Section 7(5) of The Arbitration Act IV

The principle of ‘incorporation by reference’ of an Arbitration Clause, from another document or contract, is a well-­established principle in Arbitration Jurisprudence [Clements v. Devon Country Insurance Committee, [1918] 1 KB 94; Macleod Ross and Co. Ltd. v. Compagnie d’ Assurances Generales L’Helvetia of St Gall, [1952] 1 Lloyd’s Rep 12 (CA)]. This principle has been followed by Courts in India, and has been given statutory recognition in Section 7(5). Section 7(5) states, the reference in a contract to a document containing an Arbitration Clause, constitutes a valid Arbitration Agreement, if the contract is in writing, and the reference is specifically made to incorporate the Arbitration Clause as a part of the contract. The Arbitration Agreement need not necessarily be in the form of a clause in the substantive contract itself. It could be an independent agreement; or it could be incorporated by reference either from a parent agreement, or by reference to a standard form contract.

Section 7(5) closely replicates Article 7(2) of The UNCITRAL Model Law as it stood prior to the 2006 Amendment. Section 6(2) of The English Arbitration Act, 1996 is pari materia to Section 7(5). The Queen’s Bench Division, Commercial Court in Sea Trade Maritime Corporation, [2006] EWHC 2530 (Comm) held, the general words of incorporation of a standard form contract were enough to incorporate an Arbitration Clause. The question of incorporation of an Arbitration Clause from an earlier contract by general reference into a later contract, came up for consideration before the Queen’s Bench Division in Habas Sinai, [2010] EWHC 29 (Comm). In this case, Court followed Sea Trade Maritime Corporation and held, a general reference to a contract containing an Arbitration Clause is sufficient for incorporation from a standard form of contract. In Habas a distinction was made between a ‘single contract case’ and a ‘two-contract case’. A ‘single contract case’ is one where the Arbitration Clause is contained in a standard form contract to which there is a general reference in the contract between the parties. On the other hand, where the Arbitration Clause is contained in an earlier contract/some other contract, and a reference is made to incorporate it in the contract between the parties, it is a ‘two-contract case’. Court held, incorporation by general reference in a single contract case is valid. However, in a ‘two-contract case’, where reference is made to an Arbitration Clause in a separate contract, the reference must be specific to the Arbitration Clause. Habas has recently been affirmed by the Queen’s Bench Division in SEA2011 Inc. v. ICT Ltd., [2018] EWHC 520 (Comm).

An early case in Indian Arbitration on doctrine of ‘incorporation by reference’ under The Arbitration Act, 1940 was Alimenta SA, (1987) 1 SCC 615. Though there was no specific provision on an Arbitration Agreement being based on doctrine of ‘incorporation by reference’ in The 1940 Act, this Court recognized it to be applicable in Indian law. In this case, this Court held, the Arbitration Clause of an earlier contract could be incorporated by reference into a later contract, provided it is not repugnant to, or inconsistent with the terms of the contract in which it is incorporated. The doctrine of ‘incorporation by reference’ is provided in The 1996 Act under Section 7(5). In Som Datt Builders Ltd., (2009) 7 SCC 696 this Court held, even though a contract between the parties did not contain a provision for Arbitration, an Arbitration Clause contained in an independent document would be incorporated into the contract by reference, if the reference is such as to make the Arbitration Clause a part of the contract.

This Court in Inox Wind Ltd, (2018) 2 SCC 519 while adopting the ‘single contract case’ and ‘two-contract case’ principle laid down by Habas held, 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 contract of one party, would be sufficient for incorporation of the Arbitration Clause. In this case, Court expanded the application of this doctrine by holding, even a general reference to a standard form contract of one party, along with those of trade associations, and professional bodies would be sufficient to incorporate the Arbitration Clause.

In Renusagar Power Co. Ltd., [1985] 1 SCR 432 this Court observed, expressions such as ‘arising out of’, or ‘in respect of’, or ‘in connection with’, or ‘in relation to’, in the contract are of the widest amplitude, and content. In Doypack Systems Pvt. Ltd., 1988 (36) ELT 201 (SC) this Court observed, expressions such as ‘pertaining to’, ‘in relation to’ and ‘arising out of’, are used in the expansive sense, and must be construed accordingly.

Parties have consensually agreed to appoint Mr. Justice Pranab Kumar Chattopadhyay [Retired Judge, Calcutta High Court] as Sole Arbitrator. The appointment of Mr. Justice Chattopadhyay will be subject to Sixth Schedule, The Arbitration and Conciliation Act, 1996 [2015 Amendment]. The proceedings will be conducted in Kolkata.”

Hon’ble Justice Indu Malhotra, Giriraj Garg v. Coal India Ltd., [Civil Appeal No. 1695 of 2019].