Case: M/s. Elite Engineering And Construction (Hyd.) Private Limited Rep. by its Managing Director Vs. M/s. Techtrans Construction India Private Limited Rep. by its Managing Director

of contract will apply to the contract between the parties.”18. When we apply the aforesaid ratio, we find that the High Court has correctly held that, in the instant case, it was not intended to make the arbitration clause as a part of the contract between the appellant and the respondent. Clause 2 and clause 9.10 are given correct interpretation by the High Court and discussion in this behalf has already been extracted above. 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. Reference to clause 8.7 is also inconsequential. By this clause only, those terms contained in the main agreement which relate to ‘terms of work’ are incorporated. Procedure relating to ‘termination’ is altogether different from resolution of disputes. Dispute may arise even de hors the termination of the contract and is an altogether different aspect, not necessarily connected with the termination of work.19. In Alimenta S.A. v. National Agricultural Coop. Mktg. Federation of India Ltd. (1987) 1 SCC 615 ), 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. How the matter has to be looked into, for determining the same, was discussed in the following manner:“13. … There is a good deal of difference between Clause 9 of this contract and Clause 11 of the first contract. Clause 11 has been couched in general words, but Clause 9 refers to all other terms and conditions for supply. The High Court has taken the view that by Clause 9 the terms and conditions of the first contract which had bearing on the supply of HPS were incorporated into the second contract, and the term about arbitration not being incidental to supply of goods, could not be held to have been lifted as well from the first contract into the second one.14. It is, however, contended on behalf of the appellant that the High Court was wrong in its view that a term about arbitration is not a term of supply of goods. We do not think that the contention is sound. It has been rightly pointed out by the High Court that the normal incidents of terms and conditions of supply are those which are connected with supply, such as, its mode and process, time factor, inspection and approval, if any, reliability for transit, incidental expenses, etc. We are unable to accept the contention of the appellant that an arbitration clause is a term of supply. There is no proposition of law that when a contract is entered into for supply of goods, the arbitration clause must form part of such a contract. The parties may choose some other method for the purpose of resolving any dispute that may arise between them. But in such a contract the incidents of supply generally form part of the terms and conditions of the contract. The first contract includes the terms and conditions of supply and as Clause 9 refers to these terms and conditions of supply, it is difficult to hold that the arbitration clause is also referred to and, as such, incorporated into the second contract. When the incorporation clause refers to certain particular terms and conditions, only those terms and conditions are incorporated and not the arbitration clause. In the present case, Clause 9 specifically refers to the terms and conditions of supply of the first contract and, accordingly, only those terms and conditions are incorporated into the second contract and not the arbitration clause. The High Court has taken the correct view in respect of the second contract also.”(emphasis supplied)20. This judgment is noted in M.R. Engineers and Contractors Private Limited case as well and in the facts of M.R. Engineers and Contractors Private Limited, the Court held that there was no incorporation of arbitration clause. Following discussion throws light to decide the issue in this case as well:“37. In the present case the wording of the arbitration clause in the main contract between the PW Department and the contractor makes it clear that it cannot be applied to the sub-contract between the contractor and the sub-contractor. The arbitration clause in the main contract states that the disputes which are to be referred to the committee of three arbitrators under Clause 67.3 are disputes in regard to which the decision of the Engineer (“Engineer” refers to person appointed by the State of Kerala to act as Engineer for the purpose of the contract between the PW Department and the respondent) has not become final and binding pursuant to Clause 67.1 or disputes in regard to which amicable settlement has not been reached between the State of Kerala and the respondent within the period stated in Clause 67.2. Obviously neither Clause 67.1 nor 67.2 will apply as the question of “Engineer” issuing any decision in a dispute between the contractor and the sub-contractor, or any negotiations being held with the Engineer in regard to the disputes between the contractor and the sub-contractor does not arise. The position would have been quite different if the arbitration clause had used the words “all disputes arising between the parties” or “all disputes arising under this contract”. Secondly, the arbitration clause contemplates a committee of three arbitrators, one each to be appointed by the State of Kerala and the respondent and the third (Chairman) to be nominated by the Director General, Road Development, Ministry of Surface Transport, Roads Wing, Government of India. There is no question of such nomination in the case of a dispute between the contractor and the sub-contractor.”21.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]After considering the respective submissions, we are inclined to agree with the respondent and, therefore, do not find any fault with the impugned judgment of the Highion (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 theIn M.R. Engineers and Contractors Private Limited case, this Court considered the true intent and scope of Section 7 of the Act which deals with ‘arbitrationRelevant portion of Section 7 reads asArbitration agreement.—(1) In this Part, ‘arbitrationmeans an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.xxx xxx xxx(5) 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 theion (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 theThis interpretation to(5) of Section 7 was elaborated in the followingThe wording of Section 7(5) of the Act makes it clear that a mere reference to a document would not have the effect of making an arbitration clause from that document, a part of the contract. The 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. If the legislative intent was to import an arbitration clause from another document, merely on reference to such document in the contract,(5) would not contain the significant later part which reads:the reference is such as to make that arbitration clause part of thebut would have stopped with the first part which(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing….Section 7(5) therefore requires 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. But the Act does not contain any indication or guidelines as to the conditions to be fulfilled before a reference to a document in a contract can be construed as a reference incorporating an arbitration clause contained in such document into the contract. In the absence of such statutory guidelines, the normal rules of construction of contracts will have to be followed.16. There is a difference between reference to another document in a contract and incorporation of another document in a contract, by reference. In the first case, the parties intend to adopt only specific portions or part of the referred document for the purposes of the contract. In the second case, the parties intend to incorporate the referred document in entirety, into the contract. Therefore when there is a reference to a document in a contract, the court has to consider whether the reference to the document is with the intention of incorporating the contents of that document in entirety into the contract, or with the intention of adopting or borrowing specific portions of the said document for application to theAfter some further discussion on this aspect with reference to the existing case law as well as extracts from Russell on arbitration, the Court summed up the position asThe scope and intent of Section 7(5) of the Act may therefore be summarised thus:(i) An arbitration clause in another document, would get incorporated into a contract by reference, if the following conditions are fulfilled:(1) the contract should contain a clear reference to the documents containing arbitration clause, (2) the reference to the other document should clearly indicate an intention to incorporate the arbitration clause into the contract, (3) the arbitration clause should be appropriate, that is capable of application in respect of disputes under the contract and should not be repugnant to any term of the contract.(ii) 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. 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.(iii) Where a contract between the parties provides that the execution or performance of that contract shall be in terms of another contract (which contains the terms and conditions relating to performance and a provision for settlement of disputes by arbitration), then, the terms of the referred contract in regard to execution/performance alone will apply, and not the arbitration agreement in the referred contract, unless there is special reference to the arbitration clause also.(iv) Where the contract provides that the standard form of terms and conditions of an independent trade or professional institution (as for example the standard terms and conditions of a trade association or architects association) will bind them or apply to the contract, such standard form of terms and conditions including any provision for arbitration in such standard terms and conditions, shall be deemed to be incorporated by reference. Sometimes the contract may also say that the parties are familiar with those terms and conditions or that the parties have read and understood the said terms and conditions.(v) Where the contract between the parties stipulates that the conditions of contract of one of the parties to the contract shall form a part of their contract (as for example the general conditions of contract of the Government where the Government is a party), the arbitration clause forming part of such general conditions of contract will apply to the contract between then we apply the aforesaid ratio, we find that the High Court has correctly held that, in the instant case, it was not intended to make the arbitration clause as a part of the contract between the appellant and the respondent. Clause 2 and clause 9.10 are given correct interpretation by the High Court and discussion in this behalf has already been extracted above. By these clauses, only those conditions andof the contract, specification etc. which relate to the works and quality are incorporated. Clause 9.10 only talks ofwhich 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. Reference to clause 8.7 is also inconsequential. By this clause only, those terms contained in the main agreement which relate to ‘terms ofare incorporated. Procedure relating tos altogether different from resolution of disputes. Dispute may arise even de hors the termination of the contract and is an altogether different aspect, not necessarily connected with the termination of work.It is, however, contended on behalf of the appellant that the High Court was wrong in its view that a term about arbitration is not a term of supply of goods. We do not think that the contention is sound. It has been rightly pointed out by the High Court that the normal incidents of terms and conditions of supply are those which are connected with supply, such as, its mode and process, time factor, inspection and approval, if any, reliability for transit, incidental expenses, etc. We are unable to accept the contention of the appellant that an arbitration clause is a term of supply. There is no proposition of law that when a contract is entered into for supply of goods, the arbitration clause must form part of such a contract. The parties may choose some other method for the purpose of resolving any dispute that may arise between them. But in such a contract the incidents of supply generally form part of the terms and conditions of the contract. The first contract includes the terms and conditions of supply and as Clause 9 refers to these terms and conditions of supply, it is difficult to hold that the arbitration clause is also referred to and, as such, incorporated into the second contract. When the incorporation clause refers to certain particular terms and conditions, only those terms and conditions are incorporated and not the arbitration clause. In the present case, Clause 9 specifically refers to the terms and conditions of supply of the first contract and, accordingly, only those terms and conditions are incorporated into the second contract and not the arbitration clause. The High Court has taken the correct view in respect of the second contractis judgment is noted in M.R. Engineers and Contractors Private Limited case as well and in the facts of M.R. Engineers and Contractors Private Limited, the Court held that there was no incorporation of arbitration clause. Following discussion throws light to decide the issue in this case asIn the present case the wording of the arbitration clause in the main contract between the PW Department and the contractor makes it clear that it cannot be applied to thebetween the contractor and theThe arbitration clause in the main contract states that the disputes which are to be referred to the committee of three arbitrators under Clause 67.3 are disputes in regard to which the decision of the Engineerrefers to person appointed by the State of Kerala to act as Engineer for the purpose of the contract between the PW Department and the respondent) has not become final and binding pursuant to Clause 67.1 or disputes in regard to which amicable settlement has not been reached between the State of Kerala and the respondent within the period stated in Clause 67.2. Obviously neither Clause 67.1 nor 67.2 will apply as the question ofissuing any decision in a disputebetween the contractor and theor any negotiations being held with the Engineer in regard to the disputesbetween the contractor and thedoes not arise. The position would have been quite different if the arbitration clause had used the wordsdisputes arising between thell disputes arising under thisSecondly, the arbitration clause contemplates a committee of three arbitrators, one each to be appointed by the State of Kerala and the respondent and the third (Chairman) to be nominated by the Director General, Road Development, Ministry of Surface Transport, Roads Wing, Government of India. There is no question of such nomination in the case of a disputebetween the contractor and the