M.R. Engineers and Contractors Pvt. Ltd. v. Som Datt Builders Ltd.

Facts

A main contractor (Som Datt) executed work for a government employer under a contract containing an arbitration clause, and sub-contracted part of the work to M.R. Engineers on back-to-back terms. The sub-contract referred generally to the conditions of the main contract. When disputes arose, the sub-contractor sought to invoke arbitration relying on the arbitration clause in the principal contract.

Issues

• Whether a general reference in a sub-contract to the terms of the main contract incorporates the arbitration clause of the main contract into the sub-contract under Section 7(5).
• What standard of reference is required to incorporate an arbitration clause from another document.

Arguments

The sub-contractor argued that the back-to-back/general incorporation of the main contract's terms carried the arbitration clause into the sub-contract. The main contractor argued that an arbitration clause is a distinct collateral term that must be specifically incorporated, and a general reference is insufficient.

Held

The Court analysed Section 7(5) and held that a reference to a document in a contract is of two kinds: where the contract provides that disputes shall be referred to arbitration as per a named clause/document (specific reference, which incorporates the arbitration clause), and a mere general reference to another document (which does not). It held that incorporation of an arbitration clause from another contract requires a specific reference to the arbitration clause, not merely a general reference to the other contract. Since the sub-contract made only a general reference to the main contract, the arbitration clause was not incorporated.

Ratio decidendi

Under Section 7(5), an arbitration clause from another document is incorporated only where the reference is specific to the arbitration clause (or makes that clause part of the contract); a general reference adopting the terms of another contract does not import its arbitration clause.

Significance

The leading Indian authority on incorporation of arbitration clauses by reference, especially in back-to-back/sub-contract situations; the touchstone for applying Section 7(5).

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