scope under Sections 34 and 37 of the Act to interfere with the arbitration award. 19. It was further submitted that on the basis of evidence and material on record, specifically Appellant’s own letter, the award granted Claim III (A) and III (B) as the Respondent had carried out work in pursuance to specific instructions given by the Appellant. The impugned judgment dismissing the petition under Section 34 of the Act rightly observed that the award was passed after copiously considering the voluminous correspondence exchange between the parties and after appreciation of the material and evidence on record. Hence, it was not an impossible or even implausible view nor it can be said to be based on no evidence. 20. The Appellant’s own correspondence with USOF shows that the Appellant had accepted and admitted the work done by the Respondent. The Respondent relied upon the following correspondence on record: FAO(OS) (COMM) 269/2023 Signature Not Verified Signed By:AWANISH CHANDRA MISHRA Signing Date:28.04.2025 12:08:05 Sr No. 1.

3. Page No. as per Court File Particulars Pg. 1073-1074 – Para 1(b) and 1(c)(iii) of Letter Letter bearing no. MOB-46/USOF/NE Tender/Financial Evaluation/2017- 26.10.2017 issued by BSNL Administrator, USOF Letter bearing no. MOB-46/NE Project/USOF Testing//2018-19/43 10.10.2018 issued by BSNL to Administrator, USOF Pg.1142-1143 – Para 1(b) and 2 of Letter Letter bearing no. Pg.1126-1127 – Para 1of Letter MOB-46/NE Project/General/2018- 24.05.2019 issued by BSNL Administrator, USOF Letter bearing no. MOB-46/NE Project/General/2018- 25.10.2019 issued by BSNL Administrator, USOF Letter bearing no. MOB-46/NE Project/General/2018- 29.01.2020 issued by BSNL Administrator, USOF

4. Pg.1145 – Point (b)

5. Pg. 1148 – Para 3 and Para 4 of Letter FAO(OS) (COMM) 269/2023 Signature Not Verified Signed By:AWANISH CHANDRA MISHRA Signing Date:28.04.2025 12:08:05

21. The above correspondence shows that the Appellant had acknowledged and communicated to USOF that although the field testing was not envisaged under the Tender, the same had been completed by the Respondent at the instance of USOF. Further, the Appellant had communicated to USOF that Respondent had done significant work against the preparation and also that Appellant had issued APO to the Respondent which had been unconditionally accepted by Respondent making it a legal contract to enforce. The Appellant had also informed USOF that the Respondent had incurred the liability of total amount of about ₹225 to ₹250 crores against the project. Accordingly, the Appellant had recommended to USOF to roll out 2G mobile services in Arunachal Pradesh and two districts of Assam as per the tender finalized with the approval of Telecom Commission. The Appellant also apprised USOF that Respondent had already installed five sites in far flung uncovered areas of Arunachal Pradesh in May, 2018 and sites have been operational with thousand subscriber availing voice and data services. The Appellant further sought an unequivocal undertaking from USOF that all claims and legal charges will be borne by USOF since Appellant was acting in its capacity as an implementing agency. The Appellant had further communicated to USOF that the Appellant had incurred substantial expenditure and considerable commitment and liability had been created by the vendors for the project. 22. In view of the above stand taken by the Appellant, it was submitted on behalf of the Respondent that the work undertaken by the Respondent was pursuant to the APO and the Appellant had benefited from the expenditure incurred by the Respondent. Accordingly, the Respondent was entitled to be compensated towards the loss and damages suffered by the Respondent for withdrawal of the APO after a considerable delay of four years. FAO(OS) (COMM) 269/2023 Signature Not Verified Signed By:AWANISH CHANDRA MISHRA Signing Date:28.04.2025 12:08:05

23. Hence, it was submitted that the present appeal ought to be dismissed as the impugned judgment has carefully considered all the submissions made by the Appellant and does not require any interference by this Court under Section 37 of the Act. 24. The learned Senior Counsel for the Respondent has relied upon the following cases of the Hon’ble Supreme Court on the limited scope of interference in an appeal under Section 37 of the Act: