Of APOs and Arbitrability: Legal Relationships in the Shadows of Contract

Navya Dhawan*

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INTRODUCTION

The law of contracts traditionally rests on clearly defined elements: offer, acceptance, consideration, and intent. Yet, modern practices outpace these formal requirements, particularly in public procurement, where instruments like Advance Purchase Orders (hereinafter “APOs”) blur the line between intention and enforceable obligation. Last month, the judgment in Bharat Sanchar Nigam Ltd v. Vihaan Networks (hereinafter “Vihaan Networks”) exemplified this tension. Despite acknowledging that no concluded contract existed, both the arbitral tribunal and the Delhi High Court upheld a substantial award on the basis of restitution under Section 70 of the Indian Contract Act, 1872 (hereinafter “ICA”). More so, they did so while also sustaining arbitral jurisdiction arising from a non-binding APO.

This paper uses Vihaan Networks as a focal point to examine three intersecting legal themes:

(1)        The contractual status of APOs;

(2)        The scope and function of Section 70 as a restitutionary remedy in public contracting; and

(3)        The evolving jurisprudence on the arbitrability of non-contractual claims.

Vihaan Networks suggests a shift towards recognizing legal relationships based on conduct and induced performance.

FROM FORM TO FUNCTION: APOS AND THE INDIAN CONTRACT ACT

Under Sections 2(a)–(d) and 10 of the ICA, a valid contract requires an offer, acceptance, consideration, intention to create legal relations, and a lawful object. As clarified by the Bombay High Court, a Purchase Order (PO) is not, in itself, a concluded contract; it becomes binding only upon acceptance. The Karnataka High Court similarly observed that a contract is formed only when the offer in a PO is accepted.

An APO, described in Gemini Communications Ltd. v. CGM BSNL as merely an intention of the purchaser to place the purchase order, falls short of this legal threshold. This distinction becomes particularly relevant when read with BSNL v. Telephone Cables Ltd., where the Court drew a clear line between the bidding phase and the contractual stage, holding that clauses, especially arbitration provisions, become effective only upon the issuance of a formal PO.

Vihaan Networks problematises this form-function dichotomy. There, the APO was issued and accepted unconditionally, followed by performance including pre-deployment actions, submission of a performance bank guarantee, and field-testing in remote areas. Though the APO was ultimately withdrawn, Vihaan Networks had incurred considerable expenditure. The arbitral tribunal and the court, while acknowledging the absence of a concluded contract, nevertheless construed these facts as generating compensable obligations, expanding the operative legal threshold beyond the formal confines of Section 10.

There is some administrative guidance given by the Ministry of Finance as well. In its circular, it recognises that POs may amount to enforceable contracts if they contain the essential elements required by Indian law. However, this presumes a PO has already crossed the threshold of contract formation, something an APO often does not. But Vihaan Networksshows that even when those elements are missing, conduct post-APO can create compensable reliance interests.

SECTION 70: STATUTORY RESTITUTION WITHOUT CONTRACT

Section 70 provides that if a person lawfully does something for another, not intending it to be gratuitous, and the other party enjoys the benefit, compensation is owed. As clarified in Mahanagar Telecom Nigam Ltd. v. Tata Communications, this remedy is not available where a contract already governs the relationship. Section 70, therefore, operates independently of formal contract formation.

In Vihaan Networks, the arbitral tribunal relied on Section 70 to award reimbursement despite concluding that no enforceable contract existed. The tribunal found that BSNL had not only induced performance through express instructions but also benefited from the Respondent’s substantial preparatory actions, including field-testing, logistical deployment, and equipment procurement. This, the tribunal held, was sufficient to invoke quantum meruit liability, a legal principle which stipulates that reasonable compensation be awarded where the cost of work or services is not predetermined by a contract.

This reasoning finds precedence in Food Corporation of India v. Vikas Majdoor Kamdar Sahkari Mandli and MCD v. Ravi Kumar, where the Courts upheld restitution for partial performance despite the absence of a formal contract. In the present case, the same reasoning has been adopted, i.e. performance induced by a state entity, where not intended as gratuitous and where benefit is derived, justifies reimbursement. Thus, there is a recognition of restitutionary claims where APOs induce performance without culminating in a contract.

ARBITRABILITY WITHOUT AGREEMENT

A more contentious issue arises in Vihaan Networks: the arbitrability of Section 70 claims. Section 7 of the Arbitration and Conciliation Act, 1996 (hereinafter “Arbitration Act”), mandates a written arbitration agreement. As per Section 7(5), incorporation of an arbitration clause from another document is valid only if the reference is clear and intentional.

In BSNL v. Telephone Cables Ltd. and Gemini Communications Ltd., courts held that arbitration clauses embedded in General Conditions of Contract ("GCC") do not apply until a formal PO is issued. Similarly, in PSA Mumbai Investments v. JNPT, the Court reaffirmed that pre-contractual documents do not generate arbitrable disputes unless the arbitration clause becomes operative. In the Bombay High Court’s decision where a supplier included new terms, including an arbitration clause, in delivery invoices. The Court held that the buyer’s acceptance of goods without protest led to a binding agreement incorporating those terms.

In Vihaan Networks, no formal contract emerged, yet the tribunal assumed jurisdiction under the arbitration clause in the APO. The question arises: Can a Section 70 claim be arbitrated on the strength of an arbitration clause embedded in an APO that was never contractually concluded? The High Court affirmed this on the basis of the parties’ conduct, including acceptance of APO terms, issuance of instructions, and performance of field work, which indicated mutual reliance on the APO. The court thus interpreted the APO as containing a sufficiently clear arbitration clause that was operationalised by mutual conduct, satisfying Section 7(5).

LEGAL RELATIONSHIPS WITHOUT CONTRACTS

The Bombay High Court in Aurohill Global Commodities v. MSTC Ltd. allowed arbitrators to infer the existence of an arbitration agreement under Section 16, provided the conduct or documentation supports such an inference. Similarly, in Groupe Chimique Tunisien SA v. SPIC Ltd., arbitration was upheld based on terms incorporated via purchase orders.

In Vihaan Networks, the court appears to have relied on analogous reasoning: where performance is undertaken pursuant to an APO containing an arbitration clause, and the other party responds through conduct, such as site allocation or accepting a bank guarantee, then a “legal relationship” is deemed to exist. This relationship, though not a concluded contract, may suffice to attract arbitration, especially when the dispute itself arises from the very conduct induced by the APO. Thus, a hybrid zone is acknowledged: where restitutionary claims under Section 70 can fall within arbitral jurisdiction, not by virtue of contract, but by mutual conduct and reliance upon documents containing arbitration clauses.

WHAT VIHAAN NETWORKS ULTIMATELY CLARIFIES

Under Section 34, arbitral awards can be set aside only for patent illegality, procedural lapses, or public policy violations. In Vihaan Networks, BSNL argued that awarding ₹43.52 crores without a contract was illegal and excessive. However, both the tribunal and the High Court rejected this, finding that, firstly, the tribunal’s jurisdiction was correctly assumed based on the parties’ conduct and Section 7(5). Secondly, the principle of quantum meruit was validly applied under Section 70, as performance was requested and benefit accrued. Thirdly, the quantification of claims was based on documentary evidence including deployment records, salary slips, procurement invoices, and customs documents.

Importantly, the Court confirmed that Section 70 compensates for non-contractual work done with the recipient’s consent and benefit. It also noted the limited scope of review under Section 37. Following MMTC v. Vedanta, K. Sugumar, and Konkan Railway, held that so long as the award reflects a plausible view based on evidence, it cannot be overturned even if another view is possible. Vihaan Networks thus, notes that in APO-induced performance, arbitration and restitution can co-exist, not as contradictions, but as complementary facets of modern commercial adjudication.

CONCLUSION

Vihaan Networks illustrates how conduct, not just form, can generate enforceable obligations, both substantively under Section 70 and procedurally under Section 7 of the Arbitration Act. APOs, previously treated as mere intentions, are now emerging as functional documents capable of shaping rights and liabilities when followed by directed performance.

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* Navya Dhawan, 3rd year B.A., LL.B. (Hons.) student, National Law School of India University, Bengaluru.

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