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Inox Wind Limited v. Thermocables Limited
Factual and Procedural Background
This opinion addresses an application filed by the applicant seeking the appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996, arising from disputes related to a purchase order dated 13.02.2012 between the parties. The applicant relied on an arbitration clause contained in the standard terms and conditions referenced in the purchase order. The respondent opposed the application, disputing the existence of a valid arbitration agreement.
Legal Issues Presented
- Whether the purchase order, by referencing the standard terms and conditions, constitutes a valid arbitration agreement under Section 7(5) of the Arbitration and Conciliation Act, 1996.
- Whether a general reference to standard terms and conditions in a purchase order is sufficient to incorporate an arbitration clause for the purpose of appointing an arbitrator under Section 11 of the Act.
Arguments of the Parties
Applicant's Arguments
- The reference in the purchase order to the standard terms and conditions, which include an arbitration clause, entitles the applicant to seek appointment of an arbitrator.
- Such conditions constitute a valid arbitration agreement under Section 7(5) of the Arbitration Act.
- Relied on the Supreme Court decision in Groupe Chimique Tunisien Sa v. Southern Petrochemicals Industries Corpn. Ltd. (AIR 2006 Supreme Court 2422) to support the proposition that purchase orders subject to terms and conditions can be valid arbitration agreements.
Respondent's Arguments
- The reference to the standard terms and conditions does not constitute a valid arbitration agreement under Section 7(5) of the Arbitration Act.
- The document does not disclose any intention to enter into an arbitration agreement for future disputes.
- There was no written agreement specifically incorporating an arbitration clause in the purchase order.
- No special or explicit reference to arbitration was made in the purchase order.
- Relied on the Supreme Court decision in M.R Engineers and Contractors Pvt. Ltd. v. Som Datt Builders Ltd. (2009) 7 SCC 696, which clarifies the requirements for incorporation of arbitration clauses by reference.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Groupe Chimique Tunisien Sa v. Southern Petrochemicals Industries Corpn. Ltd. (AIR 2006 Supreme Court 2422) | Recognition that purchase orders subject to terms and conditions can constitute valid arbitration agreements if arbitration clauses are incorporated. | The court noted the applicant’s reliance on this precedent but found key factual differences, as no specific arbitration agreement was shown between the parties here. |
| M.R Engineers and Contractors Pvt. Ltd. v. Som Datt Builders Ltd. (2009) 7 SCC 696 | Clarified the scope and intent of Section 7(5) of the Arbitration Act, outlining conditions for incorporation of arbitration clauses by reference, including the necessity of a clear and specific reference to arbitration. | The court applied this precedent to hold that the purchase order lacked a special or explicit arbitration clause reference, and thus no valid arbitration agreement existed. |
Court's Reasoning and Analysis
The Court examined the purchase order and the referenced standard terms and conditions to determine whether a valid arbitration agreement existed under Section 7(5) of the Arbitration and Conciliation Act, 1996. The Court noted that while the purchase order referred to the standard terms and conditions containing an arbitration clause, there was no clear or special reference to arbitration within the purchase order itself. The Court relied on the Supreme Court’s interpretation in M.R Engineers and Contractors Pvt. Ltd. v. Som Datt Builders Ltd. which requires a clear intention and specific reference to incorporate an arbitration clause by reference. The Court found the applicant failed to demonstrate such specific incorporation or agreement to arbitrate disputes. Consequently, the Court concluded that the applicant was not entitled to the appointment of an arbitrator under Section 11 of the Act.
Holding and Implications
The application seeking appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 is dismissed.
The direct effect of this decision is that the applicant cannot proceed with arbitration based on the present purchase order and its referenced terms and conditions, as no valid arbitration agreement was established. The Court did not set any new precedent beyond applying existing legal principles regarding incorporation of arbitration clauses by reference.
Bharati Sapru, J.:— Heard Sri. Pankaj Agarwal, learned Counsel for the applicant and Sri. K. Rajendran, learned Counsel assisted by Sri. Ram Kaushik and Priyanka Midha, learned Counsel for the respondent.
2. This application has been filed by the applicant seeking appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 on account of the disputes arising from a purchase order dated 13.02.2012 that was made between the parties. The purchase order is appended as Annexure no. 2 to the application.
3. The applicant is seeking an appointment of the arbitrator relying on an instruction in the purchase order, which read as hereunder:—
“Delay in Delivery:
Important Instructions:
1) This order is subject to our terms and conditions given above and in the Standard terms and conditions (attached).
2) All documents should carry Vendor name, Item description and PO number.”
4. The standard term and condition, which he is relying on is condition no. 22, which reads hereunder:—
“22. ‘Dispute and Jurisdiction’:
Any disputes relating to the terms and conditions of this Order or otherwise arising from between the Supplier and the Purchaser shall be subject to and referred to arbitration by a sole arbitrator in accordance with the provisions of the Indian Arbitration and Conciliation Act, 1996 (“Arbitration Act”). Any arbitration award made shall be final and binding on the parties. The venue of arbitration shall be Noida and the language shall be English. Notwithstanding the existence of any dispute and difference referred to Arbitration, the parties hereto shall continue to perform their respective obligations under this Agreement. Each party shall bear its own costs pursuant to Arbitration. The costs and fees payable to the arbitrators shall be equally shared by the parties unless decided otherwise by the arbitrators pursuant to the award of Arbitration.”
5. Learned Counsel for the applicant has argued that the reference in the purchase order to the standard terms and conditions entitle him to seek an arbitration in this matter as the standard terms and conditions allow the appointment of an arbitrator and such conditions would constitute a valid agreement under Section 7(5) of the Act, which could be referred for arbitration.
6. For this purpose he has relied on a decision of Hon'ble Apex Court in the case of Groupe Chimique Tunisien Sa v. Southern Petrochemicals Industries Corpn. Ltd.. reported in AIR 2006 Supreme Court 2422 in which the Supreme Court read a purchase order to be a valid arbitration agreement by treating the purchase orders placed by the respondents on the applicant as valid contracts as they were subject to certain terms and conditions of the Fertilizer Association of India, which had been accepted between the parties. Even though relying on this decision he is unable to show from the record any such specific agreement between the present parties for any particular dispute sought to be referred.
7. On the contrary there is very strong opposition in this matter wherein learned Counsel for the respondent has argued that the reference in the purchase order and the standard terms and conditions, which are sought to be treated as an arbitration agreement do not constitute a valid agreement at all under the provisions of Section 7(5) of the Arbitration Act as they do not have the elements of a valid agreement at all.
8. Firstly, learned Counsel, Sri. Rajendran argues that the so-called document referred to does not disclose any intention to enter into any agreement for any reference of a future dispute to an arbitration.
9. Secondly, it was never a written down agreement between the parties and thirdly he argues that there was no especial reference to any arbitration clause at all in the purchase order. Since the so-called purchase order did not contain specific agreement for arbitration it would not entitle the applicant at all to ask for the appointment of an arbitrator under Section 11 of the Act before this Court.
10. For this purpose he has relied on a decision of Hon'ble Apex Court in the case of M.R Engineers and Contractors Pvt. Ltd. v. Som Datt Builders Ltd. reported in (2009) 7 SCC 696 wherein the Hon'ble Apex Court has examined the scope and intent of Section 7(5) of the Act and has summarized as thus:—
“The scope and intent of Section 7(5) of the Act may therefore be summarized thus:
(i) An arbitration clause in another document, would get incorporated into a contract by reference, if the following conditions are fulfilled: (i) The contract should contain a clear reference to the documents containing arbitration clause, (ii) the reference to the other document should clearly indicate an intention to incorporate the arbitration clause into the contract,
(iii) 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.
(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”
11. The decision, on which learned Counsel for the applicant has relied had also been considered by Hon'ble Apex Court in the case of M.R Engineers and Contractors (supra) and the conclusion of the later judgement is that unless a especial reference to have the matter referred to arbitration, any general term or condition cannot be read as an arbitration agreement. The decision relied on by the learned Counsel for the applicant is of no help to him because the facts are clearly different in that case. There was a clear reference to an arbitration whereas in this case there is none.
12. Having heard learned Counsels on both sides and having perused the documents, which are on record and having examined the law on the point, I am of the opinion that the applicant has failed to make out a case to establish the so-called purchase order as containing a valid arbitration agreement, which would entitle the applicant to seek the appointment of an arbitrator under Section 11 of the Act. Clearly the purchase order does not contain a clear or special reference of any matter, which may be referred to arbitration and for that reason the applicant would not be entitled to seek appointment of an arbitrator on the basis of any stipulation contained in the purchase order. Such being the case, the applicant has failed to make out a case for the grant of prayer made by him under Section 11 of the Act.
13. The application is without merit, it is dismissed. No costs.
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