Specific Reference To Arbitration Clause Needed In 'Two-Contract Case' For Incorporation: Delhi High Court

A 'two-contract case' refers to a situation where there are two separate contracts involved and the parties seek to incorporate terms, including an arbitration clause, from one contract into another.

Brief Facts:

Murari Lal Agarwal (Petitioner) approached the High Court for the appointment of an arbitral tribunal in accordance with Clause 67.3 of an agreement. KMC Construction Limited (Respondent) argued that there was no arbitration agreement between the Petitioner and KMC. The Petitioner argued that the arbitration clause can be derived from the agreement when read together with a subsequent agreement. The initial contract was solely between the Petitioner and ETA (Respondent No. 2), related to the balance work of six-laning the Gurgaon-Kotputli-Jaipur section of National Highway-8.

ETA was appointed as the Engineering, Procurement, and Construction contractor, which in turn awarded part of the work to a third party but later decided to award the balance portion to the Petitioner. Clause 3 of the agreement contained an arbitration agreement applicable to the parent contract. KMC's involvement emerged through a supplementary agreement. This agreement acknowledged KMC's substitution as the "Employer" in place of ETA and noted that this substitution did not constitute a new contract or novation but an amendment to the existing contract.

Observations by the High Court:

The High Court referred to Section 7(5) of the Arbitration and Conciliation Act and noted that a reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference makes the arbitration clause part of the contract.

The High Court referred to the decision of the Supreme Court in M.R. Engineers and Contractors Pvt. Ltd. v. Som Datt Builders Ltd where it was held that for terms of a document to be incorporated into a contract, the contract must either explicitly state that the terms of the document form part of the contract, or indicate that the contract will be governed by the document's provisions. It held that when the document includes an arbitration clause, it must be explicitly referenced for it to apply to the contract.

The High Court also referred to its decision in Mac Associates v. Parvinder Singh where it was held that for an arbitration clause in another document to be incorporated by reference, there must be a clear intention of the parties to incorporate the arbitration clause in the contract, with a specific reference to the arbitration clause. The only exception is when the referenced document is a standard form of terms and conditions from an independent trade or professional institution.

The High Court noted that it was "two-contract case" where the arbitration clause would require an explicit reference to be incorporated. The agreement did not contain an express arbitration clause or a specific reference to incorporate the arbitration clause from the contract. Clause 13 of the agreement stated that all terms and conditions of the contract dated 05.10.2013 would remain valid unless otherwise stated, but this clause did not expressly reference the arbitration clause.

Therefore, the High Court held that the absence of a specific reference to the arbitration clause meant that it was not incorporated into the subsequent agreement. Consequently, the High Court dismissed the petition.

Case Title: Murari Lal Agarwal Vs Kmc Construction Limited & Ors.

Citation: 2024 LiveLaw (Del) 780

Case Number: ARB.P. 1416/2022

Advocate for the Petitioner: Mr Susshil Daga, Mr Anurag Kalavatiya, Mr Chitransh Mathur, and Ms Parul Singhal, Advocates.

Advocate for the Respondent: Mr. Sidhant Dwibedi, Mr. Manoj Kumar, Advocates for R-1.

Date of Judgment:

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