Arbitration & Conciliation Act, 1996 – The appellant issued an invitation for tender – Respondent submitted its techno bid- vide L.O.I. appellant awarded the contract to Respondent – Respondent approached High Court under Sec. 11(6) – High Court appointed sole arbitrator – Order of the High Court set aside Held: General reference will not lead to incorporation of the arbitration clause – Reference to arbitration clause in another contract ought to be specific. [Paras 3 and 21-23] Arbitration – When will an arbitration clause from a second contract be incorporated in the first contract Held: Conscious acceptance of arbitration clause – Reference and incorporation are different – Reference does not ipso fact lead to incorporation. [Paras 12-13 and 21-23]
Arbitration & Conciliation Act, 1996 – Sec. 7(5) – Arbitration clause will not be incorporated by a general reference – Conscious Acceptance – In absence of specific reference, only execution/performance terms will apply – If no specific reference, arbitration clause will not apply – Reference not incorporation in the present case- General reference does not lead to incorporation.
The Appellant had issued an invitation for tender for “Construction of Weir with Allied Structures across river Damodar at DVC, CTPS, Chandrapura, Dist – Bokaro, Jharkhand in response whereto, the Respondent submitted its Techno Commercial Bid. The contract for the construction of weir was awarded to the Respondent whereafter due to certain disputes, the Respondent issued a notice in terms of Clause 3.34 of Section III Volume II of the Tender Documents invoking arbitration and further seeking consent of the appellant for the appointment of a former Judge of a High Court, as Sole Arbitrator. The Respondent, while invoking the arbitration, had taken recourse to Clause 2 of the Letter of Intent (L.O.I.) issued by the Appellant while awarding the contract. Clause 2 stated thus: “All terms and conditions as contained in the tender issued by DVC to NBCC shall apply mutatis mutandis except where these have been expressly modified by NBCC.” Since the Appellant did not respond to the notice, the Respondent approached the High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996. High Court allowed the petition preferred by the Respondent. Held: A perusal of sub-section (5) of Section 7 of the Arbitration Act itself would reveal that before an arbitration clause could be read as a part of the contract, there must be a conscious acceptance of the arbitration clause from another document by the parties – It is thus clear that a reference to the document in the contract should be such that shows the intention to incorporate the arbitration clause contained in the document into the contract. [Paras 12 and 13] While setting aside the order of the High Court, the Supreme Court held that a general reference to the terms and conditions of another contract would not have the effect of incorporating the arbitration clause – It is pertinent to note that clause 7.0 of the L.O.I. specifically uses the word “Only” before the words “be through civil courts having jurisdiction of Delhi alone” – 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 specific mention/reference thereto – 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 – Clause 7.0 of the L.O.I, which is also a part of the agreement, makes it amply clear that the redressal of the dispute between NBCC and respondent has to be only through civil courts having jurisdiction of Delhi alone – Delhi High Court has erred in allowing the application of the respondent. [Paras
21 to 24]
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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