General Reference To Another Contract Would Not Have The Effect Of Incorporating Arbitration Clause: Supreme Court
The Supreme Court reiterated that general reference to another contract would not have the same effect as incorporating the arbitration clause.
The Court distinguished between incorporating an arbitration clause in a contract as opposed to merely making a reference to arbitration in a contract. It further explained that that a reference to arbitration in a contract should be such that shows the intention to incorporate the arbitration clause contained in the document into the contract.
Justice B.R. Gavai and Justice Sandeep Mehta observed, “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.”
Sr. Advocate Gopal Shankarnarayan represented the appellant, while AOR Sumit Kumar appeared for the respondent.
“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 clarified
The dispute between NBCC and Zillion Infraprojects Pvt. Ltd. (Company) stemmed from a contract for the construction of a weir and allied structures across the river Damodar. The contract awarded to the Company by NBCC led to certain disputes between the parties, eventually resulting in the invocation of arbitration by the Company.
The Delhi High Court had appointed a Sole Arbitrator under Section 11(6) of the Arbitration & Conciliation Act 1996 to adjudicate a dispute between the parties. However, the Supreme Court, found that the High Court had erred in its decision.
“In view of Clause 1.0, the documents stated therein shall also form part of the agreement. In view of Clause 2.0, all terms and conditions as contained in the tender issued by the DVC to the NBCC shall apply mutatis mutandis except where these have been expressly modified by the NBCC,” the Court stated.
Consequently, the Court set aside the Order of the High Court and held that mere reference of arbitration to the terms and conditions of a contract without it being incorporated would not make the dispute between the parties amenable to arbitration proceedings.
Accordingly, the Supreme Court allowed the appeal.
Cause Title: NBCC (India) Limited v. Zillion Infraprojects Pvt. Ltd. (Neutral Citation: 2024 INSC 218)
Appearance:
Appellant: Sr. Advocate Gopal Shankarnarayan; AOR Kiran Kumar Patra; Advocates Debarshi Bhadra, Jhanvi Dubey and Sunil Mund
Respondent: AOR Sumit Kumar; Advocates Kumari Supriya, Bharath Kumar and Sakshi Sharma
