G.S. Patel, J.:— Heard through video conferencing.
2. The Application is under Section 11 of the Arbitration and Conciliation Act 1996. The Applicant is a Cooperative Society. The Respondent is a developer.
3. On 4 March 2010 the Applicant entered into a development agreement with one Yashashree Construction Company (“YCC”) for the redevelopment of its property at Second Road, Chembur, Mumbai 400 071. This development agreement contains within it an arbitration agreement in Clause 29. That arbitration clause reads thus:
“29. In the event of any dispute arising between the parties hereto in connection with the matters related to the terms of this agreement or the amenities to be provided or undue delay in completing the work etc., it shall be referred as a dispute as defined in the Indian Arbitration Act 1996 and will be referred to the arbitration of a single Arbitrator mutually acceptable to the parties. The decision given by such Arbitrator will be binding on both parties.”
4. For the purposes of this Application I am not concerned with the intervening events as to the development itself. What is material is that on 22 January 2016 there was an assignment by a regular deed of these development rights. It was executed by YCC, the present Applicant and the present Respondent (“Tattva Mittal”).
5. The only argument canvassed is that on account of this assignment, the arbitration agreement also stood similarly assigned. To show this, my attention is invited first to Clause 2 of the Assignment Deed at page 89. This reads as follows:
2. Agreement
The Assignors hereby assign and transfer unto and in favour of the Assignees the development rights of the Property more particularly described in the First Schedule hereunder written, granted to the Assignors by the Society vide the said Development Agreement dated 4 March 2010. The Society hereby confirms the said assignment and transfer of the development rights of the Property by the Assignors unto and in favour of the Assignees and that the Assignees alone are entitled to exclusively develop the Property by constructing new building/s or premises and also grant unto the Assignees the rights to develop the Property. The Society, with the confirmation of the Assignors, have handed over the possession of the Property to the Assignees and the Assignees accept the possession of the Property from the Society. The Assignors on execution hereof have no right whatsoever to the Property or in the development thereof or otherwise. The Assignees alone shall have the right to name the new building/s so constructed on the Land the Society shall not object to the same and shall not change the name of the building/s at any point of time.
6. Then my attention is drawn to Clauses 16 and 16.1 at page 95 of the Assignment Deed. These speak of the obligations of the assignees, i.e. Tattva Mittal, in these terms:
16 Obligations of the Assignees
Pursuant to this Deed and in furtherance of the development of the Property to which the Assignees is entitled to at its own costs, charges and expenses, it is obligation of the Assignees to:
16.1. Adhere to, observer, perform and fulfil the terms and conditions as stated herein and also adhere to, observe, perform and fulfil all the terms and conditions stipulated in the Development Agreement dated 04.10.2010.
(Emphasis added)
7. I note that Clause 16 has several additional sub-clauses. None of them, admittedly, make any reference to Clause 29 of the Development Agreement (the arbitration agreement under the original development agreement of 4 March 2010). Indeed, nowhere in the Deed of Assignment is there a specific reference to Clause 29.
8. The argument on behalf of the Applicant is largely based on the decision of a learned Single Judge of this Court in Dlf Power Limited v. Mangalore Refinery & Petrochemicals Limited 2016 SCC OnLine Bom 5069.
9. Before I turn to that judgment, I must note that the law in this regard is well settled from 1987 to 2019 inter alia in the following decisions : Alimenta SA v. National Agricultural Cooperative Marketing Federation of India Ltd. (1987) 1 SCC 615; MR Engineers & Contractors (P) Ltd. v. Som Datt Builders Ltd. (2009) 7 SCC 696; M/S. Inox Wind Ltd. v. M/S. Thermocables Ltd. (2018) 2 SCC 519; and Giriraj Garg v. Coal India Ltd. (2019) 5 SCC 192
10. In Alimenta, a subsequent supply contract simply said the terms and conditions of an earlier or previous supply contract would apply. The Supreme Court held, inter alia, that the arbitration agreement was not a term of supply. There is no necessity in law that every supply contract must have an arbitration agreement. Therefore, without a specific reference to the arbitration agreement or clause in the earlier supply order, there could be no incorporation by a generalized reference to the earlier supply order's terms and conditions in the second supply order.
11. MR Engineers followed and applied Alimenta. It held that a generalized reference to a previous document was insufficient to incorporate the arbitration agreement, subject to a few defined exceptions. The later agreement must have a special reference indicating the mutual intention to arbitrate. Paragraphs 22 to 24 summarize the position in law enunciated by the Supreme Court:
22. A general reference to another contract will not be sufficient to incorporate the arbitration clause from the referred contract into the contract under consideration. There should be a special reference indicating a mutual intention to incorporate the arbitration clause from another document into the contract. The exception to the requirement of special reference is where the referred document is not another contract, but a standard form of terms and conditions of trade associations or regulatory institutions which publish or circulate such standard terms and conditions for the benefit of the members or others who want to adopt the same.
23. The standard forms of terms and conditions of trade associations and regulatory institutions are crafted and chiselled by experience gained from trade practices and conventions, frequent areas of conflicts and differences, and dispute resolutions in the particular trade. They are also well known in trade circles and parties using such formats are usually well versed with the contents thereof including the arbitration clause therein. Therefore, even a general reference to such standard terms, without special reference to the arbitration clause therein, is sufficient to incorporate the arbitration clause into the contract.
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 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.
(Emphasis added)
12. Ms. Joglekar's submission that paragraph 24(v) will apply to this case is clearly misconceived. That paragraph refers to a certain species of contract, typically government contracts, which contain what are known as the general or special terms of contract. The other document must be a ‘conditions of contract’, i.e., something that governs the operative contract throughout. The present case is, on the contrary, covered by paragraph 24(ii) and (iii). It is also affected by the requirements of paragraph 24(i)(1) and 24(i)(2) above.
13. MR Engineers was followed by the Supreme Court in Inox Wind (2018) and relied on in 2019 in Giriraj Garg.
14. The submission on behalf of the Applicant today is that MR Engineers was considered and held not to be applicable by this Court in DLF Power.
15. The argument is entirely misconceived. DLF Power was not a question of assignment in the sense that we see in the present case. That was a case as paragraph 7 shows where an entire division of the earlier company was purchased through a Memorandum of Sale. I am asked to read this judgment to indicate that a generalized reference to a previous agreement containing an arbitration clause is always sufficient. If that were so, then DLF Power would literally have been contrary to MR Engineers. But it is not, for the question of incorporation by reference in this fashion was not before the DLF Power Court. The question there was whether an arbitration agreement could be assigned at all. This is what the Court decided and I have no doubt rightly so. It is settled law that a decision has to be read for what it actually decides; and the DLF Power Court held that an arbitration agreement too can be assigned. I am in respectful agreement with the decision of the learned Single Judge in DLF Power. Apart from that I am, in any case, bound by it. But that does not make it applicable to the facts of the present case. MR Engineers was distinguished in DLF Power on precisely this basis — that DLF Power was not a case of an assignment of certain obligations, but a case where an entire unit was taken over.
16. The question before me is not whether the arbitration agreement can be assigned but whether it has been properly incorporated by reference. This brings it fully within the sweep of MR Engineers.
17. The rationale underlying the MR Engineers line of authority is self-evident. An arbitration agreement is an agreement within an agreement. Not every contract or agreement requires an arbitration clause or agreement. Many contracts go without. An arbitration agreement has nothing at all to do with the reciprocal obligations or their performance (as noted in Alimenta). It is a dispute resolution mechanism chosen by the parties. If, therefore, it is to be ‘carried forward’ to a later agreement which introduces a new contracting party, then the arbitral intent between the original party and the assignee of the other party must be made manifest. This can be done by having a separate arbitration agreement or by incorporating by specific reference the earlier arbitration agreement. The assignee cannot be ‘assumed’ to have consented to the arbitral agreement. Say there is a contract between A and B. It has an arbitration agreement. With A's consent, B assigns its rights and obligations to C. Now the contract is between A and C. In this later contract, there must be a specific reference to the arbitration clause in the agreement between A and B, for otherwise we can never know if C had agreed to arbitration as a dispute resolution mechanism. The intention to arbitrate is not manifested. This is, of course, subject to the specific exception MR Engineers carved out. Most importantly, a generalized reference to the previous contract (“all terms and conditions”, etc.) does not satisfy the requirement of Section 7 of the Arbitration Act that an arbitration agreement must be in writing. The reason it must be in writing — though the writing can take many forms — is precisely because an arbitration agreement is an agreement-within-an-agreement, never compulsory, unrelated to contractual performance and concerned only with an entirely optional alternative dispute resolution mechanism. This is why we say an arbitration is a creation of contract and an arbitrator is a creature of contract. If what is argued today is to be accepted, then, apart from being wholly contrary to MR Engineers and the settled law, Section 7 might as well not exist.
18. DLF Power has no application whatsoever and is clearly distinguishable on facts. Inviting my attention to 1963 decisions of the Supreme Court and of Chancery Division decisions regarding ‘assignability’ is of no assistance in the facts and circumstances of the case.
19. In view of this discussion the conclusion is inescapable that the arbitration Clause 29 in the original Development Agreement has not been incorporated by reference as required by law in the Assignment Agreement of 22 January 2016.
20. Finally I must note that this is a regrettable state of affairs. The Society has senior citizens. Several times, I asked the Attorneys to take instructions whether they wish to withdraw the Application without any observations but with liberty to pursue their remedies in a civil action. The instructions from the Society's office bearers were to press the Application. That is indeed unfortunate.
21. The Application is dismissed. However, in the facts and circumstances of the present case, and having regard to the position of the Society members, there will be no order as to costs.
22. This order will be digitally signed by the Private Secretary of this Court. All concerned will act on production by fax or email of a digitally signed copy of this order.