Judgement Briefs

Alternative Dispute Resolution

M.R. Engineers & Contractors Pvt. Ltd. v. Som Datt Builders Ltd.

(2009) 7 SCC 696

Citation
(2009) 7 SCC 696
Court
Supreme Court of India
Date
7 July 2009
Bench
R.V. Raveendran and J.M. Panchal, JJ.

Facts

  • Som Datt Builders Ltd. entered into a main construction contract with the Kerala Public Works Department.
  • The main contract contained a detailed arbitration clause governing disputes between:
  • the government employer; and
  • Som Datt as the principal contractor.
  • Som Datt later issued a work order or subcontract to M.R. Engineers & Contractors Pvt. Ltd.
  • The subcontract stated that the work would be carried out according to the terms and conditions applicable to the main contract.
  • The subcontract did not reproduce the main contract’s arbitration clause.
  • Nor did it expressly state that the arbitration clause in the main contract was incorporated.
  • Disputes arose concerning:
  • extra work;
  • payment; and
  • performance of the subcontract.
  • M.R. Engineers sought appointment of an arbitrator under Section 11.
  • It argued that the general reference to the main contract incorporated all its terms, including arbitration.
  • Som Datt disputed the existence of an arbitration agreement between the subcontracting parties.

Issue

  • Whether a general reference to the terms of a main contract incorporates its arbitration clause into a subcontract.
  • What degree of reference is required under Section 7(5).
  • Whether the arbitration clause in the main contract could operate consistently between the principal contractor and subcontractor.

Rule

  • Section 7(5) permits incorporation of an arbitration clause contained in another document.
  • Incorporation requires a reference showing an intention to make that arbitration clause part of the contract.
  • A distinction exists between:
  • reference to a standard form containing an arbitration clause; and
  • reference to a separate contract between different parties.
  • A general reference may incorporate a standard form because the entire standard conditions are commonly adopted as a package.
  • Where the referenced document is a separate contract, a specific reference to its arbitration clause is ordinarily required.
  • The incorporated clause must also be capable of operating within the later contract without inconsistency or substantial modification.

Application

  • The Supreme Court examined the wording of the subcontract.
  • It required M.R. Engineers to perform the construction work according to specifications, technical requirements and other operational conditions derived from the main contract.
  • This showed an intention to import provisions relevant to execution of the work.
  • It did not necessarily show an intention to import the dispute-resolution mechanism.
  • The main contract’s arbitration clause had been drafted specifically for disputes between the Kerala Government and Som Datt.
  • It referred to:
  • officials of the government department;
  • appointment powers held by persons who were not parties to the subcontract;
  • procedures connected with the main employer; and
  • rights and duties particular to the principal contract.
  • The clause could not operate automatically between Som Datt and M.R. Engineers without major adaptation.
  • This supported the conclusion that it had not been consciously adopted.
  • The Court emphasised that an arbitration agreement removes disputes from ordinary courts.
  • Such consent should not be inferred from vague language dealing primarily with performance obligations.
  • If Som Datt and M.R. Engineers intended to arbitrate, the work order could easily have stated:
  • that the main contract’s arbitration clause applied; or
  • that disputes under the subcontract would be referred to arbitration.
  • It did neither.
  • The Court distinguished general incorporation of standard institutional conditions.
  • Where a contract states that it is subject to a recognised standard form, the parties may reasonably be taken to have adopted the whole form, including arbitration.
  • Here, however, the main contract was a distinct agreement between different parties.
  • The general reference was therefore insufficient.
  • No independent exchange of correspondence or later conduct established an agreement to arbitrate.
  • The Section 11 request consequently lacked the foundational requirement of an existing arbitration agreement.

Conclusion

  • The Supreme Court held that the arbitration clause in the main contract was not incorporated into the subcontract.
  • The general reference to the main contract’s terms concerned execution of work and did not amount to conscious adoption of arbitration.
  • The request for appointment of an arbitrator was rejected.
  • Use this case for: a general reference to another independent contract ordinarily does not incorporate its arbitration clause without a specific and workable adoption.