2018 (2) TMI 1500 - SC - Indian Laws

Maintainability of petition - Arbitration agreement - This petition was contested by the respondent who in its reply denied all the allegations raised by the appellant and also submitted that since there was no arbitration agreement between the parties, the petition under Section 9 of the Act was not maintainable - Held that - As per sub-section (5), an arbitration clause contained in an independent document can also be imported and engrafted in the contract between the parties, by reference to such independent document in the contract, even if there is no specific provision for arbitration. However, the Court noted that such a recourse can be adopted only if the reference is such as to make the arbitration clause in such document, a part of the contract. Clause 2 and clause 9.10 are given correct interpretation. By these clauses, only those conditions and sub-conditions of the contract, specification etc. which relate to the works and quality are incorporated. Clause 9.10 only talks of items which are not mentioned in the contract and terms and conditions relating to the execution of those items are to be taken from the main contracts. In Alimenta S.A. v. National Agricultural Coop. Mktg. Federation of India Ltd. 1987 (1) TMI 482 - SUPREME COURT OF INDIA , the question was as to 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. Appeal dismissed - decided against appellant.

Summary

Issues Involved:
1. Existence of an arbitration agreement between the parties.
2. Incorporation of arbitration clause by reference.
3. Interpretation of contractual clauses regarding arbitration.

Detailed Analysis:

1. Existence of an Arbitration Agreement:
The primary issue in this case was whether an arbitration agreement existed between the appellant and the respondent. The appellant contended that the Agreement dated July 29, 2009, implicitly incorporated the arbitration clause from the Agreement dated March 14, 2008, between the EPC Contractor and the respondent. However, the Agreement dated July 29, 2009, did not contain an independent arbitration clause. The High Court dismissed the appellant's petition under Section 11 of the Arbitration and Conciliation Act, 1996, on the grounds that no arbitration agreement existed between the parties.

2. Incorporation of Arbitration Clause by Reference:
The appellant argued that clauses in the Agreement dated July 29, 2009, specifically clauses 2 and 9.10, impliedly incorporated the arbitration clause from the Agreement between the EPC Contractor and the respondent. Clause 2 stated that the subcontractor agreed to execute the work as per the contract document, and clause 9.10 mentioned that terms and conditions not specified in the Agreement would be governed by the Agreement between the Contractor and EPC Concessionaire. The High Court, however, interpreted these clauses as referring only to the "works and quality specified" and not to the arbitration clause. The Court distinguished between a reference to another document and the incorporation of another document by reference, citing the case of M.R. Engineers and Contractors Private Limited v. Som Datt Builders Ltd. (2009) 7 SCC 696.

3. Interpretation of Contractual Clauses Regarding Arbitration:
The Supreme Court upheld the High Court's interpretation that clauses 2 and 9.10 did not incorporate the arbitration clause from the Agreement between the EPC Contractor and the respondent. The Court noted that for an arbitration clause to be incorporated by reference, there must be a clear intention to do so. The Court also referred to the case of Alimenta S.A. v. National Agricultural Coop. Mktg. Federation of India Ltd. (1987) 1 SCC 615, which held that a term about arbitration is not a term of supply and must be specifically incorporated. The Court concluded that the reference to "items" and "terms of work" in the Agreement between the appellant and the respondent did not include the arbitration clause, and thus, the appeal was dismissed.

Conclusion:
The Supreme Court dismissed the appeal, agreeing with the High Court that there was no arbitration agreement between the appellant and the respondent. The Court held that the clauses in the Agreement dated July 29, 2009, did not incorporate the arbitration clause from the Agreement between the EPC Contractor and the respondent, as there was no clear intention to do so. The Court emphasized the need for a conscious acceptance of the arbitration clause for it to be incorporated by reference.