2024 INSC 218 1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS.___________OF 2024

[Arising out of Special Leave Petition (Civil) Nos.7573-7574 of

2021]

NBCC (INDIA) LIMITED ...APPELLANT (S)

VERSUS

ZILLION INFRAPROJECTS PVT.LTD. ...RESPONDENT (S)

J U D G M E N T

B.R. GAVAI, J.

1. Leave granted.

2. The present appeals challenge the interim order dated 12

th

March 2021 and final judgment & order dated 9

th April 2021,

passed by the learned Single Judge of the High Court of Delhi

(hereinafter, “High Court”), in Arbitration Petition (Arb. P.) No. 44

2

of 2021, whereby the High Court allowed the application under

Section 11(6) of the Arbitration & Conciliation Act 1996

(hereinafter referred to as, “the Arbitration Act”) and appointed

the Sole Arbitrator to adjudicate the dispute between the parties

to the present lis, arising from the Letter of Intent dated 4

th

December 2006.

3. Facts, in brief, giving rise to the present appeals are as

follows:

3.1 The appellant, NBCC (India) Limited (Formerly known as

National Buildings Construction Corporation Ltd.), is a Public

Limited Company and Government of India undertaking,

engaged in construction of power plants and other infrastructure

projects on EPC and/or PMC basis.

3.2 The respondent, M/s Zillion Infraprojects Pvt. Ltd.

(Formerly known as Durha Constructions Pvt. Ltd.), is a Private

Limited Company, engaged in the construction and

infrastructure sector.

3

3.3 The appellant issued an invitation for tender, being NIT No.

01-WEIR/06 dated 3

rd November 2006, for “Construction of Weir

with Allied Structures across river Damodar at DVC, CTPS,

Chandrapura, Dist – Bokaro, Jharkhand – Package “A”

(hereinafter referred to as, “Construction of the Weir”), containing

inter-alia, the General Conditions of Contract, Special Conditions

of Contract, Bill of Quantity, etc. (collectively referred to as,

“Tender Documents”).

3.4 In response to the aforementioned tender, the Respondent

submitted its Techno Commercial Bid on 16

th November 2006.

3.5 On fulfilment of the tender criteria, vide Letter of Intent No.

AGM/RAN/CTPS -AWARD/06/1660 dated 4

th December 2006,

the appellant awarded the contract for Construction of the Weir

to the respondent for a total value of Rs. 19,08,46,612/-.

3.6 With the passage of time, certain disputes arose between

the parties to the present lis & as a result, the respondent issued

a notice dated 6

th March 2020, in terms of Clause 3.34 of Section

III Volume II of the Tender Documents (GCC), thereby invoking

4

arbitration and further seeking consent of the appellant for the

appointment of a former Judge of a High Court, as Sole

Arbitrator.

3.7 The appellant did not respond to the aforementioned notice

invoking arbitration, so the respondent filed an application at the

High Court under Section 11(6) of the Arbitration Act.

3.8 Vide interim order dated 12

th March 2021, the High Court

allowed the Arbitration Petition and proposed the appointment

of a former Judge of the High Court, as the Sole Arbitrator, to

adjudicate the dispute between the parties.

3.9 Vide final judgment & order dated 9

th April 2021, the High

Court confirmed the proposed appointment of the former Judge

of the Delhi High Court, as the Sole Arbitrator.

3.10 Aggrieved by the orders of the learned single judge of the

High Court, the appellant filed the present appeals thereby

challenging both the interim order and the final judgement &

order.

5

3.11 This Court vide order dated 23

rd July, 2021, issued notice

and stay of further proceedings of the arbitration was granted.

4. We have heard Shri Gopal Sankaranarayanan, learned

Senior Counsel appearing on behalf of the appellant & Shri Sumit

Kumar, learned counsel appearing on behalf of the respondent.

5. Shri Gopal Sankaranarayanan , learned Senior Counsel

appearing for the appellant submits that the High Court has

grossly erred in invoking its power under Section 11(6) of the

Arbitration Act. It is submitted that Clause 2.0 of the Letter of

Intent dated 4

th December 2006 (“L.O.I.” for short) though states

that all terms and conditions as contained in the tender issued

by the Damodar Valley Corporation (“DVC” for short) to the NBCC

shall apply mutatis mutandis, it also makes it clear that where

the terms and conditions have been expressly modified by the

NBCC, the same would not be applicable. It is submitted that

Clause 1.0 of the L.O.I. specifically states that various conditions,

i.e., contractual, financial and technical mentioned in the

documents contained therein shall be binding on the respondent

6

for execution of works and they shall form part of the agreement.

Clause 10.0 also states that the L.O.I. shall also form a part of

the agreement. It is submitted that the intention is amply clear

from Clause 7.0 of the L.O.I., which states that the redressal of

dispute between the NBCC and the respondent shall only be

through civil courts having jurisdiction of Delhi alone. It further

states that the laws applicable to the contract between the parties

shall be the laws enforceable in India. It is submitted that merely

on account of reference in the L.O.I. to the terms and conditions

as contained in the tender issued by the DVC to the NBCC,

Clause 3.34 of the Additional Terms & Conditions of Contract

would not apply in view of specific modification as stated in

Clause 2.0 of the L.O.I.

6. Learned Senior Counsel submits that a mere reference to

the terms and conditions without there being an incorporation in

the L.O.I. would not make the lis between the parties amenable

to the arbitration proceedings. Relying on the judgment of this

Court in the case of M.R. Engineers and Contractors Private

7

Limited vs. Som Datt Builders Limited

1, he submits that

unless the L.O.I. specifically provides for incorporation of the

arbitration clause, a reference to the arbitration proceedings

would not be permitted in view of the provisions of sub-section

(5) of Section 7 of the Arbitration Act.

7. Shri Sumit Kumar, learned counsel appearing for the

respondent, on the contrary, submits that there is a specific

reference in Clause 2.0 of the L.O.I. to the terms and conditions

in the tender issued by the DVC to the NBCC. He submits that

the only modification is that under Clause 3.34 of the Additional

Terms & Conditions of Contract, the jurisdiction is vested with

the Court in the City of Kolkata only, whereas in the L.O.I. the

jurisdiction would be vested in the civil courts having jurisdiction

of Delhi alone. It is submitted that the learned single judge of

the Delhi High Court has rightly considered this aspect and as

such, no interference would be warranted in the impugned order.

1

(2009) 7 SCC 696

8

8. Sub-section (5) of Section 7 of the Arbitration Act reads

thus:

“7. Arbitration Agreement.-1)……………….

xxx xxx xxx

(5) The reference in a contract to a

document containing an arbitration clause

constitutes an arbitration agreement if the

contract is in writing and the reference is

such as to make that arbitration clause part

of the contract.”

9. The issue is no more res integra. The provisions of sub-

section (5) of Section 7 of the Arbitration Act have been

considered by this Court in the case of M.R. Engineers and

Contractors Private Limited (supra). After considering the

relevant passages from Russell on Arbitration and various English

judgments, this Court held thus:

“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:

9

(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

10

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.”

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10. It could thus be seen that this Court has held that 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. It has been held

that 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. It has further

been held that 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.

11. This Court further held that where the contract provides

that the standard form of terms and conditions of an independent

12

trade or professional institution 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. It

has been held that 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.

It has also been held that 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, the arbitration

clause forming part of such general conditions of contract will

apply to the contract between the parties.

12. A perusal of sub-section (5) of Section 7 of the Arbitration

Act itself would reveal that it 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.

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13. It is thus clear that a 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.

14. The law laid down in the case of M.R. Engineers and

Contractors Private Limited (supra) has been followed by this

Court in the cases of Duro Felguera, S.A. vs Gangavaram Port

Limited

2 and Elite Engineering and Construction

(Hyderabad) Private Limited represented by its Managing

Director vs Techtrans Construction India Private Limited

represented by its Managing Director

3.

15. No doubt that this Court in the case of Inox Wind Limited

vs Thermocables Limited

4 has distinguished the law laid down

in the case of M.R. Engineers and Contractors Private Limited

(supra). In the said case (i.e. Inox Wind Limited), this Court has

held that though general reference to an earlier contract is not

2

(2017) 9 SCC 729

3

(2018) 4 SCC 281

4

(2018) 2 SCC 519

14

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. Though this Court in

the case of Inox Wind Limited (supra) agrees with the judgment

in the case of M.R. Engineers and Contractors Private Limited

(supra), it holds that general reference to a standard form of

contract of one party along with those of trade associations and

professional bodies will be sufficient to incorporate the

arbitration clause. In the said case (i.e. Inox Wind Limited), this

Court found that the purchase order was issued by the appellant

therein in which it was categorically mentioned that the supply

would be as per the terms mentioned therein and in the attached

standard terms and conditions. The respondent therein by his

letter had confirmed its acceptance. This Court found that the

case before it was a case of a single-contract and not two-contract

case and, therefore, held that the arbitration clause as mentioned

in the terms and conditions would be applicable.

15

16. The present case is a ‘two-contract’ case and not a ‘single-

contract’ case.

17. It will be relevant to refer to Clause 3.34 of the Additional

Terms & Conditions of Contract as contained in the tender issued

by the DVC to the NBCC. Clause 3.34 reads thus:

“3.34 SETTLEMENT OF DISPUTES &

ARBITRATION

Any dispute(s) or difference(s) arising out of or

in connection with the contract shall to the

extent possible be settled amicably between

the owner and supplier/contractor.

In the event of any dispute or difference

whatsoever arising under the contract or in

connection therewith including any question

relating to existence meaning and

interpretation of the contract or any alleged

breach thereof the same shall be referred to

the sole arbitration of the Secretary, CEO of

Damodar Valley Corporation, Kolkata-54 or to

a person appointed by him for that purpose.

The arbitration shall be conducted in

accordance with the provisions of arbitration

and conciliation law 1996 and the

decision/judgment of Arbitrator shall be final

and binding on both the parties.

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All suits arising out of this enquiry and

subsequent purchase order, if any, are

subject jurisdiction of court in the City of

Kolkata only and no other door when

resolution/settlement through mutual

discussion and arbitration fails.”

18. No doubt that Clause 3.34 provides for a reference of the

dispute to the sole arbitration of the Secretary, CEO of Damodar

Valley Corporation, Kolkata-54 or to a person appointed by him

for that purpose.

19. It will also be apposite to refer to Clauses 1.0, 2.0, 7.0 and

10.0 of the L.O.I., which read thus:

“1.0 The work shall be executed you on

contractual, financial and technical

conditions of contract as contained in

the following documents which shall

be applicable and binding on you for

execution of works and shall form part

of agreement with you as also

mentioned in the above mentioned

NIT-01/WEIR/06 dated November 3,

2006.

(a) Notice Inviting Tender

(b) General Conditions of Contract

(c) Special Conditions of Contract

(d) Bill of Quantity

17

2.0 All terms and conditions as contained

in the tender issued by DVC to NBCC

shall apply mutatis mutandis except

where these have been expressly

modified by NBCC.

7.0 The redressal of dispute between

NBCC and you shall only be through

civil courts having jurisdiction of Delhi

alone. The laws applicable to this

contract shall be the laws enforceable

in India.

10.0 This letter of intent shall also form a

part of the agreement.

20. In view of Clause 1.0, the documents stated therein shall

also form part of the agreement. In view of Clause 2.0, all terms

and conditions as contained in the tender issued by the DVC to

the NBCC shall apply mutatis mutandis except where these have

been expressly modified by the NBCC. Clause 7.0 specifically

provides that the redressal of dispute between the NBCC and the

respondent shall only be through civil courts having jurisdiction

of Delhi alone. Clause 10.0 further provides that the L.O.I. shall

also form a part of the agreement.

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21. It is thus clear that the intention between the parties is very

clear. Clause 7.0 of the L.O.I. which also forms part of the

agreement specifically provides that the redressal of the dispute

between the NBCC and the respondent shall only be through civil

courts having jurisdiction of Delhi alone. It is pertinent to note

that Clause 7.0 of the L.O.I. specifically uses the word “only”

before the words “be through civil courts having jurisdiction of

Delhi alone”.

22. As already discussed herein above, when there is a

reference in the second contract to the terms and conditions of

the first contract, the arbitration clause would not ipso facto be

applicable to the second contract unless there is a specific

mention/reference thereto.

23. We are of the considered view 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 the

arbitration clause. In any case, Clause 7.0 of the L.O.I., which is

also a part of the agreement, makes it amply clear that the

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redressal of the dispute between the NBCC and the respondent

has to be only through civil courts having jurisdiction of

Delhi alone.

24. In that view of the matter, we find that the learned single

judge of the Delhi High Court has erred in allowing the

application of the respondent. The appeals are accordingly

allowed. The impugned orders are quashed and set aside. There

shall be no order as to costs.

25. Pending applications, if any, shall stand disposed of.

…….........................J.

[B.R. GAVAI]

…….........................J.

[SANDEEP MEHTA ]

NEW DELHI;

MARCH 19, 2024