Absence Of Arbitration Clause In The Main Agreement Is Immaterial When It Specifically Incorporates Another Agreement Containing Arbitration Clause: Calcutta High Court

The bench of Justice Moushumi Bhattacharya held that Section 7(5) of the A&C Act allows incorporation of the arbitration agreement by reference and a case wherein the main agreement specifically incorporates the earlier agreements containing arbitration clause, the situation would squarely be covered by the said Section.

Facts

The respondent issued a notice inviting tender (NIT) dated 19.04.2014. Pursuant thereto, a letter of intent (LOI) dated 21.08.2014 and Work Order dated 17.11.2014 were issued in favour of the petitioner. Thereafter, the parties executed an agreement dated 15.10.2015. The Work Order as well as LOI both contained an identical arbitration clause, though, the final contract did not have an arbitration clause. The agreement dated 15.10.2015 was duly stamped, however, the earlier documents were not stamped.

A dispute arose between the parties regarding the payment for the services rendered under the work order. Accordingly, the petitioner invoked the arbitration clause contained in the NIT and LOI. Upon the failure of the parties, the petitioner approached the Court for the appointment of arbitrator.

Contention of the Parties

The respondent raised the following objections to the maintainability of the petition:

• The agreement dated 15.10.2015 does not contain an arbitration clause, moreover, it does not satisfy the test of incorporation by reference, therefore, the dispute cannot be referred to arbitration.
• The LOI, NIT as well as the work order on which the reliance has been placed by the petitioner for the incorporation of the arbitration clause are unstamped documents, thus, in-admissible in evidence.

The petitioner made the following counter-arguments:

• The contract makes a specific reference to LOI and Work Order and provides that they shall be treated as part of the agreement, therefore, the arbitration clause contained in those agreements in incorporated by reference.
• The contract is duly stamped and in view of proviso (c) to Section 35 of the Indian Stamps Act when several documents are part of the same transaction, the stamp duty paid on any of them would be sufficient to make the rest admissible in evidence.

Analysis by the Court

The Court first dealt with the objection regarding the non-stamping of the NIT, LOI and the work order. The Court observed that the final contract dated 15.10.2015 is duly stamped. It observed that the NIT, LOI and Work Order were executed as a part of the same transaction that culminated in the execution of the final contract.

The Court held that if one letter with the necessary stamp is part of the correspondence forming the contract, the entire contract is deemed duly stamped.

The Court held that where a contract or agreement of any kind is effected by correspondence consisting of two or more letters and if any one of the letters is properly stamped the contract or agreement shall be deemed to be duly stamped in view of proviso (c) to Section 35 of the Indian Stamps.

The Court held that proviso (c) to Section 35 relieves a party from the statutory obligation of stamping each and every letter or document forming part of the correspondence where one of the letters is properly stamped.

The Court next dealt with the objection regarding the absence of arbitration clause in the contract dated 15.10.2015. It observed that contract makes a specific reference to LOI and Work Order and provides that they shall be treated as part of the agreement, therefore, the arbitration clause contained in those agreements in incorporated by reference.

The Court held that absence of arbitration clause in the main agreement is immaterial when it specifically incorporates another agreement containing arbitration clause. It held that Section 7(5) of the A&C Act allows incorporation of the arbitration agreement by reference and the case of the petitioner squarely falls within the rubric of said Section.

Accordingly, the Court allowed the petition and appointed Justice (Retd) S. Muralidhar as the sole arbitrator.

Case Title: Power Mech Projects Limited v. BHEL, AP 444 of 2023

Date: 17.10.2023

Counsel for the Petitioner: Ms. Swati Dalmia, Adv. Ms. Sabarni Mukherjee, Adv

Counsel for the Respondent: Mr. Rohit Das, Adv. Ms. Kishwar Rahman, Adv. Ms. Sristi Roy, Adv. Mr. Preetam Majumdar, Adv. Ms. Divya Jyoti Tekriwal, Adv.

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