Incorporating Arbitration Clause Via Subsequent Circular Isn't Valid Unless Explicitly Mentioned And Included In Original Agreement: Calcutta High Court

The Calcutta High Court single bench of Justice Ravi Krishan Kapur held that if an agreement or clause within it necessitates or anticipates additional consent before arbitration can occur, it doesn't constitute arbitration itself but rather an agreement to potentially engage in arbitration in the future, which isn't inherently enforceable. It held that incorporating an arbitration clause via a subsequent circular isn't valid unless it's explicitly mentioned and included in the original agreement between the parties. The bench held that without mutual intent to integrate the arbitration clause from another document into the current contract between the parties, there's no valid arbitration agreement. Brief Facts: The matter pertained to a tender issued by the Respondent for hiring heavy earth-moving machinery and coal removal. The Applicant emerged as the successful bidder and was awarded the contract through a letter of acceptance and subsequent work order and agreement. However, the Respondent alleged that the Applicant failed to fulfill the conditions of the tender, leading to the termination of the contract by the Respondent. During the course of events, Coal India Limited (CIL), the Respondent's subsidiary, introduced a Circular mandating arbitration for resolving disputes with private contractors. Clause 2 of the Circular established a procedure for settling disputes through arbitration for future contracts, while Clause 5 addressed disputes arising in existing contracts, requiring mutual consent for arbitration. The Applicant sought arbitration through an application in 2022, which was initially dismissed on the grounds of lacking a valid arbitration clause. The Applicant, however, contended that Clause 5 of the Circular was erroneously relied upon and argued that Clause 2 was relevant and applicable. It argued that the Circular amended the contract's dispute resolution clause and therefore incorporated an arbitration clause by reference. Therefore, it approached the Calcutta High Court (“High Court”) and filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”). On the other hand, the Respondent argued against reviewing the dismissal order, stating that there were no apparent errors warranting a review. Observations by the High Court: The High Court noted that the power to review judicial decisions is not inherent but must be explicitly granted by statute. This power must be exercised strictly within the confines delineated by the relevant statutory provisions. It reiterated that a review application cannot be utilized as a backdoor appeal. Rather, the jurisdiction of a reviewing court is limited and can only be invoked on specific grounds: the discovery of new and crucial evidence, the identification of a mistake or error glaring on the face of the record, or for any other substantial reason. The High Court noted that Section 7 of the Arbitration Act outlines the requisites for an arbitration agreement, emphasizing the necessity of a written agreement signed by the parties or contained in documents that clearly demonstrate their intention to arbitrate disputes. Notably, an arbitration clause may be incorporated into a contract by reference to another document, provided there is a clear indication of the parties' consent to arbitration. Crucially, it held that the determination of whether an arbitration clause contained in a separate document has been validly incorporated into the contract hinges on the principles of interpretation. This underscores the importance of discerning the parties' intent to submit disputes to arbitration, thus ensuring the efficacy and enforceability of the arbitration agreement. The High Court referred to the decision of the Supreme Court in M.R. Engineers & Contractors (P) Ltd. v. Som Datt Builders Ltd. (2009) 7 SCC 696, where the Supreme Court laid down essential principles regarding the incorporation of arbitration clauses from one document into another by reference. The Supreme Court held that: Firstly, for an arbitration clause from another document to be incorporated into a contract by reference, the contract must clearly reference the document containing the arbitration clause. This reference should unmistakably indicate an intention to include the arbitration clause in the contract. Additionally, the arbitration clause itself must be appropriate for application to disputes under the contract and must not contradict any terms of the contract. Secondly, the Supreme Court clarified that a general reference to another contract in a contract does not automatically incorporate the arbitration clause from the referred document into the contract. Instead, the arbitration clause can only be incorporated into another contract through a specific reference to that clause. Thirdly, when a contract specifies that it is to be...

Incorporating Arbitration Clause Via Subsequent Circular Isn't Valid Unless Explicitly Mentioned And Included In Original Agreement: Calcutta High Court

Rajesh Kumar

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