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Elite Engineering and Construction (Hyd.) Private Limited v. Techtrans Construction India Private Limited

Civil Appeal · 2018 INSC 192Decided 23 Feb 2018
Civil Appeal No. 2439 of 2018
Justice A.K. Sikri · Justice Ashok Bhushan

Background

In a chain of highway-construction contracts, Techtrans had sub-contracted structural work to Elite Engineering under a 2009 agreement that contained no arbitration clause of its own, but referred generally to the terms of an earlier 2008 agreement (between the EPC Contractor and Techtrans) which did contain an arbitration clause. When a dispute arose, Elite Engineering sought appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, arguing the earlier agreement's arbitration clause was incorporated by reference into its own contract. The Madras High Court dismissed this plea, holding no arbitration agreement existed between the parties, and Elite Engineering appealed to the Supreme Court.

Decision Breakdown

The Supreme Court held that under Section 7(5) of the Arbitration and Conciliation Act, an arbitration clause from another document is incorporated into a contract only if the reference clearly and specifically shows an intention to import that arbitration clause, not merely a general reference to "terms and conditions." Applying its earlier ruling in M.R. Engineers and Contractors (P) Ltd. v. Som Datt Builders Ltd., the Court found that the clauses relied upon by the appellant (relating to "works and quality" and "items" not otherwise specified) incorporated only those specific aspects of the main contract, and did not carry over the arbitration clause, since there was no specific reference to it. The Court agreed with the High Court's reasoning and distinguished between a mere "reference" to another document and true "incorporation by reference" of its arbitration clause. Accordingly, the appeal was dismissed and the High Court's refusal to appoint an arbitrator was upheld.

Lesson Learnt

When a contract wants to adopt an arbitration clause from a separate agreement, it must specifically and clearly say so: a general reference to the other agreement's "terms and conditions" is not enough to bind the parties to arbitration.

Official source (sci.gov.in)View Judgment (PDF)

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