Appeal allowed under Section 11(6): arbitration clause not incorporated by reference; LOI confines disputes to civil courts

SC allowed the appeal, quashing the High Court order that had appointed a sole arbitrator under Section 11(6). The Court held the matter involved two separate contracts and the arbitration clause in the earlier document was not incorporated into the later contract by mere reference; a general reference does not import an arbitration clause ipso facto. The incorporated Letter of Intent expressly confined dispute resolution to civil courts in Delhi, so arbitration was not applicable and the prior orders permitting arbitration were set aside.

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Issues Involved:
1. Whether the High Court erred in invoking its power under Section 11(6) of the Arbitration & Conciliation Act, 1996.
2. Whether the arbitration clause from the tender documents was incorporated into the Letter of Intent (L.O.I.).

Summary:

Issue 1: Invocation of Power Under Section 11(6) of the Arbitration Act
The appellant argued that the High Court erred in invoking its power under Section 11(6) of the Arbitration Act. The High Court had allowed the application under Section 11(6) and appointed a Sole Arbitrator to adjudicate the dispute arising from the Letter of Intent dated 4th December 2006. The appellant contended that Clause 7.0 of the L.O.I. specifically stated that disputes should be resolved through civil courts having jurisdiction in Delhi alone, thereby excluding arbitration. This Court found merit in the appellant's argument and held that the High Court erred in allowing the respondent's application for arbitration.

Issue 2: Incorporation of Arbitration Clause
The appellant contended that a mere reference to the terms and conditions in the L.O.I. without specific incorporation of the arbitration clause does not make the dispute amenable to arbitration. The Court referred to the judgment in M.R. Engineers and Contractors Private Limited vs. Som Datt Builders Limited (2009) 7 SCC 696, which held that a general reference to another contract does not incorporate the arbitration clause unless there is a specific reference to it. The Court observed that Clause 2.0 of the L.O.I. made a general reference to the terms and conditions of the tender issued by DVC to NBCC, but Clause 7.0 of the L.O.I. explicitly stated that dispute resolution would be through civil courts in Delhi alone, indicating a clear intention to exclude arbitration. Therefore, the arbitration clause from the tender documents was not incorporated into the L.O.I.

Conclusion:
The Supreme Court allowed the appeals, quashing the interim order dated 12th March 2021 and the final judgment & order dated 9th April 2021 of the High Court. The Court held that the High Court erred in allowing the application for arbitration and that the dispute should be resolved through civil courts in Delhi as per Clause 7.0 of the L.O.I.

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