In the realm of agreements, words are not mere linguistic expressions; they are vessels carrying the intentions and expectations of the contracting parties. The factor of intent in agreements is the unseen force, shaping the contours of legal obligations, transforming a mere exchange of promises into definite and binding commitments. Undoubtedly, the factor of intent is crucial to determine the roles, responsibilities, obligations and even respective liabilities of the contracting parties. From a judicial perspective, ascertaining the intent of parties (especially from the contents of an agreement) plays a significant role in adjudicating disputes arising out of an otherwise ambiguous or an undefined agreement. Such was the case before the Delhi High Court recently, in NEC Corporation India Private Limited v. M/S Plus91 Security Solutions (2023 SCC OnLine Del 8103), where the petitioner (NEC) challenged the award passed by the arbitral tribunal, by way of which damages were awarded to the respondent (Plus91) for the alleged breach by the petitioner of the terms of the memorandum of understanding (“MoU”) executed between the parties therein.

The prelude to the aforesaid lis began with the Airports Authority of India (“AAI”) floating an invitation to proposals for one of its projects, to which the petitioner intended to submit its bid. In relation to the said bid, the petitioner approached the respondent seeking information in respect of original equipment manufacturers (“OEM”), from whom the petitioner could purchase equipment in relation to the aforesaid project of AAI. Accordingly, the respondent shared quotations of certain OEM vendors with the petitioner; however, the same were not acceptable to the petitioner, as it proceeded to submit its bid with the AAI with its own efforts, which led to the petitioner being awarded the contract. Subsequently, post awarding of contract, the respondent once again approached the petitioner in providing assistance in finding OEM vendors for future purposes, and requested the petitioner to execute an MoU, enabling the respondent to negotiate and secure better quotations/rates, since the petitioner was open to looking for OEM options in future, which it might be able to propose to AAI, as the said MoU came to be executed between the parties to the lis. Soon thereafter, the respondent issued a legal notice alleging breach of the MoU, claiming that the petitioner failed to give any work for the AAI project, which it was required to do as per the MoU. The respondent filed for reference to arbitration, as it claimed before the arbitral tribunal (“AT”) that it had helped the petitioner during the entire process before attaining the contract awarded by the AAI, and that the MoU was merely executed belatedly. The AT, inter-alia, held that there had been a breach of the MoU by the petitioner, as it awarded damages to the respondent, despite the existence of a clause within the MoU, which forbade the parties to claim damages from one another (whilst relying on the judgment of the Apex Court in Simplex Concrete Piles (India) Ltd. v. Union of India, 2010 SCC OnLine Del 821).

The petitioner impugned the arbitration award passed by the AT before the High Court on the ground of patent illegality, as it asserted that the information provided by the respondent was not used, and the petitioner, with its own efforts, attained the contract. The petitioner highlighted the non-binding nature of the MoU, as it further impugned the AT’s reliance on the decision in Simplex (Supra), stating that the said decision pertained to loss on account of delay.

The High Court, whilst setting aside the arbitral award, held that though the contents of the MoU indicated that the parties intended to collaborate but there was no clause whereby any work was awarded to the respondent or the petitioner made any commitment, with an enforceable right accruing in favor of the respondent. It concluded that their association (by way of the MoU) was only exploratory in nature, and in no way was it a definitive agreement. The collective reading of the clauses therein puts the whole intent of the MoU beyond doubt that the parties had made no definitive commitment to each other. The High Court further concluded that as the case in Simplex (Supra) pertained to a different context and clause, the AT misapplied the legal ratio, which made the conclusions drawn patently illegal.

Deducing from the aforesaid, the factor of intent is fundamental whilst construing an agreement. An agreement devoid of clear intent (and contents) is like a ship without a rudder, at the mercy of unpredictable currents, destined for the rocks of ambiguity [which, in this case, rendered a cascading effect, being to the detriment of the petitioner].

By - Vaibhav Mehra and Aditi Garg