Transferability of Arbitration Clauses: Comment On SC Decision in Giriraj Garg v. Coal India Limited
Arbitration, as an alternative model of dispute resolution, was founded upon the plinth of effective, fastidious, and straightforward conflict settlement in the arena of commercial horn locking, so that the procedural claptraps of classical courtroom litigation could be circumvented and conservation both in terms of time and money could be encouraged. However, in a country such as India that has mostly been the seat of ad-hoc arbitrations instead of institutional ones, interference from the Courts seem to be rather difficult to avoid altogether, given the concentric nature of disputes within disputes that arise even to reach a consensus regarding the appropriate methodology of resolution, owing to such wide purview attributed to the principle of party autonomy. Frequently, the Courts have to be called upon so as to interpret the statutory or contractual provisions governing the arbitration mechanism and the working of its elementals. One such element is the transportable nature of arbitration clauses, and the procedure of their incorporation in case of multiple, separate yet kindred contracts. When such contracts echo with a tenor of interconnectivity, with one arising out of the other especially on the basis of standard form terms, it sometimes becomes convenient to overlook the particulars of the succeeding contract that might as well be circumstantially significant. Eclipsing such particulars by eventually attaching a mischievous arbitration clause, even when it is to the detriment of the contract as a whole, is in no way justified. In this comment, the author peruses the ruling of the Supreme Court in a recent case deciding on the extension of an arbitration clause by means of referenced incorporation, and points out as to why such measure might, on certain occasions, demand the due exercise of caution lest it gets exposed to the threats of bias and redundancy.
"7. Arbitration agreement. — * * *
(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."
Therefore, it has been well-established over time that a transferable quality can be imparted to arbitration clauses, especially when they have an overarching nature and impact on multiple contracts that exist separately yet in a cognate fashion, deriving their agency on a conjunctive basis. The case at hand that is to be examined in this comment has a similar factual backdrop, against which the Apex Court ruled once again in favour of the transferability of arbitration clauses, on such occasions where they travel from a parent agreement towards an offshoot one subject to a spirit of mutuality and affiliative understanding.
- FACTS OF THE CASE AND ISSUE RAISED
Clause 11.12 of the said 2007 Scheme contained an arbitration clause, which read as under:
"11.12. In the event of any dispute, bidder/buyer is necessarily required to represent in writing to the General Manager (Sales and Marketing) of the coal company concerned, who would deal with the same in a period of 1 month from such representation … … … All disputes arising out of this Scheme or in relation thereto in any form whatsoever shall be dealt exclusively by way of arbitration in terms of the Arbitration and Conciliation Act, 1996 …"
From 2012 to 2015, the appellant being a registered buyer as per the terms and conditions of the 2007 Scheme, partook in the e-auctions for purchase of coal for several sale orders issued under the 2007 Scheme.
The appellant respondent was declared successful with respect to the various coal orders, and sale orders were issued in favour of the appellant. Pursuant to such orders, the appellant made a deposit of earnest money and the coal value as per Clauses 2.5 and 5.2 respectively of the 2007 Scheme. It is pertinent to note in this context that Clause 7 of the terms and conditions stated that –
"7. The sale order will be governed by guidelines, circulars, office orders, notices, instructions, relevant law, etc. issued from time to time by Coal India Ltd., Bharat Coking Coal Ltd., State Govts., Central Govt. and other statutory bodies…"
Clause 7.2 of the 2007 Scheme provided for a 45-day allowance for the appellant to lift the quantity of coal so booked, from the date of issue of the delivery order. The inability of the appellant to lift the coal within such stipulated time-frame was considered as a breach of terms and conditions under the 2007 Scheme by the principal respondent, who then went on to forfeit the earnest money deposited by the appellant by virtue of Clause 9.2 of the Scheme. Consequently, disputes arose between the parties and the appellant served a notice upon the respondents, dated 21.03.2016, thereby invoking the arbitration clause under Clause 11.2 of the Scheme. On the respondent's failure to duly appoint an arbitrator, the appellant filed an application under Section 11 of the Act before the Jharkhand High Court for the appointment of an independent arbitrator.
The Ld. Single Judge dismissed the application vide impugned order dated 18.05.2018/21.05.2018, on the ground that the disputes relate to different transactions entered into by the parties under the 2007 Scheme. It was held that as the individual sale orders were devoid of an arbitration clause as such, the arbitration clause contained in the 2007 Scheme could not be incorporated into them by means of a reference.
Aggrieved by the abovementioned order, the appellant approached the Supreme Court and appealed against the same, thereby contesting its validity. In other words, the focal issue at the heart of this matter can be framed as:
Whether the arbitration clause contained in the 2007 Scheme could be incorporated in each of the individual sale orders by means of reference?
- LEGAL RATIONALE APPLIED IN GIRIRAJ GARG
Extension of the Single-Contract Doctrine
To put it simply, if an arbitration clause primarily dwells within a standard form contract or document in a cohesive manner, and a general reference to such an existing clause is made in a subsequent contract that arises in relation to the foregoing standard form one, then such event shall be treated holistically in the form of a single, operative contract. Russell in his commentary explained that:
Although the Apex Court was correct in its finding that the present case is covered within the scope and extent of the single-contract doctrine, the same cannot adopt a modus operandi of ill-considered application in each and every case that involves the operation of multiple and interlinked contracts. Due caution is required to be exercised on behalf of the adjudicating authorities so as to conclusively determine the nature and character of the agreements at play, as well as the pith and core of their contemporaneous existence. The following checks, if implemented, might reduce the chances of redundancy in the cases that observe subsequent importation of arbitration clauses:
Perusal of Characteristic Differentia
Test against Unconscionability
Firms and institutions have recently picked up the practice of "bootstrapping" arbitration clauses into their contracts. In other words, it is the insertion of unconscionable preconditions embedded within an arbitration arrangement that are crafted to cause prejudice to the inferior contracting party in a standard form contract. Such bootstrapped clauses inherently harbour anti-consumer and anti-employee sentiments, often requiring them to commit to class action waivers and settle for downsized damages. The weaker parties are offered rather constrained roles in the name of party autonomy, as they have very little say in terms of choice of venue, choice of arbitrator, etc. Heedless extension of such malicious clauses that lead to one-sided dispute resolution, merely on account of the fact that the weaker party had knowingly consented to such standard form terms that govern the said commercial relationship, is nothing but taking undue advantage of their circumstantial defencelessness that stands testament to the fact of contractual bulldozing on behalf of the dominant party. Therefore, it would not be imprudent to conclude that the process of importing arbitration clauses contained in standard form contracts and contracts of adhesion cannot be allowed to acquire a uniform quality that would invariably result in frivolity, repugnancy, and deliberate contempt of the characteristic uniqueness that each contract renders, varying from situation to situation. In a time where the market giants are increasingly widening the scope of public participation in trade and allowing more ingress by the opening up of electronic means of interaction, the need for wariness against lopsided arbitration contraptions that have a manacling effect on the smaller participants is now more than ever. Although in Giriraj the arbitration clause sought to be incorporated did not pose any threat of debilitation as such, the rationale should cease to enjoy a status of universality and must not be appropriated without the application of mind. It is in the greater interest of consumer-friendliness that the facets of elasticity, transparency, and probity are infused within the ethos of arbitration so as to prevent the patronization of parties who are tethered to them, particularly by a force that has the potential to erode their sovereignty of choice and convenience.
(The author is a 5th year, B.A LL.B. student of, South Calcutta Law College. Views are personal)
 Hereinafter "the Act".
 AIR 2008 Ori 12.
 AIR 2006 SC 2422.
 (2019) 2 SCC (Civ) 744.
 Bus LR 880 : 2010 EWHC 29 (Comm).
 Russell on Arbitration (24th Edn., 2015, Sweet & Maxwell) pp. 52-54, Paras 2-049, 2-050.
 Supra note 5.
 Ibid., para 2-050.
 (2009) 7 SCC 696.
 (2018) 2 SCC 519.
 Supra, p. 3.
 Supra note 9.
 Renusagar Power Co. Ltd. v. General Electric Company and Anr., (1985) 1SCR432.
 2019 ONCA 1.
 Ibid., para 70.
 2007 ONCA 573, 284 D.L.R. (4th) 734, para 38.
 (1965), 55 D.L.R. (2d) 710 (B.C. C.A).
 2017 SCC 33, (2017) 1 S.C.R. 751, para 145.