No Valid Arbitration Agreement In Absence Of Mutual Intention To Incorporate Arbitration Clause From Another Document To Existing Contract Between Parties: Calcutta HC

The Bench observed that reference to the document containing an arbitration clause which needs to be incorporated into another document must clearly indicate an intention to incorporate the arbitration clause from one document to another. “Section 7(5) of the Act requires a conscious acceptance of the arbitration clause from another document by the parties as a part of their contract before such arbitration clause could be read into the contract,” the Bench added.

A Single Bench of Justice Ravi Krishan Kapur observed, “Any agreement or clause in an agreement requiring or contemplating further consent before a reference to arbitration is not an arbitration, but an agreement to enter into an arbitration agreement in the future which per se is not enforceable. An arbitration clause cannot be deemed to have been incorporated by way of a subsequent Circular, unless it is specifically referred to and included in the original agreement between the parties. Section 7(5) mandates a reference in a contract containing an arbitration clause. ”

Advocate Kapil Prakash Mathur represented the review applicant, while Advocate Mainak Das appeared for the respondent.

An e-tender was issued by Eastern Coalfields Limited for the hiring of heavy earth-moving machinery and coal removal in which Dhansar Engineering emerged as the successful bidder. Later Eastern Coalfields Limited alleged that Dhansar Engineering had failed to fulfil the conditions of the tender, leading to the foreclosure of the awarded work.

However, the application for the appointment of an Arbitrator was dismissed on the ground that there was no valid arbitration clause between the parties. Consequently, a review application was filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 (the Act).

The Court held that incorporation of an arbitration clause in an existing contract requires both parties to mutually arrive at a further agreement to refer the disputes to arbitration. Mere communication of a decision to go to arbitration cannot be construed as an arbitration agreement between parties under Section 7 of the Act.

“Section 7 of the Act contemplates that an arbitration clause may be incorporated into a contract by reference. One of the essential requirements for a valid arbitration clause is the intention of the parties to opt for arbitration i.e. there must be consensus ad idem,” the Court stated.

The Court held that the applicant was not entitled to any reliefs as prayed for as no arbitration clause was incorporated in their contract.

Accordingly, the High Court disposed of the application.

Cause Title: Dhansar Engineering Company Private Limited v. Eastern Coalfields Limited

Appearance:

Review Applicant: Advocates Amrita Panda, Daipayan Basu Mallick, Arkaprava Sen and Sayantan Kar

Respondent: Advocates Mainak Das and Priti Banerjee

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