Disclaimer & Confirmation

The rules of the Bar Council of India do not permit advocates to solicit work and advertise. By clicking on the "I agree" below and by visiting this site, you acknowledge that you are doing so voluntarily and of your own free will and further acknowledge that:

We are not liable for any consequence of any action taken by the user relying on information provided under this website. In cases where the user has any legal issues, he/she must seek independent legal advice.

Tag: arbitration agreement

Categories
News & Updates

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.

[1] 2024 SCC OnLine SC 323

Categories
News & Updates

Supreme Court decides ‘Whether the Provisions contained in Chapter V of the MSME Act, 2006 with regard to Delayed Payments to Micro and Small Enterprises would have precedence over the provisions contained in the Arbitration Act, 1996?’

The Hon’ble Supreme Court recently decided 7 Appeals in the case of Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd., though factually distinct, however, involving common questions of law.

Upon hearing and considering the submissions, both in favour and against the proposition that ‘the provisions regarding delayed payments under the MSME Act would have precedence over the provisions of the Arbitration Act, the Apex Court observed and held the following’:

Chapter-V of the MSME Act would override the provisions of the Arbitration Act having been enacted subsequent to the enactment of the Arbitration Act and more particularly in view of Section 24 of the MSME Act which specifically gives an overriding effect to the provisions of Sections 15 to 23 of the Act over any other law for the time being in force, which would also include Arbitration Act.

Once the statutory mechanism under sub-section (1) of Section 18 is triggered by any party, it would override any other agreement independently entered into between the parties, including an Arbitration Agreement. Therefore, even in the existence of an Arbitration Agreement, any party can resort to making a reference to the Micro and Small Enterprises Facilitation Council (“Facilitation Council”) under Section 18 of the MSME Act.

The provisions of Arbitration Act would apply to the proceedings conducted by the Facilitation Council only after the process of conciliation initiated by the same under Section 18(2) fails. Further, the Facilitation Council either can itself take up the dispute for arbitration or refer it to any institute or centre for such arbitration as contemplated under Section 18(3) of the MSME Act and would be competent to rule on its own jurisdiction as also other issues in view of Section 16 of the Arbitration Act.

The Facilitation Council, which initiates the conciliation proceedings under Section 18(2) of the MSME Act would be entitled to act as an arbitrator despite the bar contained in Section 80 of the Arbitration Act.

A party who is not a ‘Supplier’ as per the definition contained in Section 2(n) of the MSME Act on the date of entering into contract cannot seek any benefit as the ‘Supplier’ under the MSME Act. If any registration is obtained subsequently, the same would have a prospective effect and would apply to the supply of goods and rendering services subsequent to the said registration.