Arbitration Clause Gets Incorporated In Later Contract When Earlier Agreement Is Imported “Body and Soul” : Supreme Court

The Supreme Court observed that when a subsequent contract incorporates, in its entirety, the terms and conditions of an earlier agreement containing an arbitration clause, such incorporation is sufficient to invoke arbitration, and the later agreement need not separately express a clear intention to refer disputes to arbitration or specifically mention the arbitration clause in the earlier agreement.A Bench of Justice Sanjay Kumar and Justice K. Vinod Chandran set aside the Bombay High Court's decision refusing to appoint an arbitrator on an application filed by the Appellant under Section 11 of the Arbitration and Conciliation Act, 1996, holding that the High Court erred in rejecting the plea solely on the ground that the subsequent agreement did not specifically refer to the arbitration clause in the principal contract, despite expressly incorporating all the terms and conditions of the principal agreement into the later contract.BackgroundThe dispute arose from a redevelopment project involving Hirani Developers and members of a housing society. The original Development Agreement executed between Hirani Developers and Nehru Nagar Samruddhi CHS Ltd. in 2011 contained an arbitration clause under Clause 36 providing that disputes arising under the agreement would be resolved through arbitration. Subsequently, individual society members entered into Permanent Alternate Accommodation Agreements with the developer in 2023 and 2024 regarding accommodation arrangements during redevelopment. Although these later agreements did not contain a separate arbitration clause, Clause 14 stated: “All the terms and conditions” of the earlier Development Agreement “shall be construed to form a part” of the agreements and “all clauses” of the same would be binding on the parties. Later, disputes arose between the parties and some members approached the Consumer Disputes Redressal Commission under the Consumer Protection Act, 2019. The developer then invoked arbitration and issued notices under Section 21 of the Arbitration Act, seeking the appointment of an arbitrator. The respondents refused, arguing that no arbitration agreement existed between the developer and individual members. The Bombay High Court accepted that argument and dismissed applications filed under Section 11 of the Arbitration Act. The High Court opined that neither was there a specific reference to the arbitration clause contained in an earlier agreement, nor was the intention to arbitrate demonstrated between the parties to invoke the arbitration clause contained in an earlier agreement out of the dispute arising out of a later agreement. Aggrieved by the High Court's decision, the Hirani Developers moved to the Supreme Court. Decision Disagreeing with the High Court's approach, the judgment authored by Justice Sanjay Kumar observed that when the later agreement unequivocally records to incorporate the clauses of an earlier contract, which contained an arbitration clause, then it would be sufficient to invoke the arbitration clause to proceed with the arbitration, without insisting on proving the specific reference. The Court noted that the present case is not of a general reference, but of incorporating the terms of the original Development Agreement to the later Permanent Alternate Accommodation Agreements with the developer, making an arbitration clause incorporated in the original agreement binding amongst the parties in the later agreement. The Court cited M.R. Engineers and Contractors Private Limited vs. Som Datt Builders Limited, (2009) 7 SCC 696, where it was held that when there's an incorporation of another document in a contract, by reference, the parties intend to incorporate the referred document in entirety, into the contract. “The later Permanent Alternate Accommodation Agreements entered into by the appellant with the respondent members unequivocally recorded in Clause 14 thereof that all the terms and conditions of the Development Agreement dated 04.07.2012 shall be construed to form part of the said agreements and all clauses of the same shall be binding on the parties to those later agreements. There could be no clearer indication of the intention of the parties to incorporate and assimilate the Development Agreement dated 04.07.2012 in its entirety into the later Permanent Alternate Accommodation Agreements. Not stopping short at asserting that all terms and conditions of the said Development Agreement should be construed to be part of the Permanent Alternate Accommodation Agreements, Clause 14 goes on to affirm that all clauses of the Development Agreement shall be binding on the parties to the Permanent Alternate Accommodation Agreements.”, the court observed."This was, thus, not a case of mere reference to an earlier agreement but a case where the parties to the later contract clearly intended to import the Development Agreement, body and soul, into the later agreements. Therefore, there can be no doubt as to the...

Arbitration Clause Gets Incorporated In Later Contract When Earlier Agreement Is Imported “Body and Soul” : Supreme Court

Yash Mittal

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Arbitration Clause Gets Incorporated In Later Contract When Earlier Agreement Is Imported “Body and Soul” : Supreme Court

Yash Mittal

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