Supreme Court

NBCC (India) Limited Vs. Zillion Infraprojects Pvt. Ltd. (Neutral Citation: 2024 INSC 218)

MANU/SC/0216/2024

19.03.2024

Arbitration

Arbitration Clause from another contract can be incorporated into the contract only by a specific reference

The present appeals challenge the interim order and final judgment passed by the High Court, whereby the High Court allowed the application under Section 11(6) of the Arbitration and Conciliation Act 1996 (Arbitration Act) and appointed the Sole Arbitrator to adjudicate the dispute between the parties to the present lis, arising from the Letter of Intent dated 4th December 2006.

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.

A perusal of Sub-section (5) of Section 7 of the Arbitration Act itself would reveal that it provides for 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 as a part of the contract between the parties. 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.

The intention between the parties is very clear. Clause 7.0 of the L.O.I. which also forms part of the agreement specifically provides that the redressal of the dispute between the NBCC and the Respondent shall only be through civil courts having jurisdiction of Delhi alone. 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 a 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. In any case, 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 the NBCC and the Respondent has to be only through civil courts having jurisdiction of Delhi alone.High Court has erred in allowing the application of the Respondent. Impugned orders are quashed and set aside. Appeals allowed.

Tags : Appointment Arbitrator Legality

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