GIRIRAJ GARG versus COAL INDIA LTD. & ORS. on 15 February 2019

1. The present Civil Appeal arises out of an Order dated 21/18.05.2018 passed by a learned Single Judge of the Jharkhand HighCourt at Ranchi, in Arbitration Application No. 11 of 2016. The AppellantBfiled an Application u/S. 11(6) of the Arbitration and Conciliation Act,1996 (hereinafter referred to as the “1996 Act”) for appointment of anindependent arbitrator to adjudicate the disputes that had arisen betweenthe Petitioner and Respondent No. 2.

2. The factual matrix of the present case, briefly stated, is as Cunder:

2.1. Respondent No. 1 issued the 2007 Scheme, wherebycoal distribution would be conducted through e-Auction, witha view to provide access to coal for buyers, who were notable to source coal through the available institutionalDmechanism. This system would provide an equal opportunityto purchase coal through a single-window service to allintending buyers, and facilitate country wide access tobooking coal online for all sections of coal buyers, througha simple, transparent system. Clause 11.12 of the 2007Scheme contains an arbitration clause which reads asEunder - “11.12 In the event of any dispute, BidderBuyer is necessarily required to represent inwriting to the General Manager (Sales andMarketing) of the concerned Coal Company,who would deal with the same in a period of 1month from such representation. Thereafter, ifrequired the matter be determined by theDirector-In Charge of Marketing of theconcerned Coal Company. Any interpretationof this Clause will be subject to clarificationby CIL, which will be deemed as firm and final. Alldisputes arising out of this scheme or inrelation thereto in any form whatsoever shall F

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be dealt exclusively by way of arbitration interms of the Arbitration and Conciliation Act, 1996.The arbitration shall be conducted at Kolkata at aplace to be notified by CIL. The arbitrator shall beappointed by the Chairman and Managing Director,CIL upon written request in this behalf. The awardrendered by the arbitrator shall be final and bindingon the parties. (The place of arbitration andnomination of arbitrator be variedappropriately in view of the Coal Companyinvolved).

2.2. From 2012 to 2015, the Appellant, being a registeredbuyer as per the Terms and Conditions of the 2007 Scheme,participated in the e-Auction for purchase of coal for severalsale orders issued under the 2007 Scheme.

2.3. The Appellant was declared successful with respect tovarious coal orders. Sale orders were issued in favour ofthe Appellant, pursuant to which he deposited the EarnestMoney Deposit (hereinafter referred to as “EDM”) andthe coal value as per Clause 2.5 and 5.2 of the 2007 Schemerespectively.

2.4. As per Clause 7.2 of the 2007 Scheme, a period of 45days was allowed to the Appellant from the date of issue ofthe delivery order, to lift the coal. The Appellant for certainreasons was unable to lift the booked quantity of coal.

2.5. Respondent No. 1 considered this to be a breach of theTerms and Conditions of the 2007 Scheme, and forfeitedthe EMD deposited by the Appellant under Clause 9.2 ofthe 2007 Scheme.

2.6. As a consequence, disputes arose between the parties.The Appellant served a Notice dated 21.03.2016 invokingthe arbitration Clause 11.12 under the 2007 Scheme.The Respondents failed to appoint an arbitrator as perClause 11.12 of the 2007 Scheme.

2.7. The Appellant was therefore constrained to file anApplication u/S. 11 before the Jharkhand High Court atRanchi, for appointment of an independent arbitrator.

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A2.8.The learned Single Judge vide impugned Order dated21/18.05.2018 rejected the Application on the ground thatthe disputes relate to different transactions entered intobetween the parties, under the 2007 Scheme. The saleorders did not contain an arbitration clause. It was held thateven though the 2007 Scheme contains an arbitration clause,Bnone of the individual sale orders make reference to theapplicability of terms and conditions of the 2007 Scheme tothe sale orders. Hence, the arbitration clause could not beincorporated by reference.

3. Aggrieved by the aforesaid Order, the Appellant has filed theCpresent Appeal.

We have heard learned Counsels Dr. Kedar Nath Tripathy, Mr.B. B. Pradhan, Mr. Susanta Kr. Muduti, and Mr. M. A. Aleem Majid forthe Appellants and Mr. Anupam Lal Das, Mr. Anirudh Singh and Mr.Krishanu Barua for the Respondents and perused the documents onDrecord.

3.1. A copy of a Sale Order issued by Respondent No. 2 wasbrought to our notice, which contains Standard Terms andConditions at the end. Clause 7 of the Terms and Conditionsstate that the sale orders would be governed by theEGuidelines, Circulars, Notices, and Instructions issued byCoal India Ltd., Bharat Coking Coal Ltd. etc.

Clause 7 is set out hereinbelow for ready reference - “7. The sale order will be governed byguidelines – circulars– office orders – notices– instructions, relevant law etc. issued fromFtime to time by Coal India Ltd., Bharat CokingCoal Ltd., State Govts., Central Govt. andother statutory bodies.This is also subject toany future escalation in prices and or leviesor duties-taxes etc. which may be imposed fromGtimeto time.”

4. The short question before this Court is whether the arbitrationclause contained in the 2007 Scheme, would stand incorporated byreference in each of the sale orders.H

4.1. The principle of incorporation by reference of anarbitration clause, from another document or contract is awell established principle in arbitration jurisprudence.[1] Thisprinciple has been followed by the courts in India, and hasbeen given statutory recognition in sub-section (5) of Section7 of the 1996 Act.

4.2. Section 7(5) states that the reference in a contract to adocument containing an arbitration clause, constitutes a validarbitration agreement, if the contract is in writing, and thereference is specifically made to incorporate the arbitrationclause as a part of the contract.

4.3. The arbitration agreement need not necessarily be inthe form of a clause in the substantive contract itself. Itcould be an independent agreement; or it could beincorporated by reference either from a parent agreement,or by reference to a standard form contract.

4.4. Section 7(5) of the 1996 Act, closely replicates Article7(2)[2] of the UNCITRAL Model Law as it stood prior to the2006 amendment. Dr Peter Binder in his Commentary titled“International Commercial Arbitration and Conciliationin UCITRAL Model Law Jurisdictions”[3]has interpretedArticle 7(2) to include incorporation by reference in thefollowing words:

“(d) Reference to a document containing anarbitration clause.

1 Clements v. Devon Country Insurance Committee,[1918] 1 KB 94; Macleod Ross andCo. Ltd. v. Compagnie d’ Assurances Generales L’Helvetia of St Gall,[1952] 1 All ER331, 334 : [1952] 1 Lloyd’s Rep 12 (CA).

1—Art. 7. Definition and form of arbitration agreement.

(1) ‘Arbitration agreement’ is an agreement by the parties to submit to arbitration all orcertain disputes which have arisen or which may arise between them in respect of adefined legal relationship, whether contractual or not. An arbitration agreement may bein the form of an arbitration clause in a contract or in the form of a separate agreement.(2) The arbitration agreement shall be in writing. An agreement is in writing if it iscontained in a document signed by the parties or in an exchange of letters, telex,telegrams or other means of telecommunication which provide a record of the agreement,or in an exchange of statements of claim and defence in which the existence of anagreement is alleged by one party and not denied by another. The reference in a contractto a document con-taining an arbitration clause constitutes an arbitration agreementprovided that the contract is in writing and the reference is such as to make that clausepart of the contract.

3 Dr. Peter Binder, International Commercial Arbitration and Conciliation in UNCITRALModel Law Jurisdictions, (3[rd] Edn., 2010, Sweet & Maxwell) pg. 86, para 2-022

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The third sentence of art. 7(2) is concerned with acontract containing a reference to a document thatcontains an arbitration clause. Provided that themain contract is in “writing” and that the reference“is such as to make that clause part of the contract”,the arbitration agreement is valid. The necessity ofincluding this provision arose from problems anddivergent court decisions on this issue in thecontext of the New York Convention. Thetravaux explain that it is sufficient if thereference only refers to the document; specificmention of the arbitration clause therein is notnecessary.”

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4.5. Section 6(2) of the English Arbitration Act, 1996 is parimateriato Section 7(5) of the 1996 Act,and reads as under:“6. Definition of arbitration agreement.

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(1) …..

(2) The reference in an agreement to a writtenform of arbitration Clause or to a documentcontaining an arbitration Clause constitutesan arbitration agreement if the reference isEsuch as to make that Clause part of the agreement.”The Queen’s Bench Division, Commercial Court in SeaTrade Maritime Corporation v. Hellenic Mutual War RisksAssociation (Bermuda) Limited, The Athena[4] held that thegeneral words of incorporation of a standard form contract wereenough to incorporate an arbitration clause.F4.6.The question of incorporation of an arbitration Clausefrom an earlier contract by general reference into a latercontract, came up for consideration before the Queen’sBench Division in Habas Sinai Ve Tibbi Gazlar IsthisalEndustri AS v. Sometal SAL[5]. In this case,the Court followedGthe judgment in the case of Sea Trade MaritimeCorporation (supra), and held that a general reference toa contract containing an arbitration clause is sufficient forincorporation from a standard form of contract. The Courtrecognized the following broad categories in which theparties attempt to incorporate and arbitration clause:

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“ (1) A and B make a contract in which theyincorporate standard terms. These may be thestandard terms of one party set out on the backof an offer letter or an order, or contained inanother document to which reference is made;or terms embodied in the Rules of anorganization of which A or B or both aremembers; or they may be terms standard in aparticular trade or industry.

(2) A and B make a contract incorporatingterms previously agreed between A and B inanother contract or contracts to which theywere both parties

(3) A and B make a contract incorporatingterms agreed between A (or B) and C. Commonexamples are a bill of lading incorporatingthe terms of a charter to which A is a party;reinsurance contracts incorporating the termsof an underlying insurance; excess insurancecontracts incorporating the terms of theprimary layer of insurance; and building orengineering sub contracts incorporating theterms of a main contract or sub-sub contractsincorporating the terms of a sub contract.

(4) A and B make a contract incorporatingterms agreed between C and D. Bills of lading,reinsurance and insurance contracts andbuilding contracts may fall into this category.“In Habas (supra) a distinction was made between a ‘singlecontract case’ and a ‘two-contract case’. A ‘single contract case’is one where the arbitration clause is contained in a standard formcontract to which there is a general reference in the contractbetween the parties. On the other hand, where the arbitrationclause is contained in an earlier contract/ some other contract,and a reference is made to incorporate it in the contract betweenthe parties, it is a ‘two-contract case’. The Court held thatincorporation by general reference in a single contract case isvalid. However, in a ‘two-contract case’, where reference is madeto an arbitration clause in a separate contract, the reference must A

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Abe specific to the arbitration clause. The judgment in Habas (supra)has recently been affirmed by the Queen’s Bench Division inSEA2011 Inc.v. ICT Ltd.[6]

4.7. Russell in his commentary on arbitration[7] hascommented on the single and two contract cases, andreference to standard form terms, in the following passage,which is instructive :

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“Reference to standard form terms, single and twocontract cases. If the document sought to beincorporated is a standard form set of terms andCconditions the courts are more likely to accept thatgeneral words of incorporation will suffice. This isbecause the parties can be expected to be morefamiliar with those standard terms, including thearbitration clause. In Sea Trade MaritimeCorporation v. Hellenic Mutual War RisksDAssociation (Bermuda) Ltd., (The “Athena”) No. 2the Court drew a distinction between what isdescribed as a “two contract case”, that is wherethe arbitration Clause is contained in a secondarydocument which is a contract to which at least oneEparty is different from the parties to the contract inquestion, and “a single contract case” where thearbitration Clause is in standard terms to be foundin another document. Relying on dictum of BinghamLJ in Federal Bulk Carries Inc v. C. Itoh & Co. Ltd.(The “Federal Bulker”), Langley J stated that:

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“In principle, English law accepts incorporation ofstandard terms by the use of general words and, Iwould add, particularly so when the terms are readilyavailable and the question arises in the context ofdealings between established players in a wellGknown market. The principle, as the dictum makesclear, does not distinguish between a term which is anarbitration Clause and one which addresses other issues.In contrast, and for the very reason that it concerns otherparties, a “stricter rule” is applied in charterparty/billsof lading cases. The reason given is that the other party H

6 [2018] EWHC 520 (Comm)

7 Russell on Arbitration (24th Edn. ,2015, Sweet & Maxwell) pp. 52 – 54, para 2-049

may have no knowledge nor ready means of knowledgeof the relevant terms. Further, as the authorities illustrate,the terms of an arbitration Clause may require adjustmentif they are to be made to apply to the parties to a differentcontract.”

The Court therefore reinforced the distinction betweenincorporation by reference of standard form terms andof the terms of a different contract, and concluded thatin a single contract case general words of incorporationare sufficient, whereas by its nature a two contract casemay require specific reference to the other contract, unlessthe secondary document is stated to be based on standardform terms containing an arbitration agreement. In thatcase, presumably specific reference to the arbitrationClause would not be needed. As discussed below, thisapproach has been endorsed in subsequent cases, albeitdrawing a slightly different but “material” distinctionbetween incorporation of the terms of a separate contract- standard or otherwise - made between the same partieswhich are treated as “single contract” cases, even wherethere is in fact more than one contract; and those wherethe terms to be incorporated are contained in a contractbetween one or more different parties which are treatedas the “two contract” cases.

Extension of the single contract cases. Recently, thecourts appear to have extended the “single contract”principle applicable to standard form contracts, wheregeneral words of incorporation will suffice, to other typesof contract where the same rationale can be said to apply.Thus, if the document sought to be incorporated is abespoke contract between the same parties, the courtshave accepted this as a “single contract” case wheregeneral words of incorporation will suffice, even thoughthe other contract is not on standard terms and constitutesan entirely separate agreement. The rationale for thisapproach is that the parties have already contracted onthe terms said to be incorporated and are therefore evenmore likely to be familiar with the term relied on than aparty resisting incorporation of a standard term.Put A

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Aanother way, if general words of incorporation aresufficient for the latter, they should be even more so forthe former. The courts also appear to have accepted asa “single contract” case a situation where the contractreferred to is between one of the parties to the originalcontract and a third party, where the contracts as a wholeB“were entered into in the context of a single commercialrelationship.”

4.8. An early case in Indian arbitration on the doctrine ofincorporation by reference under the Arbitration Act, 1940(hereinafter referred to as the “1940 Act”), wasAlimentaCSA v. National Agriculture Co-op Marketing Federationof India Ltd.[8]Though there was no specific provision on anarbitration agreement being based on the doctrine ofincorporation by reference in the 1940 Act, this Courtrecognized it to be applicable in Indian law. In this case,thisCourt held that the arbitration clause of an earlier contractDcould be incorporated by reference into a later contract,provided it is not repugnant to, or inconsistent with the termsof the contract in which it is incorpo-rated.

4.9. In the 1996 Act, the doctrine of incorporation by referenceis provided in the statue itself under Section 7(5) of the Act.EIn M.R. Engineers & Contractors Pvt. Ltd. v. Som DattBuilders Ltd.,[9] this Court held that even though a contractbetween the parties did not contain a provision for arbitration,an arbitration clause contained in an independent documentwould be incorporated into the contract by reference, if thereference is such as to make the arbitration clause a part ofFthe contract. The court explained the doctrine of incorporationin the following words–

“24. The scope and intent of Section 7(5) may thereforebe summarised thus:

(i) An arbitration clause in another document, would getincorporated into a contract by reference, if the followingGconditions are fulfilled :

(1) The contract should contain a clear reference to thedocuments containing arbitration clause,

(2) the reference to the other document should clearlyindicate an intention to incorporate the arbitration clauseinto the contract,H8 (1987) 1 SCC 615 : AIR 1987 SC 643 : 84 (2000) DLT 494.

9 (2009) 7 SCC 696 : 2009 (3) Arb LR 1 (SC) : 2009 (9) SCALE 298.

(3) The arbitration clause should be appropriate, that iscapable of application in respect of disputes under thecontract and should not be repugnant to any term of thecontract.

(ii) When the parties enter into a contract, making a generalreference to another contract, such general reference wouldnot have the effect of incorporating the arbitration clausefrom the referred document into the contract between theparties. The arbitration clause from another contract canbe incorporated into the contract (where such reference ismade), only by a specific reference to arbitration clause.

(iii) Where a contract between the parties provides thatthe execution or performance of that contract shall be interms of another contract (which contains the terms andconditions relating to performance and a provision forsettlement of disputes by arbitration), then, the terms ofthe referred contract in regard to execution/performancealone will apply, and not the arbitration agreement in thereferred contract, unless there is special reference to thearbitration clause also.

(iv) Where the contract provides that the standard form ofterms and conditions of an independent Trade orProfessional Institution (as for example the Standard Terms& Conditions of a Trade Association or ArchitectsAssociation) will bind them or apply to the contract,such standard form of terms and conditions including anyprovision for arbitration in such standard terms andconditions, shall be deemed to be incorporated byreference.Sometimes the contract may also say that theparties are familiar with those terms and conditions or thatthe parties have read and understood the said terms andconditions.

(v) Where the contract between the parties stipulates thatthe Conditions of Contract of one of the parties to thecontract shall form a part of their contract (as for examplethe General Conditions of Contract of the Governmentwhere Government is a party), the arbitration clauseforming part of such General Conditions of contract willapply to the contract between the parties.”

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252 SUPREME COURT REPORTS [2019] 2 S.C.R.

A4.10. This Court in Inox Wind Ltd. v. Thermocables Ltd.[10]whileadopting the ‘single contract case’ and ‘two-contract case’principle laid down by Habas (supra), held that a generalreference to a consensual standard form is sufficient forincorporation of an arbitration clause. In other words, generalreference to a standard form contract of one party, wouldBbe sufficient for incorporation of the arbitration clause. Inthis case, the Court expanded the application of this doctrineby holding that even a general reference to a standard formcontract of one party, along with those of trade associations,and professional bodies would be sufficient to incorporateCthe arbitration clause.

5. In the instant case, the learned Single Judge in the impugnedOrder has erroneously taken the view that an arbitration clause wouldnot stand incorporated in the individual sale orders entered into by theRespondent No. 2 – Coal Company and the Appellant. The individualDsale orders emanate out of the 2007 Scheme. The sale orders specificallystate that they would be governed by the guidelines, circulars, officeorders, notices, instructions, relevant law etc. issued from time to timeby Coal India Limited or Bharat Coking Coal Limited etc. As aconsequence, the arbitration clause (i.e. Clause 11.12) in the 2007 Schemewould stand incorporated in the sale orders issued thereunder.EClause 7 in the sale orders falls under the ‘single contract case’where the arbitration clause is contained in a standard form documenti.e. the 2007 Scheme, to which there is a reference in the individual saleorders issued by Respondent No. 2 – the Coal Company.

5.1. The arbitration clause in the 2007 Scheme clearly states that :F“All disputes arising out of this scheme or in relation theretoin any form whatsoevershall be dealt exclusively by way ofarbitration in terms of the Arbitration and Conciliation Act,1996.”

GRussell in his commentary on arbitration[11] has interpreted thesewords as follows :

“Disputes “in connection with”, “in relation to”, or“regarding” a contract. These words, which are frequentlyencountered and are to be given the same meaning, were at 10 (2018) 2 SCC 519H11 Russell on Arbitration (24th Edn. ,2015, Sweet & Maxwell) pg. 82, para 2-103

one time given a restricted interpretation, but are now wellestablished as having a broad meaning…..They may also besufficient to catch disputes arising under another contractrelated to the contract containing the arbitration clause.”

In Renusagar Power Co. Ltd. v. General Electric Companyand Anr.,[12] this Court observed that expressions such as “arisingout of”, or “in respect of”, or “in connection with”, or “in relationto”, the contract are of the widest amplitude, and content.

In Doypack Systems Pvt. Ltd. v. Union of India and Ors.,[13]this Court observed that expressions such as – “pertaining to”, “inrelation to” and “arising out of”, are used in the expansive sense,and must be construed accordingly.

The words “in relation thereto” used in Clause 11.12 of the2007 Scheme indicate that the clause would apply to all transactionswhich took place under the 2007 Scheme. This would include thesale transactions in the present case.

5.2. In view of the above discussion, the view taken by thelearned Single Judge is erroneous, and is hereby set-aside. Theappeal is allowed.

6. At the conclusion of the hearing, the parties consensuallyagreed to appoint Mr. Justice Pranab Kumar Chattopadhyay (RetiredJudge of the Calcutta High Court; Address: P-29/3, Jotish Roy Road,Kolkata – 700053) as Sole Arbitrator to adjudicate the disputes whichhave arisen between the Appellant and Respondent No. 2, under the2007 Scheme.

The appointment of Mr. Justice Chattopadhyay will be subjectto the disclosure and declaration made, as per the Sixth Schedule to theArbitration and Conciliation Act, 1996 (as amended by the 2015Amendment Act).

The proceedings will be conducted in Kolkata.

Ordered accordingly.

Nidhi Jain

Appeal allowed.

12 [1985] 1SCR43213 1988 (36) ELT 201 (SC)

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