2024 (3) TMI 908 - SC - Indian Laws

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 ... Application allowed under Section 11(6) of the Arbitration & Conciliation Act 1996 - appointment of Sole Arbitrator to adjudicate the dispute between the parties to the present lis - HELD THAT:- 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 - It is thus clear that 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 present case is a ‘two-contract’ case and not a ‘singlecontract’ case. 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. Clause 7.0 specifically provides that the redressal of dispute between the NBCC and the respondent shall only be through civil courts having jurisdiction of Delhi alone. Clause 10.0 further provides that the L.O.I. shall also form a part of the agreement - 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. The learned single judge of the Delhi High Court has erred in allowing the application of the respondent. The impugned orders are quashed and set aside - Appeal allowed. 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 ActThe 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 ClauseThe 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.