The recent ruling by the Hon’ble Supreme Court, in the case of NBCC (India ) Ltd. vs. Zillion Infra Projects Pvt. Ltd., reiterated that arbitration cannot be invoked based on an arbitration clause in another contract unless specifically referenced in the main contract. The court reversed the High Court’s decision, stating that parties must settle disputes according to the agreed-upon method in the main contract.
Background
The dispute arose from a Letter of Intent (LOI) executed between the parties, which incorporated the terms of another contract (DVC) by reference. While the LOI did not include an arbitration clause and specified dispute resolution through the Civil Court, the DVC outlined arbitration for dispute resolution. Following the dispute, the respondent sought the appointment of an arbitrator under Section 11(6) of the Arbitration & Conciliation Act, 1996. The High Court, noting the LOI’s reference to the arbitration clause in the DVC, approved the application.
Two Contract Case vs. One Contract Case
The Court differentiated between two types of contractual arrangements: a “two-contract case,” which involves a main contract and another contract with an arbitration clause, and a “one-contract case,” which consists of a single main contract with standard terms and conditions.
Further, the Court clarified that the present case falls under the former category, unlike the situations in Inox Wind Limited v. Thermocables Limited and M.R. Engineers and Contractors Private Limited. In contrast to a single-contract case where a general reference suffices for incorporating an arbitration clause, a two-contract case necessitates a specific reference to the arbitration clause of another contract.
The Apex Court further noted:
“In the said case (i.e. Inox Wind Limited), this Court has held that though general reference to an earlier contract is not sufficient for incorporation of an arbitration clause in the later contract, a general reference to a standard form would be enough for incorporation of the arbitration clause. Though this Court in the case of Inox Wind Limited (supra) agrees with the judgment in the case of M.R. Engineers and Contractors Private Limited (supra), it holds that general reference to a standard form of contract of one party along with those of trade associations and professional bodies will be sufficient to incorporate the arbitration clause. In the said case (i.e. Inox Wind Limited), this Court found that the purchase order was issued by the appellant therein in which it was categorically mentioned that the supply would be as per the terms mentioned therein and in the attached standard terms and conditions. The respondent therein by his letter had confirmed its acceptance. This Court found that the case before it was a case of a single-contract and not two-contract case and, therefore, held that the arbitration clause as mentioned in the terms and conditions would be applicable.”
Conclusion
The Apex Court observed that the judge of the Delhi High Court had erred in approving the respondent’s application. As a result, the appeals were granted, and the orders in question were annulled without any costs being imposed.
