* Author
[2024] 3 S.C.R. 812 : 2024 INSC 218
NBCC (India) Limited
v.
Zillion Infraprojects Pvt. Ltd.
(Civil Appeal Nos. 4417-4418 of 2024)
19 March 2024
[B.R. Gavai* and Sandeep Mehta, JJ.]
Issue for Consideration
When there is a general reference in the second contract to the
terms and conditions of the first contract, whether the arbitration
clause in the first contract would ipso facto be applicable to the
second contract.
Headnotes
Arbitration & Conciliation Act, 1996 – The appellant issued
an invitation for tender – Respondent submitted its techno
bid- vide L.O.I. appellant awarded the contract to Respondent
– Respondent approached High Court under Sec. 11(6) – High
Court appointed sole arbitrator – Order of the High Court set aside
Held: General reference will not lead to incorporation of the
arbitration clause – Reference to arbitration clause in another
contract ought to be specific. [Paras 3 and 21-23]
Arbitration – When will an arbitration clause from a second
contract be incorporated in the first contract
Held: Conscious acceptance of arbitration clause – Reference and
incorporation are different – Reference does not ipso fact lead to
incorporation. [Paras 12-13 and 21-23]
Arbitration & Conciliation Act, 1996 – Sec. 7(5) – Arbitration
clause will not be incorporated by a general reference –
Conscious Acceptance – In absence of specific reference,
only execution/performance terms will apply – If no specific
reference, arbitration clause will not apply – Reference not
incorporation in the present case- General reference does not
lead to incorporation.
The Appellant had issued an invitation for tender for “Construction
of Weir with Allied Structures across river Damodar at DVC, CTPS,
Chandrapura, Dist – Bokaro, Jharkhand in response whereto, the
[2024] 3 S.C.R. 813
NBCC (India) Limited v. Zillion Infraprojects Pvt. Ltd.
Respondent submitted its Techno Commercial Bid. The contract for
the construction of weir was awarded to the Respondent whereafter
due to certain disputes, the Respondent issued a notice in terms
of Clause 3.34 of Section III Volume II of the Tender Documents
invoking arbitration and further seeking consent of the appellant
for the appointment of a former Judge of a High Court, as Sole
Arbitrator. The Respondent, while invoking the arbitration, had
taken recourse to Clause 2 of the Letter of Intent (L.O.I.) issued
by the Appellant while awarding the contract. Clause 2 stated thus:
“All terms and conditions as contained in the tender issued by
DVC to NBCC shall apply mutatis mutandis except where these
have been expressly modified by NBCC.” Since the Appellant did
not respond to the notice, the Respondent approached the High
Court under Section 11(6) of the Arbitration and Conciliation Act,
1996. High Court allowed the petition preferred by the Respondent.
Held: A perusal of sub-section (5) of Section 7 of the Arbitration Act
itself would reveal that before an arbitration clause could be read
as a part of the contract, there must be a conscious acceptance of
the arbitration clause from another document by the parties – It is
thus clear that a 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. [Paras 12 and 13]
While setting aside the order of the High Court, the Supreme
Court held that a general reference to the terms and conditions
of another contract would not have the effect of incorporating
the arbitration clause – It is pertinent to note that clause 7.0 of
the L.O.I. specifically uses the word “Only” before the words “be
through civil courts having jurisdiction of Delhi alone” – When
there is a reference in the second contract to the terms and
conditions of the first contract, the arbitration clause would not
ipso facto be applicable to the second contract unless there is
specific mention/reference thereto – The present case is not a
case of ‘incorporation’ but a case of ‘reference’ – As such, a
general reference would not have the effect of incorporating the
arbitration clause – Clause 7.0 of the L.O.I, which is also a part
of the agreement, makes it amply clear that the redressal of the
dispute between NBCC and respondent has to be only through
civil courts having jurisdiction of Delhi alone – Delhi High Court
has erred in allowing the application of the respondent. [Paras
21 to 24]
814 [2024] 3 S.C.R.
Digital Supreme Court Reports
Case Law Cited
Inox Wind Limited v. Thermocables Limited [2018] 1
SCR 86 : (2018) 2 SCC 519- Distinguished.
M.R. Engineers and Contractors Private Limited v. Som
Datt Builders Limited (2009) 7 SCC 696- Relied on.
Duro Felguera, S.A. v. Gangavaram Port Limited [2017]
10 SCR 285 : (2017) 9 SCC 729; Elite Engineering and
Construction (Hyderabad) Private Limited represented
by its Managing Director v. Techtrans Construction India
Private Limited represented by its Managing Director
[2018] 4 SCR 585 : (2018) 4 SCC 281 – Referred to.
List of Acts
The Arbitration & Conciliation Act, 1996.
List of Keywords
Arbitration, Arbitration Agreement, lis, Letter of Intent (L.O.I),
Invitation for tender, Mutatis Mutandis, Res Integra, Ipso Facto,
Incorporation, Reference.
Case Arising From
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos.4417-4418 of
2024
From the Judgment and Order dated 12.03.2021 and 09.04.2021 in
ARBP No.44 of 2021 of the High Court of Delhi at New Delhi
Appearances for Parties
Gopal Shankarnarayan, Sr. Adv., Debarshi Bhadra, Ms. Jhanvi Dubey,
Sunil Mund, Kiran Kumar Patra, Advs. for the Appellant.
Sumit Kumar, Ms. Kumari Supriya, Bharath Kumar, Ms. Sakshi
Sharma, Advs. for the Respondent.
Judgment / Order of the Supreme Court
Judgment
B.R. Gavai, J.
1. Leave granted.
2. The present appeals challenge the interim order dated 12th March
2021 and final judgment & order dated 9th April 2021, passed by the
[2024] 3 S.C.R. 815
NBCC (India) Limited v. Zillion Infraprojects Pvt. Ltd.
learned Single Judge of the High Court of Delhi (hereinafter, “High
Court”), in Arbitration Petition (Arb. P.) No. 44 of 2021, whereby
the High Court allowed the application under Section 11(6) of the
Arbitration & Conciliation Act 1996 (hereinafter referred to as, “the
Arbitration Act”) and appointed the Sole Arbitrator to adjudicate the
dispute between the parties to the present lis, arising from the Letter
of Intent dated 4th December 2006.
3. Facts, in brief, giving rise to the present appeals are as follows:
3.1 The appellant, NBCC (India) Limited (Formerly known as
National Buildings Construction Corporation Ltd.), is a Public
Limited Company and Government of India undertaking,
engaged in construction of power plants and other infrastructure
projects on EPC and/or PMC basis.
3.2 The respondent, M/s Zillion Infraprojects Pvt. Ltd. (Formerly
known as Durha Constructions Pvt. Ltd.), is a Private Limited
Company, engaged in the construction and infrastructure
sector.
3.3 The appellant issued an invitation for tender, being NIT No.
01-WEIR/06 dated 3rd November 2006, for “Construction of
Weir with Allied Structures across river Damodar at DVC,
CTPS, Chandrapura, Dist – Bokaro, Jharkhand – Package
“A” (hereinafter referred to as, “Construction of the Weir”),
containing inter-alia, the General Conditions of Contract,
Special Conditions of Contract, Bill of Quantity, etc. (collectively
referred to as, “Tender Documents”).
3.4 In response to the aforementioned tender, the Respondent
submitted its Techno Commercial Bid on 16th November 2006.
3.5 On fulfilment of the tender criteria, vide Letter of Intent
No. AGM/RAN/CTPS-AWARD/06/1660 dated 4th December
2006, the appellant awarded the contract for Construction
of the Weir to the respondent for a total value of Rs.
19,08,46,612/-.
3.6 With the passage of time, certain disputes arose between
the parties to the present lis & as a result, the respondent
issued a notice dated 6th March 2020, in terms of Clause
3.34 of Section III Volume II of the Tender Documents (GCC),
816 [2024] 3 S.C.R.
Digital Supreme Court Reports
thereby invoking arbitration and further seeking consent of
the appellant for the appointment of a former Judge of a High
Court, as Sole Arbitrator.
3.7 The appellant did not respond to the aforementioned notice
invoking arbitration, so the respondent filed an application
at the High Court under Section 11(6) of the Arbitration Act.
3.8 Vide interim order dated 12th March 2021, the High Court
allowed the Arbitration Petition and proposed the appointment
of a former Judge of the High Court, as the Sole Arbitrator, to
adjudicate the dispute between the parties.
3.9 Vide final judgment & order dated 9th April 2021, the High Court
confirmed the proposed appointment of the former Judge of
the Delhi High Court, as the Sole Arbitrator.
3.10 Aggrieved by the orders of the learned single judge of the
High Court, the appellant filed the present appeals thereby
challenging both the interim order and the final judgement &
order.
3.11 This Court vide order dated 23rd July, 2021, issued notice and
stay of further proceedings of the arbitration was granted.
4. We have heard Shri Gopal Sankaranarayanan, learned Senior
Counsel appearing on behalf of the appellant & Shri Sumit Kumar,
learned counsel appearing on behalf of the respondent.
5. Shri Gopal Sankaranarayanan, learned Senior Counsel appearing for
the appellant submits that the High Court has grossly erred in invoking
its power under Section 11(6) of the Arbitration Act. It is submitted that
Clause 2.0 of the Letter of Intent dated 4th December 2006 (“L.O.I.”
for short) though states that all terms and conditions as contained
in the tender issued by the Damodar Valley Corporation (“DVC” for
short) to the NBCC shall apply mutatis mutandis, it also makes it clear
that where the terms and conditions have been expressly modified
by the NBCC, the same would not be applicable. It is submitted that
Clause 1.0 of the L.O.I. specifically states that various conditions,
i.e., contractual, financial and technical mentioned in the documents
contained therein shall be binding on the respondent for execution
of works and they shall form part of the agreement. Clause 10.0
also states that the L.O.I. shall also form a part of the agreement.
[2024] 3 S.C.R. 817
NBCC (India) Limited v. Zillion Infraprojects Pvt. Ltd.
It is submitted that the intention is amply clear from Clause 7.0 of
the L.O.I., which states that the redressal of dispute between the
NBCC and the respondent shall only be through civil courts having
jurisdiction of Delhi alone. It further states that the laws applicable
to the contract between the parties shall be the laws enforceable in
India. It is submitted that merely on account of reference in the L.O.I.
to the terms and conditions as contained in the tender issued by the
DVC to the NBCC, Clause 3.34 of the Additional Terms & Conditions
of Contract would not apply in view of specific modification as stated
in Clause 2.0 of the L.O.I.
6. Learned Senior Counsel submits that a mere reference to the
terms and conditions without there being an incorporation in the
L.O.I. would not make the lis between the parties amenable to the
arbitration proceedings. Relying on the judgment of this Court in
the case of M.R. Engineers and Contractors Private Limited
vs. Som Datt Builders Limited1
, he submits that unless the L.O.I.
specifically provides for incorporation of the arbitration clause, a
reference to the arbitration proceedings would not be permitted
in view of the provisions of sub-section (5) of Section 7 of the
Arbitration Act.
7. Shri Sumit Kumar, learned counsel appearing for the respondent,
on the contrary, submits that there is a specific reference in Clause
2.0 of the L.O.I. to the terms and conditions in the tender issued by
the DVC to the NBCC. He submits that the only modification is that
under Clause 3.34 of the Additional Terms & Conditions of Contract,
the jurisdiction is vested with the Court in the City of Kolkata only,
whereas in the L.O.I. the jurisdiction would be vested in the civil
courts having jurisdiction of Delhi alone. It is submitted that the
learned single judge of the Delhi High Court has rightly considered
this aspect and as such, no interference would be warranted in the
impugned order.
8. Sub-section (5) of Section 7 of the Arbitration Act reads thus:
“7. Arbitration Agreement.-1)……………….
xxx xxx xxx
1 (2009) 7 SCC 696
818 [2024] 3 S.C.R.
Digital Supreme Court Reports
(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 the contract.”
9. The issue is no more res integra. The provisions of sub-section (5)
of Section 7 of the Arbitration Act have been considered by this
Court in the case of M.R. Engineers and Contractors Private
Limited (supra). After considering the relevant passages from
Russell on Arbitration and various English judgments, this Court
held thus:
“24. The 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
[2024] 3 S.C.R. 819
NBCC (India) Limited v. Zillion Infraprojects Pvt. Ltd.
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 the parties.”
10. It could thus be seen that this Court has held that 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. It has been held that 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. It has further been held that 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
820 [2024] 3 S.C.R.
Digital Supreme Court Reports
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.
11. This Court further held that where the contract provides that the
standard form of terms and conditions of an independent trade or
professional institution 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. It has been held that 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. It has also been held that 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, the
arbitration clause forming part of such general conditions of contract
will apply to the contract between the parties.
12. A perusal of sub-section (5) of Section 7 of the Arbitration Act itself
would reveal that it provides for 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.
13. It is thus clear that a 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.
14. The law laid down in the case of M.R. Engineers and Contractors
Private Limited (supra) has been followed by this Court in the
cases of Duro Felguera, S.A. vs Gangavaram Port Limited2
and Elite Engineering and Construction (Hyderabad) Private
Limited represented by its Managing Director vs Techtrans
Construction India Private Limited represented by its Managing
Director3
.
15. No doubt that this Court in the case of Inox Wind Limited vs
Thermocables Limited4
has distinguished the law laid down in the
2 [2017] 10 SCR 285 : (2017) 9 SCC 729
3 [2018] 4 SCR 585 : (2018) 4 SCC 281
4 [2018] 1 SCR 86 : (2018) 2 SCC 519
[2024] 3 S.C.R. 821
NBCC (India) Limited v. Zillion Infraprojects Pvt. Ltd.
case of M.R. Engineers and Contractors Private Limited (supra).
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.
16. The present case is a ‘two-contract’ case and not a ‘single-contract’
case.
17. It will be relevant to refer to Clause 3.34 of the Additional Terms &
Conditions of Contract as contained in the tender issued by the DVC
to the NBCC. Clause 3.34 reads thus:
“3.34 SETTLEMENT OF DISPUTES & ARBITRATION
Any dispute(s) or difference(s) arising out of or in connection
with the contract shall to the extent possible be settled
amicably between the owner and supplier/contractor.
In the event of any dispute or difference whatsoever arising
under the contract or in connection therewith including any
question relating to existence meaning and interpretation of
the contract or any alleged breach thereof the same shall
be referred to the sole arbitration of the Secretary, CEO
of Damodar Valley Corporation, Kolkata-54 or to a person
appointed by him for that purpose. The arbitration shall be
conducted in accordance with the provisions of arbitration
and conciliation law 1996 and the decision/judgment of
Arbitrator shall be final and binding on both the parties.
822 [2024] 3 S.C.R.
Digital Supreme Court Reports
All suits arising out of this enquiry and subsequent purchase
order, if any, are subject jurisdiction of court in the City of
Kolkata only and no other door when resolution/settlement
through mutual discussion and arbitration fails.”
18. No doubt that Clause 3.34 provides for a reference of the dispute
to the sole arbitration of the Secretary, CEO of Damodar Valley
Corporation, Kolkata-54 or to a person appointed by him for that
purpose.
19. It will also be apposite to refer to Clauses 1.0, 2.0, 7.0 and 10.0 of
the L.O.I., which read thus:
“1.0 The work shall be executed you on contractual,
financial and technical conditions of contract as
contained in the following documents which shall be
applicable and binding on you for execution of works
and shall form part of agreement with you as also
mentioned in the above mentioned NIT-01/WEIR/06
dated November 3, 2006.
(a) Notice Inviting Tender
(b) General Conditions of Contract
(c) Special Conditions of Contract
(d) Bill of Quantity
2.0 All terms and conditions as contained in the tender
issued by DVC to NBCC shall apply mutatis mutandis
except where these have been expressly modified
by NBCC.
7.0 The redressal of dispute between NBCC and you
shall only be through civil courts having jurisdiction
of Delhi alone. The laws applicable to this contract
shall be the laws enforceable in India.
10.0 This letter of intent shall also form a part of the
agreement.
20. In view of Clause 1.0, the documents stated therein shall also form
part of the agreement. In view of Clause 2.0, all terms and conditions
as contained in the tender issued by the DVC to the NBCC shall apply
mutatis mutandis except where these have been expressly modified
[2024] 3 S.C.R. 823
NBCC (India) Limited v. Zillion Infraprojects Pvt. Ltd.
by the NBCC. Clause 7.0 specifically provides that the redressal of
dispute between the NBCC and the respondent shall only be through
civil courts having jurisdiction of Delhi alone. Clause 10.0 further
provides that the L.O.I. shall also form a part of the agreement.
21. It is thus clear that the intention between the parties is very clear.
Clause 7.0 of the L.O.I. which also forms part of the agreement
specifically provides that the redressal of the dispute between the
NBCC and the respondent shall only be through civil courts having
jurisdiction of Delhi alone. It is pertinent to note that Clause 7.0 of
the L.O.I. specifically uses the word “only” before the words “be
through civil courts having jurisdiction of Delhi alone”.
22. As already discussed herein above, when there is a reference in the
second contract to the terms and conditions of the first contract, the
arbitration clause would not ipso facto be applicable to the second
contract unless there is a specific mention/reference thereto.
23. We are of the considered view that the present case is not a case of
‘incorporation’ but a case of ‘reference’. As such, a general reference
would not have the effect of incorporating the arbitration clause.
In any case, Clause 7.0 of the L.O.I., which is also a part of the
agreement, makes it amply clear that the redressal of the dispute
between the NBCC and the respondent has to be only through
civil courts having jurisdiction of Delhi alone.
24. In that view of the matter, we find that the learned single judge of
the Delhi High Court has erred in allowing the application of the
respondent. The appeals are accordingly allowed. The impugned
orders are quashed and set aside. There shall be no order as to costs.
25. Pending applications, if any, shall stand disposed of.
Headnotes prepared by: Result of the case:
Himanshu Rai, Hony. Associate Editor Appeals allowed.
(Verified by: Kanu Agrawal, Adv.)
