Arbitration In IndiaMerely making reference to another Agreement Containing an Arbitration Clause does not IPSO facto Incorporate said Arbitration Clause into a subsequent contract

The Delhi High Court, in the case of  M/S Mac Associates v. Parvinder Singh, [FAO (COMM) 261/2023 & CM APPL. 66526 of 2023 decided on 27.02.2024], held that the arbitration clause in the contract between different parties cannot be merely extended to other parties without explicit reference and intention of the parties to arbitrate the disputes arising out of the contract.

FACTS

The Delhi Metro Rail Corporation (hereinafter refered to as “DMRC”) issued a tender for the supply, relocation, installation, testing, commissioning, and handover of electrical, firefighting, hot water solar system works, and relocation of Chimney and External Fire Ring Main Works(hereinafter refered to as “electrical work”) at Nurses and Intern’s Hostel at ILBS situated at D-1, Vasant Kunj, New Delhi.

The appellant was awarded the contract to M/s. Mac Associates (hereinafter referred to as the “Appellant”). Further, Parvinder Singh (hereinafter referred to as the “Respondent”) expressed interest in performing the electrical work, and submitted a quotation. Subsequently, the Appellant allocated the work to the Respondent vide Work Order MAC:DMRC-WO:2010-11:2071. dated 06.07.2010 (hereinafter referred to as ‘work order’).

As per the terms of the work order, the total cost of the work was agreed at Rs. 2,37,30,568/- after a rebate of 13.5%, and the completion period was stipulated as 12 months.

The Respondent completed the work to the satisfaction of the appellant and DMRC on 30.11.2014, but the Appellant failed to settle the Respondent’s bills, leading to a recovery suit for Rs. 53,01,812/-.

The Appellant, appeared in the suit, filed an application under Section 8 of the A&C Act,  and requested to  refer the dispute to arbitration. The application of the Appellant was dismissed vide the order dated 07.11.2023 (hereinafter referred to as the “Impugned Order”) stating that no valid and binding arbitration agreement existed between the parties as required under Section 7 of the A&C Act

Being aggrieved and dissatisfied by the Impugned Order, the Appellant has preferred the present Appeal under Section 37 of the A&C Act.

ISSUE BEFORE THE DELHI HIGH COURT

Whether a clause being part of an agreement can be extended to the subsequent contract between different parties?

CONTENTIONS OF THE PARTIES

The Appellant contended  that the General Conditions of Contract (herein after referred as “GCC”) issued by DMRC, is inclusive of an arbitration clause within Clause 85, which would also apply to the agreement between the Appellant and Respondent.

The Respondent contended that the GCC was executed between DMRC and the Appellant and hence, could not be subjected to GCC.

DECISION AND FINDINGS

The Delhi High Court referred to the Clause 9 of the Work Order and Section 7(5) of the A&C Act. The High Court relied upon M.R. Engineers & Contractors (P) Ltd. v. Som Datt Builders Ltd., [(2009) 7 SCC 6] and held that  where the contract provides that the standard form of terms and conditions of an independent trade or professional institution shall apply to the contract. In such contracts, the terms including the arbitration clause are deemed to be incorporated by a mere reference.

The High Court relied upon Inox Wind Limited v. Thermocables Limited, (2018) 2 SCC 519 and Giriraj Garg v. Coal India Ltd & Ors., (2019) 2 SCC 192 and held that the main contract was between the DMRC and the appellant and the work order was between the Appellant and the Respondent.

Therefore, this would be a ‘two contract case’ and the arbitration clause cannot be incorporated in the work order by a general reference to the main contract between the appellant and the DMRC.

It was also observed that arbitration clause cannot be incorporated in the work order as Clause 9 of the work order does not reflect a clear intention of the parties to incorporate the arbitration clause contained in the GCC into the contract between the Appellant and the Respondent.

Hence, the High Court dismissed the appeal and upheld the Impugned Order.

AMLEGALS REMARKS

The Delhi High Court has upheld the legislative intent of the A&C Act, which is party autonomy and intent to arbitrate between the parties. The High Court held that merely reference to another agreement will not ipso facto incorporate arbitration clause in the subsequent contract, which is executed between different parties.

-Team AMLEGALS, assisted by Mr. Samarth Sheth (Intern)

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