Arbitration Clause From Another Contract Can Be Incorporated Into Contract Only By Specific Reference: Delhi High Court

Brief Facts

The present petition has been filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 by the Petitioner seeking appointment of an Arbitrator to adjudicate upon the disputes which have arisen between the parties under the Master Services Agreement dated 19.08.2019 wherein the Petitioner undertook offsite work for the Respondent by deputing its employees who are software developers to work in the project of the Respondent.

Contentions

The respondent submitted that a Master Servant Agreement is unsigned and therefore, the Agreement is not legally binding on the parties and that the Respondent/Company and the Petitioner has entered into Statement of Work dated 10.02.2020 which does not contain Arbitration Clause and the disputes have arisen under the said Agreement.

Per contra, the petitioner drew attention of this Court to the signed Master Services Agreement dated 19.08.2019 which contains the signatures of both the parties. Attention was drawn of this Court to an e-mail dated 11.09.2024 sent by the Petitioner to the Respondent stating that the Petitioner has gone through the exchange of emails of the exemployees and found an email sent to the Respondent attaching the Statement of Work and the Master Service Agreement.

Court's Analysis

The court, at the outset, referred to section 7(2) of the Arbitration Act which states that an arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

The court further noted that the exchange of letters also indicates that the parties had exchanged their record of the Agreements thereby indicating that an arbitration agreement has been entered into between the parties for deciding the disputes through arbitration.

The court while coming to the second objection of the respondent noted that a perusal of the Statement of Work Agreement shows that Agreement has been made in pursuant to the Master Service Agreement and which clearly states that the Statement of Work forms an integral part of the Master Service Agreement. Since the Statement of Work becomes an integral part of the Master Service Agreement, the Arbitration Clause contains that the Master Service Agreement will automatically become the part of the Statement of Work Agreement.

The court noted that in M. R Engineers and Contractors (P) Ltd. v. Som Datt Builders Ltd., (2009) the Supreme Court has held that when the parties enter into a contract, making a general reference to another contract, such general reference would not have the effect of incorporating the arbitration clause from the referred document into the contract between the parties. It has been held that the arbitration clause from another contract can be incorporated into the contract (where such reference is made), only by a specific reference to arbitration clause.

In NBCC (India) Limited v. Zillion Infraprojects Private Limited, (2024) the Supreme Court has further 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 court noted.

The court while applying the above law to the facts of the present case observed that the Statement of Work Agreement is a part of the Master Service Agreement therefore the Arbitration Clause 14 contained in the Master Services Agreement dated 19.08.2019 becomes the part of the Statement of Work Agreement.

Accordingly, the present petition was allowed and the arbitrator was appointed.

Case Title: Unthinkable Solutions LLP Versus Ejohri Jewels Hub Pvt Ltd

Citation: 2024 LiveLaw (Del) 1274

Case Reference: ARB.P. 988/2024

Judgment Date: 08/11/2024

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