M/S. VELLAPALLY BROTHERS v. KIRBY BUILDING SYSTEMS & STRUCTURES INDIA PRIVATE LIMITED

## `IN THE HIGH COURT OF KERALA AT ERNAKULAM` ## `PRESENT` ``` THE HONOURABLE MR.JUSTICE C.S.DIAS ``` ``` WEDNESDAY, THE 4[TH] DAY OF JANUARY 2023 / 14TH POUSHA, 1944 ``` ``` AR NO. 92 OF 2022 ``` ## `PETITIONER:` ``` M/S.VELLAPALLY BROTHERS, AGED 63 YEARS, POST BOX NO.45, VELLAPALLY LANE, KOTTAYAM - 686001 REPRESENTED BY ITS MANAGING PARTNER MR. MATHEW ALEX VELLAPALLY, PIN – 686001 ``` ``` BY ADV AJIT JOY ``` ## `RESPONDENT:` ``` KIRBY BUILDING SYSTEMS & STRUCTURES INDIA PRIVATE LIMITED (FORMERLY KNOWN AS 'KIRBY BUILDING SYSTEMS INDIA PVT. LIMITED') WORKS UNIT NO.1 AT PLOT NO. 8-15, IDA, PHASE -II, PASHAMYLARAM, SANGA REDDY DISTRICT - 502307 TELANGANA, ALSO HAVING ITS SALES OFFICE AT CENTURY BUILDING, 1ST FLOOR,PLOT NO.21 & 22, ROHINI LAYOUT, MADHAPUR, HYDERABAD 500 081, REPRESENTED BY ITS DEPUTY MANAGER AT COCHIN SALES OFFICE, MR.SUNIL RAJ PV S/O VELANAKEN, AGED ABOUT 45 YEARS,R/O SOPANAM, VADAKKUMURI, KANNADI POST, PALAKAD, KERALA, PIN – 502307 ``` ``` BY ADVS.ABRAHAM GEORGE JACOB C.MURALIKRISHNAN(M-519) AKSHAY R(K/001536/2019) P.I.RAHEENA(K/283/2015) ``` ``` THIS ARBITRATION REQUEST HAVING COME UP FOR ADMISSION ON 06.12.2022, THE COURT ON 04.01.2023 DELIVERED THE FOLLOWING: ``` ``` A.R.No.92/2022 ``` ``` -:2:- ``` Dated this the 4[th] day of January, 2023 ## **O R D E R** The Arbitration Request (‘A.R’) is filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 (in short, ‘Act’), for the appointment of a sole arbitrator to adjudicate the disputes that have arisen between the applicant and the respondent. 2. The applicant’s case, relevant for the determination of the A.R, is as follows: 2.1. The applicant entered into an agreement with SunTec Infrastructure Pvt. Ltd., a software company, on 21.12.2017 to construct the latter’s multi-storied office campus and Club House at the Technocity East, Thiruvananthapuram. The agreement permitted the applicant to delegate the work to sub-contractors with the consent of SunTec. 2.2. The applicant entered into a sub-contract with the respondent as per Annexure A1 purchase order ``` A.R.No.92/2022 ``` ``` -:3:- ``` dated 25.09.2017 for the steel fabrication and erection of the proposed structure. Annexure A1 stipulates that all the terms and conditions of the work not specifically mentioned in the purchase order would be as per the conditions of the tender floated by SunTec. Annexures A3 and A4 are the General Conditions and Special Conditions of the Contract. 2.3. Right from the inception of the contract, the respondent committed breach of contract by not completing the work within the prescribed time frame. Consequently, the applicant was forced to amend the purchase order and escalate the prices. 2.4. In December, 2018, SunTec deducted Rs.2/Crore from the applicant towards liquidated damages due to the latches of the respondent. As on date, an amount of Rs.4.04/- Crore has been deducted by SunTec towards liquidated damages. ``` A.R.No.92/2022 ``` ``` -:4:- ``` 2.5. In Annexure A1, it was bilaterally agreed between the parties that any penalty paid by the applicant, due to the delay caused by the respondent, would be passed on to the respondent. But the applicant could not deduct the liquidated damages from the respondent’s bills, as the respondent was withholding a bank guarantee for Rs.5/- Crore. 2.6. After the final bill was settled on 30.04.2021, the respondent returned the applicant’s bank guarantee. Disputes arose at the time of settling the final bill. To recover the loss from the respondent, the applicant had no other option but to invoke the bank guarantee. 2.7. The respondent filed COP No.26/2021 before the Commercial Court, Hyderabad, under Section 9 of the Act, for interim measures, against the invocation of the bank guarantee. By Annexure A6 order, the ``` A.R.No.92/2022 ``` ## `-:5:-` Commercial Court dismissed the petition because it lacked territorial jurisdiction. 2.8. Aggrieved by certain observations in Annexure A6 order, the applicant filed commercial court appeal No.39/2021 and aggrieved by the dismissal of the petition, the respondent filed commercial court appeal No.38/2021 before the High Court of Annexure-A7 common Telangana. By judgment, the High Court disposed of the appeals reserving the rights of the parties to agitate the question regarding the validity of the arbitration agreement in an arbitration application to be filed under Section 11 of the Act. 2.9. It is learnt that the respondent has filed an arbitration application before the High Court of Telangana. 2.10. As per the tender conditions, all disputes ``` A.R.No.92/2022 ``` ``` -:6:- ``` between the applicant and SunTec are subject to the jurisdiction of the courts in Thiruvananthapuram. This condition is made back-to-back applicable to the respondent in the status of sub-contractor of the applicant. Clause 29 of Annexure A3 undoubtedly confers jurisdiction only in the courts in Thiruvananthapuram. As the respondent rejected the names proposed by the applicant, the applicant is compelled to file the A.R. Hence the A.R. 3. The respondent has filed a counter affidavit denying the allegations in the A.R. The respondent has, inter alia, contended as follows: 3.1. The applicant approached the respondent for the construction of a prefabricated steel structure by e-mail dated 05.05.2017. 3.2. The respondent issued their letter of offer with the Bill of Quantities and enclosed their Technical ``` A.R.No.92/2022 ``` ``` -:7:- ``` offer, Commercial Offer, Drawings, Product Specifications, Terms and Conditions of Sale, Contract agreements etc., by Annexure R1 (b) email dated 05.05.2017. 3.3. After the email exchange, a meeting was held between the parties in Kottayam on 06.06.2017, wherein it was agreed that the offer submitted by the respondent was in lieu of the Request for Proposal (RFP) of SunTec. The respondent sent the minutes of the meeting to the applicant by e-mail dated 19.06.2017 and the applicant accepted the same. It is thereafter that the applicant issued Annexure A1 purchase order. 3.4. The applicant and SunTec entered into an agreement only on 21.12.2017, i.e., after the issuance of Annexure A1. The respondent had successfully completed the project, and the accounts were settled. ``` A.R.No.92/2022 ``` ``` -:8:- ``` The applicant transferred an amount of Rs.1,90,18,890/- to the bank account of the respondent on 30.04.2021, and the respondent returned the bank guarantee to the applicant. 3.5. Subsequently, the applicant issued Annexure R1(g) letter to the respondent, demanding an amount of Rs.1/- Crore towards liquidated damages. 3.6. Immediately, the respondent filed COP No.26/2021 before the Commercial Court. By Annexure A6 order, the Commercial Court, based on surmises and conjectures, dismissed the original petition for want of territorial jurisdiction. 3.7. Later, the applicant wrongfully invoked the bank guarantee for Rs.1/- Crore. The applicant is liable to repay the said amount to the respondent. The respondent has initiated arbitration proceedings against the applicant, invoking clause XV of the terms ``` A.R.No.92/2022 ``` ``` -:9:- ``` and conditions of sale of the respondent’s offer dated 05.05.2017. 3.8. After the passing of Annexure A6 order, the applicant, by Annexure R1(j) letter, suggested to the respondent to execute a fresh arbitration agreement to resolve the disputes. The respondent outrightly rejected the request of the applicant by Annexure R1 (k) letter. 3.9. There is no arbitration clause fixing the seat/venue at Thiruvananthapuram. The respondent had appointed a retired Judge to adjudicate the disputes between the parties, which the applicant rejected. 3.10. The respondent has filed Arbitration Application No.34/2021 before the High Court of Telangana, against the applicant, under Section 11(6) of the Act, to appoint an Arbitrator. The applicant has ``` A.R.No.92/2022 ``` ``` -:10:- ``` entered appearance in the said case. In view of the filing of Arbitration Application No.34/2022, the present A.R. is not maintainable. Hence, the A.R. may be dismissed. 4. Heard; Sri. Ajit Joy, the learned Counsel for the applicant and Sri. Abraham George Jacob, the learned Counsel appearing for the respondent. 5. Sri. Ajit Joy zealously reiterated the contentions in the A.R. He drew the attention of this Court to Annexure A1 purchase order to establish that Annexure A1 is acknowledged by the respondent and it unambiguously states that the parties would be governed by the tender conditions. Similarly, he placed reliance on Annexures A2 to A5 and contended that the RFP consists of the general conditions of contract, special conditions of contract, scope of work, payment schedule etc. According to him, it is based on ``` A.R.No.92/2022 ``` ## `-:11:-` Annexures A1 & A2; the respondent sent AnnexureR1(b) e-mail. Only Annexure A1 is signed by both parties, which evidences the fact that the parties arrived at a consensus ad-idem based on Annexure A1 and all prior communications are irrelevant and inconsequential. He argued that the respondent has, in the minutes of the meeting held on 06.06.2017, accepted that all the conditions shall be the same as that per the tender conditions floated by SunTec. He also argued that Annexure A6 order passed by the Commercial Court, Hyderabad, dismissing the Section 9 application filed by the respondent, reinforces the contention of the applicant that only the courts in Thiruvananthapuram have the territorial jurisdiction to entertain any litigation between the parties. AnnexureA7 common judgment passed by the High Court of Telangana fortifies that only this Court has the ``` A.R.No.92/2022 ``` ``` -:12:- ``` jurisdiction to entertain the A.R. He placed reliance on the decisions of the Hon’ble Supreme Court in **Ravi Ranjan Developers Pvt. Ltd. v. Aditya Kumar Chatterjee** [2022 SCC Online SC 586], **M.R. Engineers and Contractors Pvt Ltd. v. Som Datt Builders Ltd.** [(2009) 7 SCC 696] and **Inox Wind Ltd. v. Thermocables Ltd.** [(2018) 2 SCC 519], to buttress his contentions. He urged the A.R. may be allowed. 6. Sri. Abraham George Jacob diligently countered the above submissions by contending that this Court has no territorial jurisdiction to entertain the A.R. The parties are governed by clause XV of the conditions of sale of the respondent’s offer dated 05.05.2017. He invited the attention of this Court to Annexure A2 document, which states that the RFP document is not an agreement but only to provide information to ``` A.R.No.92/2022 ``` ``` -:13:- ``` interested parties to prepare the bid documents. Therefore, the contention of the applicant that the tender conditions confer jurisdiction on this Court is untenable. He also pointed out that in the letter dated 05.05.2017, the respondent had given a separate offer to the applicant as per Annexures R1(b) and R1(c). In Annexure-R1(c), it was bilaterally agreed by the parties that the venue of the arbitration shall be in Hyderabad. Thereafter, the applicant, by letter dated 25.09.2017, accepted the purchase order of the respondent and furnished the bank guarantee by Annexure-R1(f) letter dated 03.05.2021. The applicant had in unequivocal terms agreed that they had no claim over the bank guarantee. But, they changed their colour and invoked the bank guarantee by Annexure-R1(g) letter dated 07.05.2021. Later, the applicant sent Annexure-R1(j) letter dated 10.08.2021 to execute a new arbitration ``` A.R.No.92/2022 ``` ``` -:14:- ``` agreement which demonstrates that there is no arbitration agreement between the parties. The respondent has already filed Arbitration Application No.34/2021 before the High Court of Telangana for the appointment of an Arbitrator. Hence, the A.R. is to be dismissed. The learned counsel relied on the decision of the High Court of Karnataka in **Hotel Leela Venture Ltd. v. Appejay Oxford Bookstores Pvt. Ltd.** [2006 (Suppl.) Arb.LR. 294(Karnataka)], to drive home his contention that it is the Court where an A.R. is first filed that has the jurisdiction to adjudicate the application. He urged the A.R. to be dismissed. 7. The applicant’s case is that they were awarded the work, as the principal contractor, to construct a multi-storied office and Club House for SunTec in Thiruvananthapuram. The tender conditions permit the applicant to appoint sub-contractors with the consent ``` A.R.No.92/2022 ``` ## `-:15:-` of SunTec. Accordingly, the applicant entered into a sub-contract with the respondent as per Annexure A1 purchase order for the supply, steel fabrication and erection of the structure. Annexure A1 stipulates that the parties would be governed by the tender conditions in Annexures A3 to 5 tender documents for matters not specifically covered by Annexure A1 purchase order. 8. The applicant has alleged that the respondent committed breach of contract. It is to resolve the disputes that have arisen between the parties, the applicant invoked the arbitration clause under clause 29 of Annexure A3 general conditions of contract and has filed the A.R. Clause 29 of Annexure A3 reads thus: - “29. Governing laws, jurisdiction, notice and arbitration - (1) Matter relating to any dispute or difference arising out of this tender document and the subsequent contract awarded based on the tender shall be subject to the jurisdiction of the courts in Trivandrum only. The laws applicable for all disputes and differences shall be the laws in force in India. - (2) All disputes and differences between the parties to the contract arising out of or in relation to the contract, ``` A.R.No.92/2022 ``` ``` -:16:- ``` other than those for which decision of the Project Manager or any other person is by contract expressed to be final and conclusive, shall after written notice by either party to the contract to the other party, be referred to arbitration and the arbitrator shall be an I independent party nominated by SunTec. The arbitration shall be conducted in accordance with the provisions of the Arbitration and Conciliation Act, 1996. Execution of works under the contract is to be continued during the arbitration proceedings. The venue of the arbitration shall be Thiruvananthapuram and the language shall be English”. 9. The respondent has resisted the A.R predominantly on the ground that this Court lacks territorial jurisdiction to entertain the A.R. The respondent’s defence is that the applicant had approached the respondent for the construction of pre-fabricated steel structure of SunTec by e-mail dated 05.05.2017 and requested the respondent to make an offer. The respondent sent Annexure-R1(b) e- mail with their terms and conditions. After the said e-mail, the applicant and the respondent parleyed, and it was agreed that the offer made by the respondent would prevail over the RFP of SunTec. The respondent ``` A.R.No.92/2022 ``` ``` -:17:- ``` sent the minutes of the meeting to the applicant by e- mail dated 07.06.2017. The applicant accepted the modified terms and conditions. Thereafter, the respondent sent an e-mail dated 01.08.2017 along with the project details, erection methodology, tower crane location etc. Subsequently, the applicant issued Annexure A1 purchase order. The applicant and SunTec entered into an agreement only on 21.12.2017, i.e., after Annexure A1 purchase order was issued. Therefore, the parties are governed by clause XV of Annexure-R1(b) commercial offer sent by the respondent and the venue of arbitration is Hyderabad. The respondent has already moved the High Court of Telangana to appoint an Arbitrator. Hence, this Court lacks the jurisdiction to entertain the A.R. 10. Thus, the dispute boils down to whether the parties are governed by clause 29 of Annexure-A3 or ``` A.R.No.92/2022 ``` ``` -:18:- ``` clause XV of Annexure-R1(b) commercial offer. 11. Section 7 of the Arbitration and Conciliation Act, 1996 defines an arbitration agreement. It is apposite to extract the said provision which reads as follows: “7. Arbitration agreement.- (1) In this part, “arbitration agreement” means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. (2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. (3) An arbitration agreement shall be in writing. (4) An arbitration agreement is in writing if it is contained in - (a) a document signed by the parties; (b) an exchange of letters, telex, telegrams or other means of telecommunication [including communication through electronic means] which provide a record of the agreement; or (c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other. (5) 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.” ## 12. Interpreting Section 7(5) of the Act, the ``` A.R.No.92/2022 ``` ``` -:19:- ``` ## Hon’ble Supreme Court in **M.R. Engineers and Contractors Pvt Ltd.** (supra) held thus: “13. xxx xxx xxx Having regard to Section 7(5) of the Act, even though the contract between the parties does not contain a provision for arbitration, an arbitration clause contained in an independent document will be imported and engrafted in the contract between the parties, by reference to such independent document in the contract, if the reference is such as to make the arbitration clause in such document, a part of the contract. 14. The wording of Section 7(5) of the Act makes it clear that a mere reference to a document would not have the effect of making an arbitration clause from that document, a part of the contract. The reference to the document in the contract should be such that shows the intention to incorporate the arbitration clause contained in the document, into the contract. If the legislative intent was to import an arbitration clause from another document, merely on reference to such document in the contract, sub-section (5) would not contain the significant later part which reads: “and the reference is such as to make that arbitration clause part of the contract”, but would have stopped with the first part which reads: “7. (5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing….” 15. Section 7(5) therefore requires ``` A.R.No.92/2022 ``` ``` -:20:- ``` a conscious acceptance of the arbitration clause from another document, by the parties, as a part of their contract, before such arbitration clause could be read as a part of the contract between the parties. But the Act does not contain any indication or guidelines as to the conditions to be fulfilled before a reference to a document in a contract can be construed as a reference incorporating an arbitration clause contained in such document into the contract. In the absence of such statutory guidelines, the normal rules of construction of contracts will have to be followed. 16. There is a difference between reference to another document in a contract and incorporation of another document in a contract, by reference. In the first case, the parties intend to adopt only specific portions or part of the referred document for the purposes of the contract. In the second case, the parties intend to incorporate the referred document in entirety, into the contract. Therefore when there is a reference to a document in a contract, the court has to consider whether the reference to the document is with the intention of incorporating the contents of that document in entirety into the contract, or with the intention of adopting or borrowing specific portions of the said document for application to the contract. 17. We will give a few instances of incorporation and mere reference to explain the position (illustrative and not exhaustive). If a contract refers to a document and provides that the said document shall form part and parcel of the contract, or that all terms and conditions of the said document shall be read or treated as a part of the contract, or that the contract will be ``` A.R.No.92/2022 ``` ``` -:21:- ``` governed by the provisions of the said document, or that the terms and conditions of the said document shall be incorporated into the contract, the terms and conditions of the document in entirety will get bodily lifted and incorporated into the contract. When there is such incorporation of the terms and conditions of a document, every term of such document (except to the extent it is inconsistent with any specific provision in the contract) will apply to the contract. If the document so incorporated contains a provision for settlement of disputes by arbitration, the said arbitration clause also will apply to the contract. 18. On the other hand, where there is only a reference to a document in a contract in a particular context, the document will not get incorporated in entirety into the contract. For example, if a contract provides that the specifications of the supplies will be as provided in an earlier contract or another purchase order, then it will be necessary to look to that document only for the limited purpose of ascertainment of specifications of the goods to be supplied. The referred document cannot be looked into for any other purpose, say price or payment of price. Similarly, if a contract between X and Y provides that the terms of payment to Y will be as in the contract between X and Z, then only the terms of payment from the contract between X and Z, will be read as part of the contract between X and Y. The other terms, say relating to quantity or delivery cannot be looked into. 19. Sub-section (5) of Section 7 merely reiterates these well-settled principles of construction of contracts. It makes it clear that where there is a reference to a document in a contract, ``` A.R.No.92/2022 ``` ``` -:22:- ``` and the reference shows that the document was not intended to be incorporated in entirety, then the reference will not make the arbitration clause in the document, a part of the contract, unless there is a special reference to the arbitration clause so as to make it applicable. 20. The following passages from Russell on Arbitration throw considerable light on the position while dealing with Section 6(2) of the (English) Arbitration Act, 1996 corresponding to Section 7(5) of the Indian Act. (See pp. 52-55, 23rd Edn.): “Reference to another document.—The terms of a contract may have to be ascertained by reference to more than one document. Ascertaining which documents constitute the contractual documents and in what, if any, order of priority they should be read is a problem encountered in many commercial transactions, particularly those involving shipping and construction. This issue has to be determined by applying the usual principles of construction and attempting to infer the parties' intentions by means of an objective assessment of the evidence. This may make questions of incorporation irrelevant, if for example it is clear that the contractual documents in question are entirely separate and no intention to incorporate the terms of one in the other can be established. However, the contractual document defining and imposing the performance obligations may be found to incorporate another document which contains an arbitration agreement. If there is a dispute about the performance obligations, that dispute may need to be decided according to the arbitration provisions of that other document. This very commonly occurs when the principal contractual document refers to standard form terms containing an arbitration agreement. However the standard form wording may not be apt for the contract in which the parties seek to incorporate it, or the reference may be to another contract between parties at least one of whom is different. In these circumstances it may be possible to argue that the purported incorporation of the arbitration agreement is ineffective. The draftsmen of the Arbitration Act, 1996 were asked to provide specific guidance on the issue, but they preferred to leave it to the court to decide whether there had been a valid incorporation by reference. (Para 2.044) ``` A.R.No.92/2022 ``` ``` -:23:- ``` ## *** Subject to drawing a distinction between incorporation of an arbitration agreement contained in a document setting out standard form terms and one contained in some other contract between different parties, judicial thinking seems to have favoured the approach of Sir John Megaw in Aughton, namely, that general words of incorporation are not sufficient. Rather, particular reference to the arbitration clause needs to be made to comply with Section 6 of the Arbitration Act, 1996, unless special circumstances exist. (Para 2.047) Reference to standard form terms.—If the document sought to be incorporated is a standard form set of terms and conditions the courts are more likely to accept that general words of incorporation will suffice. This is because the parties can be expected to be more familiar with those standard terms including the arbitration clause.” (Para 2.048) 21. After referring to the view of Sir John Megaw in Aughton Ltd. v. M.F. Kent Services Ltd. [(1991) 57 BLR 1] that specific words were necessary to incorporate an arbitration clause and that the reference in a sub-contract to another contract's terms and conditions would not suffice to incorporate the arbitration clause into the sub-contract, followed in Barrett & Son (Brickwork) Ltd. v. Henry Boot Management Ltd. [1995 CILL 1026] , Trygg Hansa Insurance Co. Ltd. v. Equitas Ltd. [(1998) 2 Lloyds' Rep 439] and AIG Europe (UK) Ltd. v. Ethniki [(2000) 2 All ER 566 (CA)] and Sea Trade Maritime Corpn. v. Hellenic Mutual War Risks Assn. (Bermuda) Ltd. No. 2 [2006 EWHC 2530] , Russell concludes: “The current position therefore seems to be that if the arbitration agreement is incorporated from a standard form a general reference to those terms is sufficient, but at least in the case of reference to a non-standard form contract in the context of construction and reinsurance contracts and bills of lading a specific reference to the arbitration agreement is necessary.” ``` A.R.No.92/2022 ``` ``` -:24:- ``` 22. A general reference to another contract will not be sufficient to incorporate the arbitration clause from the referred contract into the contract under consideration. There should be a special reference indicating a mutual intention to incorporate the arbitration clause from another document into the contract. The exception to the requirement of special reference is where the referred document is not another contract, but a standard form of terms and conditions of trade associations or regulatory institutions which publish or circulate such standard terms and conditions for the benefit of the members or others who want to adopt the same. 23. The standard forms of terms and conditions of trade associations and regulatory institutions are crafted and chiselled by experience gained from trade practices and conventions, frequent areas of conflicts and differences, and dispute resolutions in the particular trade. They are also well known in trade circles and parties using such formats are usually well versed with the contents thereof including the arbitration clause therein. Therefore, even a general reference to such standard terms, without special reference to the arbitration clause therein, is sufficient to incorporate the arbitration clause into the contract. 24. The scope and intent of Section 7(5) of the Act may therefore be summarised thus: - (i) An arbitration clause in another document, would get incorporated into a contract by reference, if the following conditions are fulfilled: - (1) the contract should contain a clear reference to the documents containing arbitration clause, - (2)the reference to the other document should clearly indicate an intention to incorporate the arbitration clause into the ``` A.R.No.92/2022 ``` ``` -:25:- ``` contract, - (3)the arbitration clause should be appropriate, that is capable of application in respect of disputes under the contract and should not be repugnant to any term of the contract. - (ii) When the parties enter into a contract, making a general reference to another contract, such general reference would not have the effect of incorporating the arbitration clause from the referred document into the contract between the parties. The arbitration clause from another contract can be incorporated into the contract (where such reference is made), only by a specific reference to arbitration clause. - (iii) Where a contract between the parties provides that the execution or performance of that contract shall be in terms of another contract (which contains the terms and conditions relating to performance and a provision for settlement of disputes by arbitration), then, the terms of the referred contract in regard to execution/performance alone will apply, and not the arbitration agreement in the referred contract, unless there is special reference to the arbitration clause also. - (iv) Where the contract provides that the standard form of terms and conditions of an independent trade or professional institution (as for example the standard terms and conditions of a trade association or architects association) will bind them or apply to the contract, such standard form of terms and conditions including any provision for arbitration in such standard terms and conditions, shall be deemed to be incorporated by reference. Sometimes the contract may also say that the parties are familiar with those terms and conditions or that the parties have read and understood the said terms and conditions. - (v) Where the contract between the parties stipulates that the conditions of contract of one of the parties to the contract shall form a part of their contract (as for example the general conditions of contract of the Government where the Government is a party), the arbitration clause forming part of such general conditions of contract will apply to the contract between the parties. _xxx_ _xxx xxx_ ``` A.R.No.92/2022 ``` ``` -:26:- ``` 33. 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. It is not a term relating to “carrying out” of the contract. In the absence of a clear or specific indication that the main contract in entirety including the arbitration agreement was intended to be made applicable to the sub-contract between the parties, and as the wording of the sub-contract discloses only an intention to incorporate by reference the terms of the main contract relating to execution of the work as contrasted from the dispute resolution, we are of the view that the arbitration clause in the main contract did not form part of the sub-contract between the parties. 34. We are fortified in this view, by the decision in Alimenta S.A. v. National Agricultural Coop. Mktg. Federation of India Ltd. [(1987) 1 SCC 615] NAFED, the respondent therein entered into two contracts with Alimenta S.A. for the supply of certain goods referred to HPS. Clause 11 of the first contract stipulated that “other terms and conditions as per FOSFA-20 contract terms”. (SCC p. 617, para 2) (FOSFA-20 being a standard form of contract of Federation of Oils, Seeds and Fats Association Ltd. containing an arbitration clause.) Clause 9 of the second contract provided that: (SCC p. 618, para 2) “2. … All other terms and conditions for supply not specifically shown and covered hereinabove shall be as per previous contract signed between us for earlier supplies of HPS.” 35. The question before this Court in Alimenta S.A. case [(1987) 1 SCC 615] was whether the arbitration clause ``` A.R.No.92/2022 ``` ``` -:27:- ``` in FOSFA-20 was incorporated in the first contract by way of Clause 11 and in the second contract by virtue of Clause 9. The Court held that while the arbitration clause was incorporated in the first contract, the same was not incorporated in the second contract. The following reasoning of the Court while dealing with the second contract is relevant for our purpose: (SCC pp. 623-24, paras 13-14) “13. … There is a good deal of difference between Clause 9 of this contract and Clause 11 of the first contract. Clause 11 has been couched in general words, but Clause 9 refers to all other terms and conditions for supply. The High Court has taken the view that by Clause 9 the terms and conditions of the first contract which had bearing on the supply of HPS were incorporated into the second contract, and the term about arbitration not being incidental to supply of goods, could not be held to have been lifted as well from the first contract into the second one. 14. It is, however, contended on behalf of the appellant that the High Court was wrong in its view that a term about arbitration is not a term of supply of goods. We do not think that the contention is sound. It has been rightly pointed out by the High Court that the normal incidents of terms and conditions of supply are those which are connected with supply, such as, its mode and process, time factor, inspection and approval, if any, reliability for transit, incidental expenses, etc. We are unable to accept the contention of the appellant that an arbitration clause is a term of supply. There is no proposition of law that when a contract is entered into for supply of goods, the arbitration clause must form part of such a contract. The parties may choose some other method for the purpose of resolving any dispute that may arise between them. But in such a contract the incidents of supply generally form part of the terms and conditions of the contract. The first contract includes the terms and conditions of supply and as Clause 9 refers to these terms and conditions of supply, it is difficult to hold that the arbitration clause is also referred to and, as such, incorporated ``` A.R.No.92/2022 ``` ``` -:28:- ``` into the second contract. When the incorporation clause refers to certain particular terms and conditions, only those terms and conditions are incorporated and not the arbitration clause. In the present case, Clause 9 specifically refers to the terms and conditions of supply of the first contract and, accordingly, only those terms and conditions are incorporated into the second contract and not the arbitration clause. The High Court has taken the correct view in respect of the second contract also.” (emphasis supplied) 36. Even assuming that the arbitration clause from the main contract had been incorporated into the sub-contract by reference, we are of the view that the appellant could not have claimed the benefit of the arbitration clause. This is in view of the principle that when the document to which a general reference is made, contains an arbitration clause whose provisions are clearly inapt or inapplicable with reference to the contract between the parties, it would be assumed or inferred that there was no intention to incorporate the arbitration clause from the referred document”. ## 13. Almost on the same lines as in **M.R. Engineers and Contractors Pvt Ltd.,** the Hon’ble Supreme Court has reiterated its interpretation on Section 7 (5) of the Act in **Inox Wind Ltd.** (supra) holding thus: “18. We are of the opinion that though general reference to an earlier contract is not sufficient for incorporation of an arbitration clause in the later contract, a general reference to a standard form would be enough for incorporation of the arbitration clause. In M.R. Engineers [M.R. Engineers & ``` A.R.No.92/2022 ``` ``` -:29:- ``` Contractors (P) Ltd. v. Som Datt Builders Ltd., (2009) 7 SCC 696 : (2009) 3 SCC (Civ) 271] this Court restricted the exceptions to standard form of contract of trade associations and professional institutions. In view of the development of law after the judgment in M.R. Engineers [M.R. Engineers & Contractors (P) Ltd. v. Som Datt Builders Ltd., (2009) 7 SCC 696 : (2009) 3 SCC (Civ) 271] case, we are of the opinion that a general reference to a consensual standard form is sufficient for incorporation of an arbitration clause. In other words, general reference to a standard form of contract of one party will be enough for incorporation of arbitration clause. A perusal of the passage from Russell on Arbitration, 24th Edn. (2015) would demonstrate the change in position of law pertaining to incorporation when read in conjunction with the earlier edition relied upon by this Court in M.R. Engineers case [M.R. Engineers & Contractors (P) Ltd. v. Som Datt Builders Ltd., (2009) 7 SCC 696 : (2009) 3 SCC (Civ) 271] . We are in agreement with the judgment in M.R. Engineers case [M.R. Engineers & Contractors (P) Ltd. v. Som Datt Builders Ltd., (2009) 7 SCC 696 : (2009) 3 SCC (Civ) 271] with a modification that a general reference to a standard form of contract of one party along with those of trade associations and professional bodies will be sufficient to incorporate the arbitration clause. 19. In the present case, the purchase order was issued by the appellant in which it was categorically mentioned that the supply would be as per the terms mentioned therein and in the attached standard terms and conditions. The respondent by his letter dated 15-12-2012 confirmed its acceptance of the terms and conditions mentioned in the purchase order except delivery period. The dispute arose after the delivery of the goods. No ``` A.R.No.92/2022 ``` ``` -:30:- ``` doubt, there is nothing forthcoming from the pleadings or the submissions made by the parties that the standard form attached to the purchase order is of a trade association or a professional body. However, the respondent was aware of the standard terms and conditions which were attached to the purchase order. The purchase order is a single contract and general reference to the standard form even if it is not by a trade association or a professional body is sufficient for incorporation of the arbitration clause”. 14. In **Drolia v. Vidya Durga Trading** **Corporation** [(2021) 2 SCC] the Hon’ble Supreme Court has held that the Courts while considering an application filed under Section 11 of the Act, shall confine itself to the examination of the existence of an arbitration agreement. 15. On an analysis of the pleadings and materials on record, it is seen that the first correspondence between the parties is Annexure R1 (b) dated 05.05.2017, whereby the respondent submitted their proposal for constructing the pre-fabricated steel structure. Even though the technical and commercial ``` A.R.No.92/2022 ``` ``` -:31:- ``` offers were allegedly appended to Annexure R1 (b) communications, the same were not signed by the applicant. Thereafter, on 25.09.2017, the applicant sent Annexure A1 (Annexure R1(c)) purchase order, which the respondent acknowledged on the same date stating as follows: **"I, Sunil Raj. P.V., in the capacity of duly authorised to sign for and on behalf of M/s.Kirby Building System, hereby confirm acceptance of the terms and conditions stipulated in this letter”.** 16. In Annexure A1 purchase order, under the head Commercial Terms, clauses 3 and 6 explicitly state that all the other terms and conditions remain the same as in the tender floated by SunTec. 17. Admittedly, Annexures A2 to A5 are the only tender documents. Annexures A2 to 5 are the standard set of forms attached to the tender documents ``` A.R.No.92/2022 ``` ``` -:32:- ``` containing the terms and conditions of the tender ― ― prepared by SunTec a professional body which was attached to the purchase order. 18. The purchase order is a single contract with reference to the standard general conditions and special conditions of the contract, including provisions for settling disputes through arbitration. 19. Although the respondent has contended that they had parleyed with the applicant and the applicant agreed that the respondent’s offer would prevail over the RFP of SunTec, the correspondences are unilateral. The respondent has accepted Annexure A1 purchase order without any reservation or restriction, being fully conscious of the implications, scope and purport of the standard set of forms attached to the tender documents. Only Annexure A1 purchase order is bilateral. Thus, all the correspondences prior to ``` A.R.No.92/2022 ``` ``` -:33:- ``` Annexure A1 stand superseded and overridden in the respondent confirming the terms and conditions stipulated in Annexure A1 purchase order. Likewise, the date on which the applicant and SunTec entered into an agreement is immaterial so far as the respondent is concerned because they had voluntarily acknowledged Annexure-A1. 20. In the above conspectus, following the principles laid down in **M.R. Engineers and Contractors Pvt Ltd** and **Inox Wind Ltd.** (supra), this Court is of the definite view that parties are governed by clause 29 of Annexure-A3 tender document, which is a valid arbitration agreement falling within the purview of Section 7 (5) of the Act. Hence, this Court has the jurisdiction to appoint an Arbitrator. 21. The argument of the learned Counsel for the ``` A.R.No.92/2022 ``` ``` -:34:- ``` respondent that only the High Court of Telangana has jurisdiction to entertain the A.R in view of Section 42 of the Act and filing COP No.26/2021 before the Commercial Court, Hyderabad is untenable because of the law laid down in **Ravi Ranjan Developers Pvt. Ltd.** (supra). The Hon’ble Supreme Court has held that Section 42 of the Act has no application to the arbitration requests filed under Section 11 (6) of the Act. Resultantly, the A.R. is allowed in the following manner: - (i) Mr Justice A.M.Shaffique is appointed as the sole Arbitrator to arbitrate upon the disputes that have arisen between the applicant and the respondent. - (ii) The Registry is directed to communicate a copy of this order to the learned Arbitrator within a period of ten days from today and to obtain a ``` A.R.No.92/2022 ``` ``` -:35:- ``` Statement of Disclosure from him as provided under Section 11 (8) read with Section12 (1) of the Act. - (iii)Once the disclosure statement is received from the learned Arbitrator, the Registry shall issue the certified copy of this order, with a copy of the disclosure statement appended to it. - (iv)The fees of the learned Arbitrator shall be governed by the Fourth Schedule of the Act. - (v) The learned Arbitrator shall decide the manner in which the fees and expenses of the arbitration proceeding have to be paid by the parties. - (vi)The parties will appear before the learned Arbitrator on such date and place as decided by the learned Arbitrator - (vii)The seat and venue of the arbitration proceeding are fixed at Ernakulam, as per the convenience of the Arbitrator. ``` A.R.No.92/2022 ``` ``` -:36:- ``` (viii)All contentions of the parties are left open to be raised before the learned Arbitrator **==> picture [426 x 54] intentionally omitted <==** Sd/- ## **C.S.DIAS,JUDGE** DST/ 28.12.2022 //True copy/ P.A.To Judge ``` A.R.No.92/2022 ``` ## `-:37:-` ## `APPENDIX` ||`APPENDIX`| |---|---| |`PETITIONER ANNEXURES`|| |`ANNEXURE A1`|`A TRUE PHOTOCOPY OF THE PURCHASE ORDER`| ||`DATED 25.09.2017`| |`ANNEXURE A2`|`A TRUE PHOTOCOPY OF THE NOTICE INVITING`| ||`TENDER VIA NIT NO.ST/SEZ/P1/001/2015-16`| |`ANNEXURE A3`|`A TRUE PHOTOCOPY OF THE GENERAL CONDITIONS`| ||`OF CONTRACT ISSUED AS PART OF THE NOTICE`| ||`FOR TENDER`| |`ANNEXURE A4`|`A TRUE PHOTOCOPY OF THE SPECIAL CONDITIONS`| ||`OF CONTRACT`| |`ANNEXURE A5`|`A TRUE PHOTOCOPY OF THE SCOPE OF WORK`| |`ANNEXURE A6`|`A TRUE PHOTOCOPY OF ORDER OF THE HON'BLE`| ||`COMMERCIAL COURT IN COP 26/2021 DATED`| ||`19.07.2021`| |`ANNEXURE A7`|`THE COMMON JUDGMENT OF THE HON'BLE HIGH`| ||`COURT OF TELANGANA IN COMCA 38/2021 AND`| ||`COMCA 39/2021`| |`ANNEXURE A8`|`A TRUE PHOTOCOPY OF THE LETTER OF`| ||`INVOCATION OF ARBITRATION SENT BY THE`| ||`APPLICANT DATED 15.02.2022`| |`ANNEXURE A9`|`A TRUE PHOTOCOPY OF THE REPLY OF THE`| ||`RESPONDENT DATED 12.03.2022`| |`ANNEXURE A 10`|`PAGES 205 TO 207 OF COM.C.A. NO 38 OF 2021`| ||`FILED BY THE RESPONDENT IN THE HIGH COURT`| ||`OF TELENGANA`| |`RESPONDENT ANNEXURES`|| |`ANNEXURE R1(A)`|`TRUE COPY OF THE CERTIFICATE OF`| ||`INCORPORATION OF THE RESPONDENT DATED`| ||`18/12/2018`| |`ANNEXURE R1(B)`|`TRUE COPY OF THE EMAILS DATED 05/05/2017`| ||`ALONG WITH TERMS AND CONDITIONS OF SALE`| ``` -:38:- ``` ## `A.R.No.92/2022` - `ANNEXURE R1(C)` - `TRUE COPY OF THE PURCHASE ORDER DATED 25/09/2017 ALONG WITH MOM DATED 06/06/2017 AND EMAIL DATED 01/08/2017` - `ANNEXURE R1(D) BANK GUARANTEE NO. 0008BGR0111420` - `ANNEXURE R1(E) TRUE COPY OF THE BANK STATEMENT FOR THE PERIOD 26/04/2021 TO 30/04/2021` - `ANNEXURE R1(F) TRUE COPY OF THE LETTER OF CANCELLATION DATED 03/05/2021 SENT BY THE APPLICANT TO THE MANAGER OF ICICI BANK, BEGUMPET BRANCH.` - `ANNEXURE R1(G) TRUE COPY OF THE LETTER DATED 07/05/2021 SENT BY THE APPLICANT TO THE RESPONDENT COMPANY.` - `ANNEXURE R1(H) TRUE COPY OF THE ORDER DATED 11/05/2021 ISSUED IN OP NO. 3 OF 2021 BEFORE THE HONOURABLE COMMERCIAL COURT, CITY CIVIL COURT, HYDERABAD.` - `ANNEXURE R1(I) TRUE COPY OF THE ORDER DATED 19/07/2021 IN COP NO. 26 OF 2021 BEFORE THE SPECIAL COURT FOR TRIAL AND DISPOSAL OF COMMERCIAL DISPUTES AT HYDERABAD` - `ANNEXURE R1(J) TRUE COPY OF THE LETTER DATED 10/08/2021 SENT BY THE APPLICANT` - `ANNEXURES R1(K)` - `TRUE COPY OF THE LETTER DATED 16/08/2021 REJECTED BY THE RESPONDENT` - `ANNEXURE R1(L) TRUE COPY OF THE LETTER DATED 18/08/2021 ISSUED BY THE RESPONDENT` - `ANNEXURE R1(M) TRUE COPY OF THE LETTER DATED 26/08/2021 ISSUED BY THE APPLICANT` - `ANNEXURE R1(N) TRUE COPY OF THE REJOINDER LETTER ISSUED BY THE RESPONDENT DATED 07/09/2021` - `ANNEXURE R1(O)` - `TRUE COPY OF ARBITRATION APPLICATION NO.34 OF 2022 BEFORE THE HIGH COURT OF TELANGANA` ``` A.R.No.92/2022 ``` ``` -:39:- ``` ``` ANNEXURE R1(P)TRUE COPY OF THE CASE INFORMATION DATA SHEET PRINTED FROM THE WEBSITE OF THE HIGH COURT OF TELANGANA. ANNEXURE R1(Q)TRUE COPY OF THE AGREEMENT BETWEEN SUNTEC INFRASTRUCTURE (P) LTD AND THE APPLICANT DATED 21/12/2017 ```