The Hon’ble Supreme Court of India in the case titled M/s INOX Wind Ltd. Vs. M/s Thermocables Ltd. (Civil Appeal No. 19 of 2018) decided on 05.01.2018 set aside the decision of the Hon’ble High Court of Allahabad and held that a general reference to a consensual standard form is sufficient for incorporation of an arbitration clause.
The issue before the Hon’ble Supreme Court was whether general rules of construction of contracts would have to be followed as there were no guidelines in Section 7(5) of the Arbitration and Conciliation Act, 1996 regarding the conditions that need to be fulfilled before construing a reference to a portion of a contract as a reference incorporating the whole of it along with the arbitration clause contained in it.
The High Court relying upon the judgment of this Court in M.R. Engineers and Contractors Private Limited v. Som Datt Builders Limited, (2009) 7 SCC 696 held that there is no special reference to the arbitration clause in the standard terms and conditions, so the arbitration clause cannot be said to have been incorporated into the purchase order.
The Hon’ble Supreme Court interpreted the ratio of M.R. Engineers and Contractors Private Limited v. Som Datt Builders Limited, (2009) 7 SCC 696 by differentiating the terms ‘reference’ and ‘incorporation’ of the document in the contract. While distinguishing ‘reference’ to another document from ‘incorporation’, this Court observed that the relevant factor was the intention of the parties either to adopt the document in its entirety or to borrow specific portions of the said document.
After placing reliance upon Russell on Arbitration 24th Edition (2015), it was further 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.