Brief facts:
The Appellant had issued an invitation for tender, for the construction of certain structures across the river Damodar at Chandrapur, District Bokaro, Jharkhand, which contained inter-alia, the General Conditions of Contract, Special Conditions of Contract, Bill of Quantity, etc. ("Tender Documents"). In response to the said tender, the Respondent submitted its Techno Commercial bid. On fulfilment of tender criteria, the Appellant vide Letter of Intent dated December 4, 2006 ("LOI") awarded the contract for construction to the Respondent. However, with the passage of time, disputes arose between the parties, as a result of which the Respondent issued a notice invoking arbitration in terms of the "arbitration clause" mentioned in the tender documents and requested the Appellant to provide consent for appointment of a former judge of a High Court, as a sole arbitrator. On the failure of the Appellant to respond to the arbitration notice, the Respondent filed an application under Section 11(6) of the Arbitration Act ("Act") seeking the appointment of an arbitrator. The High Court allowed the Respondents application and appointed a former judge of the Delhi High Court, as the sole arbitrator to adjudicate the dispute between the parties. Being aggrieved by the said order, the Appellant filed the present appeal.1
Relevant terms and conditions of the Tender Documents and LOI
a. Arbitration clause in the Tender Document issued by Damodar Valley Corporation ("DVC"):
"In the event of any dispute or difference whatsoever arising under the contract or in connection therewith including any question relating to existence meaning and interpretation or the contract or any alleged breach thereof the same shall be referred to the sole arbitration...."
b. Clause 2 and 7 of the LOI which read as follows:
"2.0 All terms and conditions as contained in the tender issued by DVC to NBCC shall apply mutatis mutandis except where these have been expressly modified by NBCC.
7.0 The redressal of dispute between NBCC and you shall only be through civil courts having jurisdiction of Delhi alone. The laws applicable to this contract shall be the laws enforceable in India."
Relevant provision of the Act
a. Sub-Section 5 of the Section 7 of the Act;
"The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract."
Arguments and Contentions
Relying on the aforesaid clauses, the counsel for the Appellant submitted that the clause 2 of the LOI makes it clear that all the terms and conditions of the tender document issued by DVC would be applicable unless modified. Further, the clause 7, specifically provides that the redressal of dispute shall be through civil courts. Thus, it was argued that mere reference in LOI to the terms and conditions as contained in the tender document, without there being an incorporation of an "arbitration clause" in the LOI, would not make the lis between the parties amenable to arbitration. In support of the arguments, the counsel relied on the judgement pronounced by this court in M.R Engineers and Contractors Private Limited v Som Datt Builders Limited {(2009) 7 SCC 696} to argue that unless the LOI specifically provided for incorporation of the arbitration clause, a reference to arbitration would not be permitted in view of the provisions of Sub-section 5 of Section 7 of the Act.
On the contrary, the counsel appearing on behalf of the Respondent argued that no interference is warranted with the impugned order passed by the High Court as there was a specific reference in the LOI to the terms and conditions of the tender issued by DVC and therefore the disputes are amenable to arbitration.
Analysis
Referring to its judgement pronounced in M.R Engineer (Supra), the Court once again set out the principles governing the Sub- section 5 of Section 7 of the Act which can be summarized as follows:
- Where a contract provides that the execution/performance of the contract would be as per another contract, then the terms of the referred contract in regard to execution alone will apply and not the arbitration clause in the referred contract, unless there is a specific reference to the arbitration clause also.
- Where the contract provides that the standard form of terms and conditions of an independent trade or professional institution will bind them, such standard form of terms and conditions including any provision for arbitration in it shall be deemed to be incorporated by reference.
- A perusal of sub-section (5) of 7 of the Arbitration Act itself reveals that it provides for a conscious acceptance by the parties of the arbitration clause from another document, before such arbitration clause could be read as a part of the contract between the parties.
Conclusion
Applying the aforesaid principles to the facts of the present case, the Court held that the instant matter is a "two-contract case" and not a "single-contract case". The general reference in LOI to the tender issued by DVC to the Appellant (which contained the arbitration clause) would not have the effect of incorporation of the said arbitration clause. Further, it was held that it is evident from the terms of the LOI that the intention of the parties was to specifically confer jurisdiction only on the civil courts of Delhi in regard to the redressal of disputes between the Appellant and the Respondent. Accordingly, the present appeal was allowed.
Footnote
1. NBCC (India) Limited v. Zillion Infraprojects Pvt. Ltd. 2024 SCC Online SC 323
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