0% found this document useful (0 votes)
29 views23 pages

Arbitration Case Law

The document discusses a case related to the interpretation of section 7(5) of the Arbitration and Conciliation Act regarding whether an arbitration clause in a main contract is incorporated by reference in a sub-contract. The case involves a dispute between a sub-contractor and contractor regarding claims and arbitration. The court considers whether the arbitration clause in the main contract between the owner and contractor applies to the sub-contract based on language in the sub-contract.

Uploaded by

nirali katira
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
0% found this document useful (0 votes)
29 views23 pages

Arbitration Case Law

The document discusses a case related to the interpretation of section 7(5) of the Arbitration and Conciliation Act regarding whether an arbitration clause in a main contract is incorporated by reference in a sub-contract. The case involves a dispute between a sub-contractor and contractor regarding claims and arbitration. The court considers whether the arbitration clause in the main contract between the owner and contractor applies to the sub-contract based on language in the sub-contract.

Uploaded by

nirali katira
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 23

1

Reportable
IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 4150 OF 2009


(Arising out of SLP [C] No.11117 of 2006)

M.R. Engineers & Contractors Pvt. Ltd. … Appellant

Vs.

Som Datt Builders Ltd. ... Respondent

JUDGMENT

R.V. RAVEENDRAN, J.

Leave granted. Heard learned counsel for both parties. The matter

relates to interpretation of sub-section (5) of section 7 of Arbitration and

Conciliation Act, 1996 ('Act' for short) and the issue involved is whether an

arbitration clause contained in a main contract, would stand incorporated by

reference, in a sub-contract, where the sub-contract provided that it “shall be

carried out on the terms and conditions as applicable to the main contract.”

2. The Public Works Department, Government of Kerala, (in short ‘PW

Department’) entrusted the work of “Four Laning and Strengthening of

Alwaye – Vyttila and Aroor – Cherthala and Strengthening of Vyttila to


2

Aroor Section of NH 47 – N2 & N3 packages” which included the work of

“Construction of Project Directorate Building for National Highway Four

Laning Project at Edapally, Cochin” to the respondent. The said contract

between PW Department and the respondent contained a provision for

arbitration, as per clause 67.3 of the General Conditions of Contract. The

relevant portion of the said clause is extracted below:

“Arbitration 67.3.
Any dispute in respect of which :

(a) the decision, if any, of the Engineer has not become final and
binding pursuant to Sub-Clause 67.1, and

(b) amicable settlement has not been reached within the period
stated in Sub-Clause 67.2.

shall be referred to the adjudication of a Committee of three


arbitrators. The Committee shall be composed of one arbitrator to
be nominated by the Employer, one to be nominated by the
Contractor and the third who will act as the Chairman of the
Committee, but not as umpire, to be nominated by the Director –
General (Road Development), Ministry of Surface Transport
(Roads Wing); Government of India. If either of the parties abstain
or fail to appoint his arbitrator, within sixty days after receipt of
notice for the appointment of such arbitrator, then the Director-
General (Road Development), Ministry of Surface Transport,
Government of India, himself shall appoint such arbitrator(s). A
certified copy of the appointment made by the Director-General
(Road Development), Ministry of Surface Transport, Govt. of
India, shall be furnished to both parties.”
xxxxx xxxxx

3. The appellant is a sub-contractor of the respondent. Respondent

entrusted a part of the work entrusted to it by the PW Department namely

“construction of Project Directorate building” to the appellant under its


3

work order dated 4.5.1994. The relevant portions of the work order are

extracted below:

“With reference to your offer and subsequent discussions, we are


pleased to accept your offer for the construction of the office
building at the unit, firm and fixed price of Rs.3150/- (Rupees
Three Thousand One Hundred Fifty Only) per square metre. The
construction shall be carried out as per the tender specifications
and drawings issued for construction by the client.

The square metre rate includes cost of all materials, labour,


equivalent etc., required for the completion of building work but
excludes the furniture required for the same. No escalation shall be
payable on the above contracted price. The work shall be carried
out as per the drawings furnished by the Department. This sub-
contract shall be carried out on the terms and conditions as
applicable to main contract unless otherwise mentioned in this
order letter.

In case there are any change in the foundation design from the
tender drawing, suitable variation claim shall be submitted to the
client by us and the amount approved and paid shall be payable to
you after deducting twenty percent amount.”
xxxxx xxxxx
The approximate cost of this order comes to Rs.33,07,500/-
(emphasis supplied).

4. The appellant alleges that it informed the respondent that it executed

certain extra items and excess quantities of agreed items on the instructions

of the PW Department and requested the respondent to make a claim on the

PW Department in that behalf; that the respondent accordingly made

necessary claims in that behalf on the PW Department; that the said claims,

as also several other claims of the respondent against the PW Department

were referred to arbitration and the arbitrator made an award dated


4

18.8.1999. According to appellant, the Arbitrator awarded certain amounts

in regard to its claims put through the respondent and in terms of the

arrangement between the respondent and the appellant, the respondent is

liable to pay to the appellant, eighty percent of the amounts awarded for

such claims, that is Rs.37,55,893/-, along with Rs.1,55,807/- towards pre-

reference interest upto 4.12.1996 and compensation at 18% per annum for

non-payment of Rs.37,55,893/- from 5.12.1996. The appellant alleged that a

sum of Rs.1,76,936/- was also due by the respondents towards unlawful

deductions. The appellant therefore lodged a claim on the respondent by

letter dated 5.7.2000, for payment of Rs.65,11,341/-. As the claim was not

settled, the appellant sent a letter dated 6.12.2000 seeking reference of the

disputes by arbitration.

5. As the respondent failed to comply, the appellant filed an application

under section 11 of the Act. According to the appellant clause 67.3 of the

General Conditions of Contract forming part of the contract between the PW

Department and the respondent, providing for arbitration, was imported into

the sub-contract between respondent and appellants. The appellant relies

upon the term in the work order dated 4.5.1994 that the “sub-contract shall

be carried out on the terms and conditions as applicable to main contract” to


5

contend that the entire contract between the department and the respondent,

including clause 67.3 relating to arbitration, became a part and parcel of the

contract between the parties. The appellant also contended that having

regard to section 7(5) of the Arbitration & Conciliation Act, 1996, the

arbitration clause contained in the main contract between the PW

Department and the respondent, constituted an arbitration agreement

between the respondent and appellant on account of the incorporation

thereof by reference in the contract between the appellant and respondent.

The respondent denied the said claim and contention.

6. The designate of the Learned Chief Justice by order dated 31.1.2003

rejected the said application on the ground that the arbitration clause (in

the contract between PW Department and the respondent) was not

incorporated by reference in the contract between the respondent and

appellant. The said order is challenged in this appeal by special leave.

The question that arises for consideration is whether the provision for

arbitration contained in the contract between principal employer and the

contractor, was incorporated by reference in the sub-contract between the

contractor and sub-contractor.


6

7. Section 7 of the Act defines ‘arbitration agreement’. Sub-sections (1)

and (5) of section 7, relevant for our purpose, are extracted below:

“7. Arbitration agreement.--- (1) In this Part, “arbitration


agreement” means an agreement by the parties to submit to
arbitration all or certain disputes which have arisen or which may
arise between them in respect of a defined legal relationship,
whether contractual or not.

xxxxx

(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. ”
[emphasis supplied]

Having regard to section 7(5) of the Act, even though the contract between

the parties does not contain a provision for arbitration, an arbitration clause

contained in an independent document will be imported and engrafted in the

contract between the parties, by reference to such independent document in

the contract, if the reference is such as to make the arbitration clause in

such document, a part of the contract. The wording of Sec. 7(5) of the Act

makes it clear that a mere reference to a document would not have the effect

of making an arbitration clause from that document, a part of the contract.

The 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. If the legislative intent was to import an arbitration clause

from another document, merely on reference to such document in the


7

contract, sub-section (5) would not contain the significant later part which

reads : “and the reference is such as to make that arbitration clause part of

the contract”, but would have stopped with the first part which reads : “The

reference in a contract to a document containing an arbitration clause

constitutes an arbitration agreement if the contract is in writing.” Section

7(5) therefore requires 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.

But the Act does not contain any indication or guidelines as to the conditions

to be fulfilled before a reference to a document in a contract, can be

construed as a reference incorporating an arbitration clause contained in such

document, into the contract. In the absence of such statutory guidelines, the

normal rules of construction of contracts will have to be followed.

8. There is a difference between reference to another document in a

contract and incorporation of another document in a contract, by reference.

In the first case, the parties intend to adopt only specific portions or part of

the referred document for the purposes of the contract. In the second case,

the parties intend to incorporate the referred document in entirety, into the

contract. Therefore when there is a reference to a document in a contract, the


8

court has to consider whether the reference to the document is with the

intention of incorporating the contents of that document in entirety into the

contract, or with the intention of adopting or borrowing specific portions of

the said document for application to the contract. We will give a few

instances of incorporation and mere reference to explain the position

(illustrative and not exhaustive).

9. If a contract refers to a document and provides that the said document

shall form part and parcel of the contract, or that all terms and conditions of

the said document shall be read or treated as a part of the contract, or that the

contract will be governed by the provisions of the said document, or that the

terms and conditions of the said document shall be incorporated into the

contract, the terms and conditions of the document in entirety will get bodily

lifted and incorporated into the contract. When there is such incorporation of

the terms and conditions of a document, every term of such document,

(except to the extent it is inconsistent with any specific provision in the

contract) will apply to the contract. If the document so incorporated contains

a provision for settlement of disputes by arbitration, the said arbitration

clause also will apply to the contract.


9

10. On the other hand, where there is only a reference to a document in a

contract in a particular context, the document will not get incorporated in

entirety into the contract. For example if a contract provides that the

specifications of the supplies will be as provided in an earlier contract or

another purchase order, then it will be necessary to look to that document

only for the limited purpose of ascertainment of specifications of the goods

to be supplied. The referred document cannot be looked into for any other

purpose, say price or payment of price. Similarly if a contract between X and

Y provides that the terms of payment to Y will be as in the contract between

X and Z, then only the terms of payment from the contract between X and Z,

will be read as part of the contract between X and Y. The other terms, say

relating to quantity or delivery cannot be looked into.

11. Sub-section (5) of Section 7 merely reiterates these well settled

principles of construction of contracts. It makes it clear that where there is a

reference to a document in a contract, and the reference shows that the

document was not intended to be incorporated in entirety, then the reference

will not make the arbitration clause in the document, a part of the contract,

unless there is a special reference to the arbitration clause so as to make it

applicable.
10

12. The following passages from Russell on Arbitration throws

considerable light on the position while dealing with Section 6(2) of

(English) Arbitration Act, 1996 corresponding to Sec.7(5) of the Indian Act.

(23rd Edition, see pages 52-55):

“Reference to another document. The terms of a contract may


have to be ascertained by reference to more than one document.
Ascertaining which documents constitute the contractual
documents and in what, if any, order of priority they should be
read is a problem encountered in many commercial transactions,
particularly those involving shipping and construction. This issue
has to be determined by applying the usual principles of
construction and attempting to infer the parties’ intentions by
means of an objective assessment of the evidence. This may make
questions of incorporation irrelevant, if for example it is clear that
the contractual documents in question are entirely separate and no
intention to incorporate the terms of one in the other can be
established. However, the contractual document defining and
imposing the performance obligations may be found to incorporate
another document which contains an arbitration agreement. If there
is a dispute about the performance obligations, that dispute may
need to be decided according to the arbitration provisions of that
other document. This very commonly occurs when the principal
contractual document refers to standard form terms containing an
arbitration agreement. However the standard form wording may
not be apt for the contract in which the parties seek to incorporate
it, or the reference may be to another contract between parties at
least one of whom is different. In these circumstances it may be
possible to argue that the purported incorporation of the arbitration
agreement is ineffective. The draftsmen of the Arbitration Act
1996 were asked to provide specific guidance on the issue, but they
preferred to leave it to the court to decide whether there had been a
valid incorporation by reference. “
[Para : 2.044]

“Subject to drawing a distinction between incorporation of an


arbitration agreement contained in a document setting out
standard form terms and one contained in some other contract
11

between different parties, judicial thinking seems to have


favoured the approach of Sir John Megaw in Aughton, namely
that general words of incorporation are not sufficient. Rather,
particular reference to the arbitration clause needs to be made
to comply with s. 6 of the Arbitration Act 1996, unless special
circumstances exit.”
[Para : 2.047]

“Reference to standard form terms. If the document sought to


be incorporated is a standard form set of terms and conditions the
courts are more likely to accept that general words of incorporation
will suffice. This is because the parties can be expected to be more
familiar with those standard terms including the arbitration
clause.”
[Para : 2.048]

After referring to the view of Sir John Megaw, in Aughton Ltd. v. M.F. Kent

Services Ltd. [1991 (57) BLR 1] that specific words were necessary to

incorporate an arbitration clause and that the reference in a sub-contract to

another contract’s terms and conditions would not suffice to incorporate the

arbitration clause into the sub-contract, followed in Barrett & Son

(Brickwork) Ltd. v. Henry Boot Nanagement Ltd. [1995 CILL 1026, Trygg

Hansa Insurance Co. Ltd. v Equitas Ltd. [1998 (2) Lloyds’ Rep.439) and

Anonymous Greek Co of General Insurances (The “Ethniki”) v. AIG Europe

(UK) [2002 (2) All ER 566] and Sea Trade Maritime Corp. v. Hellenic

Mutual War Risks Association (Bermuda) Ltd. (The “Athena”) No.2 –

[2006] EWHC 2530, Russell concludes:

“The current position therefore seems to be that if the arbitration


agreement is incorporated from a standard form a general
reference to those terms is sufficient, but at least in the case of
12

reference to a non-standard form contract in the context of


construction and reinsurance contracts and bills of lading a
specific reference to the arbitration agreement is necessary.”

A general reference to another contract will not be sufficient to incorporate

the arbitration clause from the referred contract into the contract under

consideration. There should be a special reference indicating a mutual

intention to incorporate the arbitration clause from another document into

the contract.

The exception to the requirement of special reference is where the referred

document is not another contract, but a Standard form of terms and

conditions of a Trade Associations or Regulatory institutions which publish

or circulate such standard terms & conditions for the benefit of the members

or others who want to adopt the same. The standard forms of terms and

conditions of Trade Associations and Regulatory Institutions are crafted and

chiselled by experience gained from trade practices and conventions,

frequent areas of conflicts and differences, and dispute resolutions in the

particular trade. They are also well known in trade circles and parties using

such formats are usually well versed with the contents thereof including the

arbitration clause therein. Therefore, even a general reference to such


13

standard terms, without special reference to the arbitration clause therein, is

sufficient to incorporate the arbitration clause into the contract.

13. The scope and intent of section 7(5) of the Act may therefore be

summarized thus:

(i) An arbitration clause in another document, would get incorporated


into a contract by reference, if the following conditions are fulfilled : (i) The
contract should contain a clear reference to the documents containing
arbitration clause, (ii) the reference to the other document should clearly
indicate an intention to incorporate the arbitration clause into the contract,
(iii) 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 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 & Conditions of a Trade Association or
Architects Association) will bind them or apply to the contract, such
14

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 Government is a party), the arbitration clause forming
part of such General Conditions of contract will apply to the contract
between the parties.

14. The Learned counsel for appellant relied on two decisions to contend

that even a general reference to the main contract (between PW Department

and the respondent) in the sub-contract was sufficient to incorporate the

arbitration clause in the main contract, into the sub-contract, even if there

was no special reference to the arbitration clause. We will refer to them

briefly.

14.1 The first case referred is Atlas Export Industries v. Kotak & Co. [1999

(7) SCC 61]. In that case, the appellant had contracted to supply goods to a

foreign buyer through the respondent. The contract entered among them

provided that the terms and conditions of standard contract No.15 of the

Grain & Food Trade Association Ltd., London (for short GAFTA Contract

15) would apply. The contract also confirmed that both buyers and sellers
15

were familiar with the text of GAFTA contract and agreed to be bound by its

terms and conditions. Clause 27 of GAFTA contract 15 provided for

settlement of disputes by Arbitration in London in accordance with the

Arbitration Rules of GAFTA. This Court upheld the decision of the High

Court rejecting the appellant’s objection that there was no agreement in

writing between parties requiring the disputes being referred to arbitration in

accordance with the arbitration rules of GAFTA, holding that the arbitration

clause from GAFTA Contract 15, was incorporated by reference, into the

contract.

14.2 The second case relied upon by the appellant is a decision rendered by

a designate of the Learned Chief Justice of India in Groupe Chimique

Tunisien SA v. Southern Petrochemicals Industries Corpn. Ltd. - 2006 (5)

SCC 275. In that case a purchase order placed by the respondent on the

petitioner stated that “all other terms and conditions are as per FAI terms.

(“FAI Terms” referred to the terms and conditions for sale and purchase of

phosphoric acid of Fertilizer Association of India). Clause 15 of FAI terms

provided for settlement of disputes by arbitration. Certain disputes having

arisen, the petitioner appointed its arbitrator and called upon the respondent

to appoint its arbitrator. When respondent failed to comply, the petitioner


16

filed a petition under Section 11 of the Act for appointment of the second

Arbitrator. In the counter to the petition under Sec. 11 of the Act, the

respondent did not deny the fact that the purchase orders were placed with

the petitioner nor denied the fact that the purchase orders were all placed

subject to FAI terms and conditions, including clause 15 of FAI terms which

provided for arbitration. This court held that the purchase orders placed by

the respondents with the petitioner having been made subject to FAI terms

which contained the arbitration clause, the arbitration clause contained in the

FAI terms would constitute the arbitration agreement between the parties.

14.3 Both the decisions are not of any assistance to the appellant. Both

relate to reference to standard terms & conditions of Trade Associations. In

both cases the parties had agreed to be bound by the standard terms and

conditions of the Trade Association thereby clearly showing an intention to

subject themselves to the provision for arbitration contained in the standard

terms of the Trade Association. The said two decisions therefore relate to

cases referred to Para 13(iii) above, whereas the case on hand falls under

para 13(ii) above.


17

15. The work order (sub-contract), relevant portions of which have been

extracted in para 3 above, shows that the intention of the parties was not to

incorporate the main contract (between the PW Department and respondent)

in entirety into the sub contract. The use of the words “This sub-contract

shall be carried out on the terms and conditions as applicable to main

contract” in the work order would indicate an intention that only the terms

and conditions in the main contract relating to execution of the work, were

adopted as a part of the sub-contract between respondent and appellant, and

not the parts of the main contract which did not relate to execution of the

work, as for example the terms relating to payment of security deposit,

mobilization advance, the itemised rates for work done, payment, penalties

for breach etc., or the provision for dispute resolution by arbitration. An

arbitration clause though an integral part of the contract, is an agreement

within an agreement. It is a collateral term of a contract, independent of and

distinct from its substantive terms. It is not a term relating to ‘carrying out’

of the contract. In the absence of a clear or specific indication that the main

contract in entirety including the arbitration agreement was intended to be

made applicable to the sub-contract between the parties, and as the wording

of the sub-contract discloses only an intention to incorporate by reference

the terms of the main contract relating to execution of the work as contrasted
18

from dispute resolution, we are of the view that the arbitration clause in the

main contract did not form part of the sub-contract between the parties. We

are fortified in this view, by the decision in Alimenta SA. v. National

Agricultural Co-op. Marketing Federation of India Ltd. [1987 (1) SCC 615].

The NAFED – the respondent therein entered into two contracts with

Alimenta S.A. for the supply of certain goods referred to HPS. Clause 11 of

the first contract stipulated that “other terms and conditions as per FOSFA-

20 contract terms”. (FOSFA-20 being a standard form of contract of the

Federation of Oils, Seeds and Fats Association Ltd. containing an

Arbitration clause). Clause 9 of the second contract provided that “all other

terms and conditions for supply not specifically shown and covered

hereinabove shall be as per previous contract signed between us for earlier

supplies of HPS”. The question before this court was whether the arbitration

clause in FOSFA -20 was incorporated in the first contract by way of Clause

11 and in the second contract by virtue of Clause 9. The Court held that

while the Arbitration clause was incorporated in the first contract, the same

was not incorporated in the second contract. The following reasoning of the

Court while dealing with the second contract is relevant for our purpose:

“There is a good deal of difference between Clause 9 of this


contract and Clause 11 of the first contract. Clause 11 has been
couched in general words, but Clause 9 refers to all other terms
19

and conditions for supply. The High Court has taken the view that
by Clause 9 the terms and conditions of the first contract which
had bearing on the supply of HPS were incorporated into the
second contract, and the term about arbitration not being
incidental to supply of goods, could not be held to have been lifted
as well from the first contract into the second one.”

“It is, however, contended on behalf of the appellant that the High
Court was wrong in its view that a term about arbitration is not a
term of supply of goods. We do not think that the contention is
sound. It has been rightly pointed out by the High Court that the
normal incidents of terms and conditions of supply are those which
are connected with supply, such as, its mode and process, time
factor, inspection and approval, if any, reliability for transit,
incidental expenses etc. We are unable to accept the contention of
the appellant that an arbitration clause is a term of supply. There is
no proposition of law that when a contract is entered into for
supply of goods, the arbitration clause must form part of such a
contract. The parties may choose some other method for the
purpose of resolving any dispute that may arise between them. But
in such a contract the incidents of supply generally form part of the
terms and conditions of the contract. The first contract includes the
terms and conditions of supply and as Clause 9 reference to these
terms and conditions of supply, it is difficult to hold that the
arbitration clause is also referred to and, as such, incorporated into
the second contract. When the incorporation clause refers to
certain particular terms and conditions, only those terms and
conditions are incorporated and not the arbitration clause. In the
present case, Clause 9 specifically refers to the terms and
conditions of supply of the first contract and the second contract
and accordingly, only those terms and conditions are incorporated
into the second contract and not the arbitration clause. The High
Court has taken the correct view in respect of the second contract
also”.
(emphasis supplied)

16. Even assuming that the arbitration clause from the main contract had

been incorporated into the sub-contract by reference, we are of the view that

the appellant could not have claimed the benefit of the arbitration clause.

This is in view of the principle that the document to which a general


20

reference is made, contains an arbitration clause whose provisions are

clearly inapt or inapplicable with reference to the contract between the

parties, it would be assumed or inferred that there was no intention to

incorporate the arbitration clause from the referred document. In this case

the wording of the arbitration clause in the main contract between the PW

Department and contractor makes it clear that it cannot be applied to the

sub-contract between the contractor and the sub-contractor. The arbitration

clause in the main contract states that the disputes which are to be referred

to the committee of three arbitrators under clause 67(3) are disputes in

regard to which the decision of the Engineer (‘Engineer’ refers to person

appointed by State of Kerala to act as Engineer for the purpose of the

contract between PW Department and the respondent) has not become final

and binding pursuant to sub-clause 67.1 or disputes in regard to which

amicable settlement has not been reached between the State of Kerala and

the respondent within the period stated in sub-clause 67.2. Obviously neither

67.1 nor 67.2 will apply as the question of ‘Engineer’ issuing any decision

in a dispute between the contractor and sub-contractor, or any negotiations

being held with the Engineer in regard to the disputes between the contract

and sub-contractor does not arise. The position would have been quite

different if the arbitration clause had used the words “all disputes arising
21

between the parties” or “all disputes arising under this contract”. Secondly

the arbitration clause contemplates a committee of three arbitrators, one

each to be appointed by the State of Kerala and the respondent and the third

(Chairman) to be nominated by the Director General, Road Development

Ministry of Surface, Transport, Roads Wing, Govt. of India. There is no

question of such nomination in the case of a dispute between the contractor

and sub-contractor. It is thus seen that the entire arbitration agreement

contained in the main contract between the employer and the contractor was

tailor-made to meet the requirements of the contract between the employer

and the contractor and is wholly inapt and inapplicable in the context of a

dispute between the contractor and the sub-contractor. This makes it clear

that the arbitration clause contained in the main contract would not apply to

the disputes arising with reference to the sub-contract.

17. In view of our finding that there is no arbitration agreement between

the parties, it is unnecessary to examine the contention of the respondent

that no dispute existed between the parties in view of the full and final

settlement receipt executed by the appellant.


22

18. We are therefore of the view that there is no error in the order of the

High Court rejecting the application of the appellant on the ground that there

is no arbitration agreement.

…………………………J.
(R V Raveendran)

New Delhi; ………………………..J.


July 7, 2009. (J M Panchal)
2
3

You might also like