TaxTMI 
TaxTMI 
2009 (7) TMI 1151
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....he respondent. The said contract between PW Department and the respondent contained a provision for arbitration, as per clause 67.3 of the General Conditions of Contract. The relevant portion of the said clause is extracted below: " Arbitration 67.3. Any dispute in respect of which : (a) the decision, if any, of the Engineer has not become final and binding pursuant to Sub-Clause 67.1, and (b) amicable settlement has not been reached within the period stated in Sub-Clause 67.2. shall be referred to the adjudication of a Committee of three arbitrators. The Committee shall be composed of one arbitrator to be nominated by the Employer, one to be nominated by the Contractor and the third who will act as the Chairman of the Committee, but not as umpire, to be nominated by the Director - General (Road Development), Ministry of Surface Transport (Roads Wing); Government of India. If either of the parties abstain or fail to appoint his arbitrator, within sixty days after receipt of notice for the appointment of such arbitrator, then the Director- General (Road Development), Ministry of Surface Transport, Government of India, himself shall appoint such arbitrator(s). A certif....
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.... pay to the appellant, eighty percent of the amounts awarded for such claims, that is Rs.37,55,893/-, along with Rs.1,55,807/- towards pre- reference interest upto 4.12.1996 and compensation at 18% per annum for non-payment of Rs.37,55,893/- from 5.12.1996. The appellant alleged that a sum of Rs.1,76,936/- was also due by the respondents towards unlawful deductions. The appellant therefore lodged a claim on the respondent by letter dated 5.7.2000, for payment of Rs.65,11,341/-. As the claim was not settled, the appellant sent a letter dated 6.12.2000 seeking reference of the disputes by arbitration. 5. As the respondent failed to comply, the appellant filed an application under section 11 of the Act. According to the appellant clause 67.3 of the General Conditions of Contract forming part of the contract between the PW Department and the respondent, providing for arbitration, was imported into the sub-contract between respondent and appellants. The appellant relies upon the term in the work order dated 4.5.1994 that the "sub-contract shall be carried out on the terms and conditions as applicable to main contract" to contend that the entire contract between the department and the....
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....ect of making an arbitration clause from that document, a part of the contract. The 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. If the legislative intent was to import an arbitration clause from another document, merely on reference to such document in the contract, sub-section (5) would not contain the significant later part which reads : "and the reference is such as to make that arbitration clause part of the contract", but would have stopped with the first part which reads : "The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing" Section 7(5) therefore requires 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. But the Act does not contain any indication or guidelines as to the conditions to be fulfilled before a reference to a document in a contract, can be construed as a reference incorporating an arbitration claus....
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.... document cannot be looked into for any other purpose, say price or payment of price. Similarly if a contract between X and Y provides that the terms of payment to Y will be as in the contract between X and Z, then only the terms of payment from the contract between X and Z, will be read as part of the contract between X and Y. The other terms, say relating to quantity or delivery cannot be looked into. 11. Sub-section (5) of Section 7 merely reiterates these well settled principles of construction of contracts. It makes it clear that where there is a reference to a document in a contract, and the reference shows that the document was not intended to be incorporated in entirety, then the reference will not make the arbitration clause in the document, a part of the contract, unless there is a special reference to the arbitration clause so as to make it applicable. 12. The following passages from Russell on Arbitration throws considerable light on the position while dealing with Section 6(2) of (English) Arbitration Act, 1996 corresponding to Sec.7(5) of the Indian Act. (23rd Edition, see pages 52-55): " Reference to another document. The terms of a contract may have to be a....
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.... likely to accept that general words of incorporation will suffice. This is because the parties can be expected to be more familiar with those standard terms including the arbitration clause" [Para : 2.048] After referring to the view of Sir John Megaw, in Aughton Ltd. v. M.F. Kent Services Ltd. [1991 (57) BLR 1] that specific words were necessary to incorporate an arbitration clause and that the reference in a sub-contract to another contract's terms and conditions would not suffice to incorporate the arbitration clause into the sub-contract, followed in Barrett & Son (Brickwork) Ltd. v. Henry Boot Nanagement Ltd. [1995 CILL 1026, Trygg Hansa Insurance Co. Ltd. v Equitas Ltd. [1998 (2) Lloyds' Rep.439) and Anonymous Greek Co of General Insurances (The "Ethniki") v. AIG Europe (UK) [2002 (2) All ER 566] and Sea Trade Maritime Corp. v. Hellenic Mutual War Risks Association (Bermuda) Ltd. (The "Athena") No.2 - [2006] EWHC 2530, Russell concludes: "The current position therefore seems to be that if the arbitration agreement is incorporated from a standard form a general reference to those terms is sufficient, but at least in the case of reference to a non-standard form co....
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....o the contract (where such reference is made), only by a specific reference to arbitration clause. (iii) Where a contract between the parties provides that the execution or performance of that contract shall be in terms of another contract (which contains the terms and conditions relating to performance and a provision for settlement of disputes by arbitration), then, the terms of the referred contract in regard to execution/performance alone will apply, and not the arbitration agreement in the referred contract, unless there is special reference to the arbitration clause also. (iv) Where the contract provides that the standard form of terms and conditions of an independent Trade or Professional Institution (as for example the Standard Terms & Conditions of a Trade Association or Architects Association) will bind them or apply to the contract, such standard form of terms and conditions including any provision for arbitration in such standard terms and conditions, shall be deemed to be incorporated by reference. Sometimes the contract may also say that the parties are familiar with those terms and conditions or that the parties have read and understood the said terms and c....
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....Certain disputes having arisen, the petitioner appointed its arbitrator and called upon the respondent to appoint its arbitrator. When respondent failed to comply, the petitioner filed a petition under Section 11 of the Act for appointment of the second Arbitrator. In the counter to the petition under Sec. 11 of the Act, the respondent did not deny the fact that the purchase orders were placed with the petitioner nor denied the fact that the purchase orders were all placed subject to FAI terms and conditions, including clause 15 of FAI terms which provided for arbitration. This court held that the purchase orders placed by the respondents with the petitioner having been made subject to FAI terms which contained the arbitration clause, the arbitration clause contained in the FAI terms would constitute the arbitration agreement between the parties. 14.3 Both the decisions are not of any assistance to the appellant. Both relate to reference to standard terms & conditions of Trade Associations. In both cases the parties had agreed to be bound by the standard terms and conditions of the Trade Association thereby clearly showing an intention to subject themselves to the provision for....
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.... clause). Clause 9 of the second contract provided that "all other terms and conditions for supply not specifically shown and covered hereinabove shall be as per previous contract signed between us for earlier supplies of HPS". The question before this court was whether the arbitration clause in FOSFA -20 was incorporated in the first contract by way of Clause 11 and in the second contract by virtue of Clause 9. The Court held that while the Arbitration clause was incorporated in the first contract, the same was not incorporated in the second contract. The following reasoning of the Court while dealing with the second contract is relevant for our purpose: "There is a good deal of difference between Clause 9 of this contract and Clause 11 of the first contract. Clause 11 has been couched in general words, but Clause 9 refers to all other terms and conditions for supply. The High Court has taken the view that by Clause 9 the terms and conditions of the first contract which had bearing on the supply of HPS were incorporated into the second contract, and the term about arbitration not being incidental to supply of goods, could not be held to have been lifted as well from the first c....
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....e in the main contract between the PW Department and contractor makes it clear that it cannot be applied to the sub-contract between the contractor and the sub-contractor. The arbitration clause in the main contract states that the disputes which are to be referred to the committee of three arbitrators under clause 67(3) are disputes in regard to which the decision of the Engineer (`Engineer' refers to person appointed by State of Kerala to act as Engineer for the purpose of the contract between PW Department and the respondent) has not become final and binding pursuant to sub-clause 67.1 or disputes in regard to which amicable settlement has not been reached between the State of Kerala and the respondent within the period stated in sub-clause 67.2. Obviously neither 67.1 nor 67.2 will apply as the question of `Engineer' issuing any decision in a dispute between the contractor and sub-contractor, or any negotiations being held with the Engineer in regard to the disputes between the contract and sub-contractor does not arise. The position would have been quite different if the arbitration clause had used the words "all disputes arising between the parties" or "all disputes arising u....