Arbitrating Disputes Through Reference in India
Keywords – reference to arbitration clause, Arbitration and Conciliation Act, 1996
Indian courts are notoriously (in)famous for the long periods of time that they take to deliver judgments in individual cases. A litigant in a civil suit, can expect to wait anywhere between five to ten (if not more) years before a final order is passed in her case, i.e. after making its rounds through appellate courts. Consequently, more and more private parties and even the government is seen incorporating arbitration provisions within their agreements. However, several of these arbitration clauses find no reference in the agreements themselves and are often incorporated through reference to standard contracts, government policies etc. The Indian Arbitration and Conciliation Act, 1996 (“1996 Act”) under Section 7(5) explicitly recognises the doctrine of incorporation by reference. Section 7(5) states that, “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.” Consequently, for an arbitration agreement through reference to be valid between two parties, it (i) requires that the underlying contract be in writing, and (ii) that a reference be of such a nature that the arbitration clause is understood to have been made a part of the contract. In the past year, the Indian Supreme Court has in its case of Giriraj Garg v. Coal India Ltd while referring to its judgment in Inox Wind Ltd. v. Thermocables Ltd elaborated on the scope of the second limb of Section 7(5) and held that even a general reference to a standard form contract of one of the parties would be sufficient to incorporate the arbitration agreement.
In Giriraj Garg (supra) a dispute had arisen between the Appellant (Giriraj Garg) and the Respondent No. 1 (Coal India) in relation to a 2007 Scheme under which coal distribution (for buyers who were unable to source coal through available institutional mechanisms) would be undertaken through an e-Auction. The 2007 Scheme included an arbitration clause. When certain disputes arose between the parties, the Appellant tried to invoke arbitration under the 2007 Scheme. The Respondent did not appoint an arbitrator as required under the 2007 Scheme. Consequently, the Appellant then filed an application under Section 11 of the 1996 Act before the High Court of Jharkhand for appointment of an independent arbitrator. The High Court rejected the Appellant’s application on the grounds that the disputes related to different transactions under the 2007 Scheme and that there was no incorporation by reference of the arbitration provision within the 2007 Scheme for the sale orders that gave rise to the underlying disputes. The Court observed that the High Court of Jharkhand had erroneously rejected the Appellant’s application and allowed the appeal. The Court observed that the 2007 Scheme and the underlying contract were of the ‘single contract case’ type. The Court came to this finding on account of the fact that the individual sale orders emanated from the 2007 Scheme and each sale order specifically 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.” Consequently, a general reference was seen as adequate by the Court to incorporate the arbitration clause within individual sale orders.
The Indian Supreme Court’s approach to the doctrine of incorporation by reference under arbitration is similar to that of the English Courts. The Supreme Court has favourably discussed the English cases of Habas Sinai Ve Tibbi Gazlar Isthisal Endustri AS v. Sometal SAL and SEA2011 Inc. v. ICT Ltd wherein as well a distinction was made between ‘single contract cases’ and ‘two-contract cases.’ This reasoning has also been approved by Russell on Arbitration (this fact has been noted by the Indian Supreme Court in Giriraj Garg as well).
The clarity with which the doctrine of incorporation through reference has been explained by the Indian Supreme Court in the abovementioned judgments, will hopefully lead to fewer challenges against incorporation of arbitration clauses / agreements through reference.
Ishita Mishra is an alumnus of the prestigious West Bengal National University of Juridical Sciences. She is currently an advocate at the Supreme Court of India with the Chambers of Mr. Gourab Banerji.
The views and opinions expressed in the article are those of the author(s) solely and do not reflect the of official position of the institution(s) with which the author(s) is /are affiliated. Further, the statements of the author(s) produced herein should not be construed as legal advice.
