Incorporation of Arbitration Clause by Reference: A General Reference to A Contract Would Not Have the Effect of Incorporating the Arbitration Clause in Another Contract.

The Supreme Court in its recent decision dated March 19, 2024, in NBCC (India) Private Limited v. Zillion Infraprojects Private Limited[1] reaffirmed the position that a dispute cannot be referred to arbitration on the basis of arbitration clause contained in a referred contract unless a specific reference was made in the main contract to incorporate the arbitration clause into the same.

The same was observed by Hon’ble Supreme Court in the backdrop of appeal filed by NBCC (India) Limited against the decision of Delhi High Court which had referred the dispute between the parties to arbitration in absence of specific arbitration clause in the agreement.

Brief background of the Case

A principal contract or Letter of Intent (“LOI“), was executed between the parties containing a clause that the terms and conditions indicated in a former contract (“DVC”) would apply mutatis mutandis to the LOI.  The LOI specified that the disagreement will be resolved in civil court rather than through arbitration whereas, the DVC contained an arbitration clause to resolve the dispute through arbitration.

Issue for Consideration

Whether the arbitration clause of a contract applies ipso facto to another contract, if another contract makes a general reference to the referred contract?

Supreme Court’s Ruling

The Hon’ble Supreme Court ruled that when parties enter into a contract making a general reference to the contract which contains an arbitration clause, such general reference would not have the effect of incorporating the arbitration clause from the referred document into another contract between the parties. It has been held that the arbitration clause from a former/referred contract can be incorporated into another contract (where such reference is made) only by a specific reference to arbitration clause.

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[1] 2024 SCC OnLine SC 323