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2009(5) Supreme 679
SUPREME COURT OF INDIA
R.V. Raveendran and J.M. Panchal, JJ.
M.R. Engineers & Contractors Pvt. Ltd. — Appellant
versus
Som Datt Builders Ltd. — Respondent
Civil Appeal No. 4150 of 2009
(Arising out of SLP [C] No.11117 of 2006)
Decided on : 07-07-2009
(b) Construction of Contract – By referring to another document in a contract, parties intend to adopt only specific portions or part of the referred document for the purposes of the contract – Incorporation of another document in a contract by reference, on the other hand, shows intention of the parties to adopt the referred document in its entirety. (Paras 8 to 10)
1991 (57) BLR 1; 1995 CILL 1026; 1998 (2) Lloyds’ Rep.439; 2002 (2) All ER 566; [2006] EWHC 2530 – Relied upon.
(c) Arbitration and Conciliation Act, 1996 – Section 7(5) – Scope and ambit. (Para 13)
(d) Arbitration and Conciliation Act, 1996 – Section 7(5) – 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. (Para 15)
(1987) 1 SCC 615 – Relied upon.
(1999) 7 SCC 61; (2006) 5 SCC 275 – Distinguished.
(e) Arbitration and Conciliation Act, 1996 – Section 7(5) – If the arbitration clause in a document is inapt or inapplicable to the contract between the parties, it cannot be incorporated. (Para 17)
Facts of the case :
1. The Public Works Department, Government of Kerala, entrusted the work of “Four Laning and Strengthening of Alwaye - Vyttila and Aroor - Cherthala and Strengthening of Vyttila to 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.
2. 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
3. The appellant 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. The respondent accordingly made necessary claims in that behalf on the PW Department.
4. The said claims, as also several other claims of the respondent against the PW Department were referred to arbitration.
5. 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.
6. 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.
7. As the respondent failed to comply, the appellant filed an application under section 11 of the Act.
8. The designate of the Learned Chief Justice 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.
Finding of the Court :
Arbitration clause in the main contract did not form part of the sub-contract between the parties.
Result : Appeal dismissed.
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 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 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
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