2018 (1) TMI 430 - SC - Indian Laws

Supreme Court: General terms in purchase order incorporate arbitration clause

M/s. Inox Wind Ltd. Versus M/s Thermocables Ltd.

The Supreme Court held that the general reference to standard terms and conditions in the purchase order was adequate to incorporate the arbitration ... Appointment of arbitrator - Section 11 (6) of the Arbitration and Conciliation Act, 1996 - rejection of application on the ground that the arbitration clause in the main contract was not incorporated by reference in the contract between the Appellant and Respondent therein - scope of Section 7 (5) of the Act - Held that: - though general reference to an earlier contract is not sufficient for incorporation of an arbitration clause in the later contract, a general reference to a standard form would be enough for incorporation of the arbitration clause - In the present case, the purchase order was issued by the Appellant in which it was categorically mentioned that the supply would be as per the terms mentioned therein and in the attached standard terms and conditions. The Respondent by his letter dated 15.12.2012 confirmed its acceptance of the terms and conditions mentioned in the purchase order except delivery period. The dispute arose after the delivery of the goods. No doubt, there is nothing forthcoming from the pleadings or the submissions made by the parties that the standard form attached to the purchase order is of a trade association or a professional body. However, the Respondent was aware of the standard terms and conditions which were attached to the purchase order. The purchase order is a single contract and general reference to the standard form even if it is not by a trade association or a professional body is sufficient for incorporation of the arbitration clause. Justice Sushil Harkauli is appointed as the Arbitrator to adjudicate the dispute between the parties - appeal allowed. Issues Involved:1. Existence and incorporation of an arbitration agreement.2. Interpretation of Section 7(5) of the Arbitration and Conciliation Act, 1996.3. Applicability of the arbitration clause from standard terms and conditions.4. Legal precedents and their relevance to the current case.Detailed Analysis:1. Existence and Incorporation of an Arbitration Agreement:The primary issue was whether an arbitration agreement existed between the parties and if it was incorporated into the purchase order. The Appellant, a manufacturer of wind turbine generators, issued purchase orders to the Respondent for supply of cables, which included standard terms and conditions containing an arbitration clause. The Respondent accepted these terms except for the delivery period. Upon discovering defects in the supplied cables, the Appellant sought to invoke arbitration, which the High Court denied, stating no arbitration agreement was proved.2. Interpretation of Section 7(5) of the Arbitration and Conciliation Act, 1996:The High Court's decision was based on the interpretation of Section 7(5) of the Act, which deals with the incorporation of arbitration clauses by reference. The High Court relied on the Supreme Court's judgment in M.R. Engineers and Contractors Private Limited v. Som Datt Builders Limited, which held that a specific reference to the arbitration clause is necessary for it to be incorporated into the contract.3. Applicability of the Arbitration Clause from Standard Terms and Conditions:The Supreme Court examined whether the general reference to the standard terms and conditions in the purchase order was sufficient to incorporate the arbitration clause. The Court discussed the distinction between 'reference' and 'incorporation' and noted that a general reference to a standard form of contract, even if not from a trade association or professional body, is sufficient for incorporation of the arbitration clause.4. Legal Precedents and Their Relevance to the Current Case:The judgment extensively analyzed previous decisions, including the M.R. Engineers case and various English cases, to elucidate the principles of incorporation. The Court noted the evolution of the law, particularly the acceptance that a general reference to a standard form of contract is sufficient for incorporating an arbitration clause, even if it is the standard form of one party.Conclusion:The Supreme Court concluded that the Appellant's purchase order, which included a general reference to standard terms and conditions, was sufficient to incorporate the arbitration clause. The Court modified the earlier interpretation in M.R. Engineers to include general references to standard forms of one party. Consequently, the appeal was allowed, the High Court's judgment was set aside, and an arbitrator was appointed to adjudicate the dispute.