The Supreme Court’s analysis and order
The Court perused the documents produced before it and heard the parties.
The Court discussed the law laid down in the case of MR Engineers and Contractors Private Limited vs. Som Datt Builders Limited [(2009) 7 SCC 696] and discussed its points of distinctions from Inox Wind Limited vs Thermocables Limited [(2018) 2 SCC 519].
Based on the judgment passed in the case of MR Engineers and Contractors Private Limited [supra], the Court observed that:
“… this Court has held that when the parties enter into a contract, making a general reference to another contract, such general reference would not have the effect of incorporating the arbitration clause from the referred document into the contract between the parties. It has been held that the arbitration clause from another contract can be incorporated into the contract (where such reference is made), only by a specific reference to arbitration clause. It has further been held that where a contract between the parties provides that the execution or performance of that contract shall be in terms of another contract (which contains the terms and conditions relating to performance and a provision for settlement of disputes by arbitration), then, the terms of the referred contract in regard to execution/performance alone will apply, and not the arbitration agreement in the referred contract, unless there is special reference to the arbitration clause also.”
The Court read sub-section (5) of Section 7 of the Arbitration Act and opined that a reference to the document in the contract should be such that shows intent to incorporate the arbitration clause contained in the document into the contract.
In the case of Inox Wind Limited [supra], though the Supreme Court agreed with the view held in MR Engineers and Contractors Private Limited [supra], it has differed and held that though a general reference to an earlier contract is not sufficient for the incorporation of an arbitration clause in the later contract, a general reference to a standard form would be enough for the incorporation of the arbitration clause.
While perusing the facts of the case in Inox Wind Limited (supra), the Court found that the purchase order issued by the appellant therein categorically mentioned that the supply would be as per the terms mentioned therein and in the attached standard terms and conditions. The respondent therein, by his letter, had confirmed its acceptance.
The Court held that it was a case of a ‘single-contract’ and not ‘two-contract case’ and, therefore, the arbitration clause as mentioned in the terms and conditions would be applicable.
The Court opined that the present case was a ‘two-contract’ case and not a ‘single contract’ case.
While perusing the documents produced before it, the Court observed that Clause 3.34 of the Additional Terms and Conditions of Contracts provided for a reference of the dispute to the sole arbitration of the Secretary, CEO of Damodar Valley Corporation, Kolkata-54 or to a person appointed by him for that purpose.
However, according the LOI, Clause 1.0 stated that the documents stated in the LOI shall also form part of the agreement; Clause 2.0 clarified that all terms and conditions as contained in the tender issued to the appellant shall apply mutatis mutandis except where these have been expressly modified by the appellants; Clause 7.0 specifically provided that the redressal of dispute between the parties shall only be through civil courts having jurisdiction of Delhi alone; and Clause 10.0 further provided that the LOI shall also form a part of the agreement.
The Court observed that Clause 7.0 of the LOI specifically uses the word “only” before the words “be through civil courts having jurisdiction of Delhi alone” and that this proves the intention between the parties.
The Court reiterated that when there is a reference in the second contract to the terms and conditions of the first contract, the arbitration clause would not ipso facto be applicable to the second contract unless there is a specific mention/ reference thereto.
The Court opined that that the present case is not a case of ‘incorporation’ but a case of ‘reference.’ As such, a general reference would not have the effect of incorporating the arbitration clause, especially since Clause 7.0 of the LOI clearly stated that the redressal of the dispute between the parties has to be only through civil courts having jurisdiction of Delhi alone.
The Court quashed the impugned order and allowed the appeals.
Source: Barandbench
