Arbitration – Letter of Intent – Two Contract Case – Amenability to arbitration proceedings

On 3.11.2006, tenders were invited for construction of the Weir.

On 4.12.2006, the Letter of Intent was issued to the respondent on fulfilment of the criteria.

Clause 2.0 of LOI provides that all the terms and conditions contained in the tender shall apply mutatis mutandis.  Clause 7.0 provides for resolution of dispute only through civil courts at Delhi.  Clause 10.0 provides that LOI also form part of the agreement.

However, Clause 3.34 of the Additional Terms & Conditions of the Contract as contained in the tender issued to the appellant provides for settlement of disputes & arbitration.

By the notice dated 6.3.2020, arbitration notice was given in as per clause 3.34 of the Tender Documents (General Conditions of Contract) and sought consent of the appellant for appointment of Sole Arbitrator

Respondent filed Section 11(6) petition for appointment of arbitration.  By the order dated 9.4.2021, the proposed appointment of Sole Arbitrator was confirmed.

HELD 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 arbitration clause.  Thus, arbitration clause would not ipso facto be applicable to the second contract unless there is a specific mention / reference thereto.  In any case, Clause 7.0 of LOI which is also part of agreement provides for resolution of dispute through Civil Courts at Delhi.

Section 7(5) of the Arbitration Act 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.

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.

Judgment dated 19.3.2024 of the Supreme Court in Civil Appeal No…..of 2024 arising out of SLP (Civil) No.7573-7574 of 2021) of NBCC (India) Ltd Vs. Zillion Infraprojects Pvt Ltd