Hon'ble Ms. Justice Indu Malhotra
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 1695 OF 2019
(Arising out of SLP (Civil) No. 28693 of 2018)
Giriraj Garg …Appellant
Versus
Coal India Ltd. & Ors. …Respondents
J U D G M E N T
INDU MALHOTRA, J.
Leave granted.
1. The present Civil Appeal arises out of an Order dated
21/18.05.2018 passed by a learned Single Judge of the
Jharkhand High Court at Ranchi, in Arbitration
Application No. 11 of 2016. The Appellant filed an
Application u/S. 11(6) of the Arbitration and Conciliation
Act, 1996 (hereinafter referred to as the “1996 Act”) for
appointment of an independent arbitrator to adjudicate
1
the disputes that had arisen between the Petitioner and
Respondent No. 2.
2. The factual matrix of the present case, briefly stated, is
as under:
2.1. Respondent No. 1 issued the 2007 Scheme,
whereby coal distribution would be conducted through
eAuction, with a view to provide access to coal for
buyers, who were not able to source coal through the
available institutional mechanism. This system would
provide an equal opportunity to purchase coal through
a singlewindow service to all intending buyers, and
facilitate country wide access to booking coal online
for all sections of coal buyers, through a simple,
transparent system.
Clause 11.12 of the 2007 Scheme contains an
arbitration clause which reads as under
“11.12 In the event of any dispute,
Bidder/Buyer is necessarily required to
represent in writing to the General Manager
(Sales and Marketing) of the concerned Coal
Company, who would deal with the same in a
period of 1 month from such representation.
Thereafter, if required the matter be
determined by the DirectorIn Charge of
Marketing of the concerned Coal Company.
Any interpretation of this Clause will be
subject to clarification by CIL, which will be
deemed as firm and final. All disputes arising
2
out of this scheme or in relation thereto in any
form whatsoever shall be dealt exclusively by
way of arbitration in terms of the Arbitration
and Conciliation Act, 1996. The arbitration
shall be conducted at Kolkata at a place to be
notified by CIL. The arbitrator shall be
appointed by the Chairman and Managing
Director, CIL upon written request in this
behalf. The award rendered by the arbitrator
shall be final and binding on the parties. (The
place of arbitration and nomination of
arbitrator be varied appropriately in view of
the Coal Company involved).
(emphasis supplied)
2.2. From 2012 to 2015, the Appellant, being a
registered buyer as per the Terms and Conditions of
the 2007 Scheme, participated in the eAuction for
purchase of coal for several sale orders issued under
the 2007 Scheme.
2.3. The Appellant was declared successful with
respect to various coal orders. Sale orders were issued
in favour of the Appellant, pursuant to which he
deposited the Earnest Money Deposit (hereinafter
referred to as “EDM”) and the coal value as per Clause
2.5 and 5.2 of the 2007 Scheme respectively.
2.4. As per Clause 7.2 of the 2007 Scheme, a period of
45 days was allowed to the Appellant from the date of
issue of the delivery order, to lift the coal. The
3
Appellant for certain reasons was unable to lift the
booked quantity of coal.
2.5. Respondent No. 1 considered this to be a breach
of the Terms and Conditions of the 2007 Scheme, and
forfeited the EMD deposited by the Appellant under
Clause 9.2 of the 2007 Scheme.
2.6. As a consequence, disputes arose between the
parties. The Appellant served a Notice dated
21.03.2016 invoking the arbitration Clause 11.12
under the 2007 Scheme.
The Respondents failed to appoint an arbitrator
as per Clause 11.12 of the 2007 Scheme.
2.7. The Appellant was therefore constrained to file
an Application u/S. 11 before the Jharkhand High
Court at Ranchi, for appointment of an independent
arbitrator.
2.8. The learned Single Judge vide impugned Order
dated 21/18.05.2018 rejected the Application on the
ground that the disputes relate to different
transactions entered into between the parties, under
the 2007 Scheme. The sale orders did not contain an
arbitration clause. It was held that even though the
2007 Scheme contains an arbitration clause, none of
4
the individual sale orders make reference to the
applicability of terms and conditions of the 2007
Scheme to the sale orders. Hence, the arbitration
clause could not be incorporated by reference.
3. Aggrieved by the aforesaid Order, the Appellant has filed
the present Appeal.
We have heard learned Counsels Dr. Kedar Nath
Tripathy, Mr. B. B. Pradhan, Mr. Susanta Kr. Muduti,
and Mr. M. A. Aleem Majid for the Appellants and Mr.
Anupam Lal Das, Mr. Anirudh Singh and Mr. Krishanu
Barua for the Respondents and perused the documents
on record.
3.1. A copy of a Sale Order issued by Respondent No.
2 was brought to our notice, which contains Standard
Terms and Conditions at the end. Clause 7 of the
Terms and Conditions state that the sale orders would
be governed by the Guidelines, Circulars, Notices, and
Instructions issued by Coal India Ltd., Bharat Coking
Coal Ltd. etc.
Clause 7 is set out hereinbelow for ready reference
“7. The sale order will be governed by
guidelines – circulars – office orders –
notices – instructions, relevant law etc.
issued from time to time by Coal India
Ltd., Bharat Coking Coal Ltd., State
Govts., Central Govt. and other statutory
5
bodies. This is also subject to any future
escalation in prices and or levies/or
dutiestaxes etc. which may be imposed
from time to time.”
(emphasis supplied)
4. The short question before this Court is whether the
arbitration clause contained in the 2007 Scheme, would
stand incorporated by reference in each of the sale
orders.
4.1. The principle of incorporation by reference of an
arbitration clause, from another document or contract
is a wellestablished principle in arbitration
jurisprudence.1
This principle has been followed by
the courts in India, and has been given statutory
recognition in subsection (5) of Section 7 of the 1996
Act.
4.2. Section 7(5) states that the reference in a contract
to a document containing an arbitration clause,
constitutes a valid arbitration agreement, if the
contract is in writing, and the reference is specifically
made to incorporate the arbitration clause as a part of
the contract.
1 Clements v. Devon Country Insurance Committee, [1918] 1 KB 94;
Macleod Ross and Co. Ltd. v. Compagnie d’ Assurances Generales
L’Helvetia of St Gall, [1952] 1 All ER 331, 334 : [1952] 1 Lloyd’s Rep 12
(CA).
6
4.3. The arbitration agreement need not necessarily
be in the form of a clause in the substantive contract
itself. It could be an independent agreement; or it
could be incorporated by reference either from a
parent agreement, or by reference to a standard form
contract.
4.4. Section 7(5) of the 1996 Act, closely replicates
Article 7(2)2
of the UNCITRAL Model Law as it stood
prior to the 2006 amendment. Dr Peter Binder in his
Commentary titled “International Commercial
Arbitration and Conciliation in UCITRAL Model Law
2 Art. 7. Definition and form of arbitration agreement.—
(1) ‘Arbitration agreement’ is 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. An arbitration agreement
may be in the form of an arbitration clause in a contract or in the
form of a separate agreement.
(2) The arbitration agreement shall be in writing. An agreement
is in writing if it is contained in a document signed by the parties or
in an exchange of letters, telex, telegrams or other means of
telecommunication which provide a record of the agreement, or in an
exchange of statements of claim and defence in which the existence
of an agreement is alleged by one party and not denied by another.
The reference in a contract to a document containing an arbitration
clause constitutes an arbitration agreement provided that the
contract is in writing and the reference is such as to make that
clause part of the contract.
7
Jurisdictions” 3 has interpreted Article 7(2) to include
incorporation by reference in the following words:
“(d) Reference to a document containing an
arbitration clause
The third sentence of art. 7(2) is concerned
with a contract containing a reference to a
document that contains an arbitration clause.
Provided that the main contract is in “writing”
and that the reference “is such as to make
that clause part of the contract”, the
arbitration agreement is valid. The necessity
of including this provision arose from problems
and divergent court decisions on this issue in
the context of the New York Convention. The
travaux explain that it is sufficient if the
reference only refers to the document; specific
mention of the arbitration clause therein is not
necessary.”
(emphasis supplied)
4.5. Section 6(2) of the English Arbitration Act, 1996
is pari materia to Section 7(5) of the 1996 Act, and
reads as under:
“6. Definition of arbitration agreement.
(1)…..
(2) The reference in an agreement to a written
form of arbitration Clause or to a document
containing an arbitration Clause constitutes
an arbitration agreement if the reference is
such as to make that Clause part of the
agreement.”
3 Dr. Peter Binder, International Commercial Arbitration and
Conciliation in UNCITRAL Model Law Jurisdictions, (3rd Edn., 2010,
Sweet & Maxwell) pg. 86, para 2022
8
The Queen's Bench Division, Commercial Court
in Sea Trade Maritime Corporation v. Hellenic Mutual
War Risks Association (Bermuda) Limited, The Athena4
held that the general words of incorporation of a
standard form contract were enough to incorporate an
arbitration clause.
4.6. The question of incorporation of an arbitration
Clause from an earlier contract by general reference
into a later contract, came up for consideration before
the Queen's Bench Division in Habas Sinai Ve Tibbi
Gazlar Isthisal Endustri AS v. Sometal SAL5
. In this
case, the Court followed the judgment in the case of
Sea Trade Maritime Corporation (supra), and held that
a general reference to a contract containing an
arbitration clause is sufficient for incorporation from a
standard form of contract. The Court recognized the
following broad categories in which the parties
attempt to incorporate an arbitration clause:
“ (1) A and B make a contract in which they
incorporate standard terms. These may be the
standard terms of one party set out on the
back of an offer letter or an order, or contained
4 [2006] EWHC 2530 (Comm)
5 [2010] EWHC 29 (Comm)
9
in another document to which reference is
made; or terms embodied in the Rules of an
organization of which A or B or both are
members; or they may be terms standard in a
particular trade or industry.
(2) A and B make a contract incorporating
terms previously agreed between A and B in
another contract or contracts to which they
were both parties
(3) A and B make a contract incorporating
terms agreed between A (or B) and C.
Common examples are a bill of lading
incorporating the terms of a charter to which A
is a party; reinsurance contracts incorporating
the terms of an underlying insurance; excess
insurance contracts incorporating the terms of
the primary layer of insurance; and building or
engineering sub contracts incorporating the
terms of a main contract or subsub contracts
incorporating the terms of a sub contract.
(4) A and B make a contract incorporating
terms agreed between C and D. Bills of lading,
reinsurance and insurance contracts and
building contracts may fall into this category. ”
In Habas (supra) a distinction was made between
a ‘single contract case’ and a ‘twocontract case’. A
‘single contract case’ is one where the arbitration
clause is contained in a standard form contract to
which there is a general reference in the contract
between the parties. On the other hand, where the
arbitration clause is contained in an earlier contract/
some other contract, and a reference is made to
10
incorporate it in the contract between the parties, it is
a ‘twocontract case’. The Court held that
incorporation by general reference in a single contract
case is valid. However, in a ‘twocontract case’, where
reference is made to an arbitration clause in a
separate contract, the reference must be specific to
the arbitration clause. The judgment in Habas (supra)
has recently been affirmed by the Queen’s Bench
Division in SEA2011 Inc. v. ICT Ltd.6
4.7. Russell in his commentary on arbitration7
has
commented on the single and two contract cases, and
reference to standard form terms, in the following
passage, which is instructive :
“ Reference to standard form terms,
single and twocontract cases. If the
document sought to be incorporated is a
standard form set of terms and conditions the
courts are more likely to accept that general
words of incorporation will suffice. This is
because the parties can be expected to be
more familiar with those standard terms,
including the arbitration clause. In Sea Trade
Maritime Corporation v. Hellenic Mutual War
Risks Association (Bermuda) Ltd., (The
"Athena") No. 2 the Court drew a distinction
between what is described as a "two contract
case", that is where the arbitration Clause is
contained in a secondary document which is a
contract to which at least one party is different
6 [2018] EWHC 520 (Comm)
7 Russell on Arbitration (24th Edn. ,2015, Sweet & Maxwell) pp. 52 –
54, para 2049
11
from the parties to the contract in question,
and "a single contract case" where the
arbitration Clause is in standard terms to be
found in another document. Relying on dictum
of Bingham LJ in Federal Bulk Carries Inc v.
C. Itoh & Co. Ltd. (The "Federal Bulker"),
Langley J stated that:
"In principle, English law accepts incorporation
of standard terms by the use of general words
and, I would add, particularly so when the
terms are readily available and the question
arises in the context of dealings between
established players in a wellknown market.
The principle, as the dictum makes clear, does
not distinguish between a term which is an
arbitration Clause and one which addresses
other issues. In contrast, and for the very
reason that it concerns other parties, a
"stricter rule" is applied in charterparty/bills of
lading cases. The reason given is that the
other party may have no knowledge nor ready
means of knowledge of the relevant terms.
Further, as the authorities illustrate, the terms
of an arbitration Clause may require
adjustment if they are to be made to apply to
the parties to a different contract."
The Court therefore reinforced the distinction
between incorporation by reference of
standard form terms and of the terms of a
different contract, and concluded that in a
single contract case general words of
incorporation are sufficient, whereas by its
nature a two contract case may require
specific reference to the other contract, unless
the secondary document is stated to be based
on standard form terms containing an
arbitration agreement. In that case,
presumably specific reference to the
arbitration Clause would not be needed. As
discussed below, this approach has been
endorsed in subsequent cases, albeit drawing
a slightly different but "material" distinction
between incorporation of the terms of a
separate contract standard or otherwise
12
made between the same parties which are
treated as "single contract" cases, even where
there is in fact more than one contract; and
those where the terms to be incorporated are
contained in a contract between one or more
different parties which are treated as the "two
contract" cases.
Extension of the single contract cases.
Recently, the courts appear to have extended
the "single contract" principle applicable to
standard form contracts, where general words
of incorporation will suffice, to other types of
contract where the same rationale can be said
to apply. Thus, if the document sought to be
incorporated is a bespoke contract between
the same parties, the courts have accepted
this as a "single contract" case where general
words of incorporation will suffice, even
though the other contract is not on standard
terms and constitutes an entirely separate
agreement. The rationale for this approach is
that the parties have already contracted on
the terms said to be incorporated and are
therefore even more likely to be familiar with
the term relied on than a party resisting
incorporation of a standard term. Put another
way, if general words of incorporation are
sufficient for the latter, they should be even
more so for the former. The courts also appear
to have accepted as a "single contract" case a
situation where the contract referred to is
between one of the parties to the original
contract and a third party, where the contracts
as a whole "were entered into in the context of
a single commercial relationship.”
(emphasis supplied)
4.8. An early case in Indian arbitration on the
doctrine of incorporation by reference under the
Arbitration Act, 1940 (hereinafter referred to as the
“1940 Act”), was Alimenta SA v. National Agriculture
13
Coop Marketing Federation of India Ltd.8 Though there
was no specific provision on an arbitration agreement
being based on the doctrine of incorporation by
reference in the 1940 Act, this Court recognized it to
be applicable in Indian law. In this case, this Court
held that the arbitration clause of an earlier contract
could be incorporated by reference into a later
contract, provided it is not repugnant to, or
inconsistent with the terms of the contract in which it
is incorporated.
4.9. In the 1996 Act, the doctrine of incorporation by
reference is provided in the statue itself under Section
7(5) of the Act. In M.R. Engineers & Contractors Pvt.
Ltd. v. Som Datt Builders Ltd.,
9
this Court held that
even though a contract between the parties did not
contain a provision for arbitration, an arbitration
clause contained in an independent document would
be incorporated into the contract by reference, if the
reference is such as to make the arbitration clause a
8 (1987) 1 SCC 615 : AIR 1987 SC 643 : 84 (2000) DLT 494.
9 (2009) 7 SCC 696 : 2009 (3) Arb LR 1 (SC) : 2009 (9) SCALE 298.
14
part of the contract. The court explained the doctrine
of incorporation in the following words –
“24. The scope and intent of Section 7(5) 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.
15
(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 &
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 Government is a party), the
arbitration clause forming part of such General
Conditions of contract will apply to the
contract between the parties.”
(emphasis supplied)
4.10. This Court in Inox Wind Ltd. v. Thermocables
Ltd.10 while adopting the ‘single contract case’ and
‘twocontract case’ principle laid down by Habas
(supra), held that a general reference to a consensual
standard form is sufficient for incorporation of an
arbitration clause. In other words, general reference to
a standard form contract of one party, would be
sufficient for incorporation of the arbitration clause. In
10 (2018) 2 SCC 519
16
this case, the Court expanded the application of this
doctrine by holding that even a general reference to a
standard form contract of one party, along with those
of trade associations, and professional bodies would
be sufficient to incorporate the arbitration clause.
5. In the instant case, the learned Single Judge in the
impugned Order has erroneously taken the view that an
arbitration clause would not stand incorporated in the
individual sale orders entered into by the Respondent No.
2 – Coal Company and the Appellant. The individual sale
orders emanate out of the 2007 Scheme. The sale orders
specifically state that they would be governed by the
guidelines, circulars, office orders, notices, instructions,
relevant law etc. issued from time to time by Coal India
Limited or Bharat Coking Coal Limited etc. As a
consequence, the arbitration clause (i.e. Clause 11.12) in
the 2007 Scheme would stand incorporated in the sale
orders issued thereunder.
Clause 7 in the sale orders falls under the ‘single
contract case’ where the arbitration clause is contained
in a standard form document i.e. the 2007 Scheme, to
17
which there is a reference in the individual sale orders
issued by Respondent No. 2 – the Coal Company.
5.1. The arbitration clause in the 2007 Scheme clearly
states that :
“All disputes arising out of this scheme or in
relation thereto in any form whatsoever shall
be dealt exclusively by way of arbitration in
terms of the Arbitration and Conciliation Act,
1996.”
(emphasis supplied)
Russell in his commentary on arbitration11 has
interpreted these words as follows :
“Disputes “in connection with”, “in
relation to”, or “regarding” a contract.
These words, which are frequently
encountered and are to be given the same
meaning, were at one time given a restricted
interpretation, but are now well established as
having a broad meaning…..They may also be
sufficient to catch disputes arising under
another contract related to the contract
containing the arbitration clause.”
(emphasis supplied)
In Renusagar Power Co. Ltd. v. General Electric
Company and Anr.,12 this Court observed that
expressions such as “arising out of”, or “in respect of”, or
“in connection with”, or “in relation to”, the contract are
of the widest amplitude, and content.
11 Russell on Arbitration (24th Edn. ,2015, Sweet & Maxwell) pg. 82,
para 2103
12 [1985]1SCR432
18
In Doypack Systems Pvt. Ltd. v. Union of India and
Ors.,
13 this Court observed that expressions such as –
“pertaining to”, “in relation to” and “arising out of”, are
used in the expansive sense, and must be construed
accordingly.
The words “in relation thereto” used in Clause 11.12 of
the 2007 Scheme indicate that the clause would apply to
all transactions which took place under the 2007
Scheme. This would include the sale transactions in the
present case.
5.2. In view of the above discussion, the view taken by
the learned Single Judge is erroneous, and is hereby
setaside. The appeal is allowed.
6. At the conclusion of the hearing, the parties consensually
agreed to appoint Mr. Justice Pranab Kumar
Chattopadhyay (Retired Judge of the Calcutta High
Court; Address: P29/3, Jotish Roy Road, Kolkata –
700053) as Sole Arbitrator to adjudicate the disputes
which have arisen between the Appellant and Respondent
No. 2, under the 2007 Scheme.
13 1988 (36) ELT 201 (SC)
19
The appointment of Mr. Justice Chattopadhyay will be
subject to the disclosure and declaration made, as per the
Sixth Schedule to the Arbitration and Conciliation Act, 1996
(as amended by the 2015 Amendment Act).
The proceedings will be conducted in Kolkata.
Ordered accordingly.
.…..........................J.
(UDAY UMESH LALIT)
…...……………………J.
(INDU MALHOTRA)
New Delhi,
February 15, 2019.
20
