Team Blitz India
NEW DELHI: In a landmark ruling, the Supreme Court of India has clarified that a party must consciously accept the arbitration clause within an agreement to invoke arbitration. This judgment arose from the case between NBCC (India) and Zillion Infra, where the court ruled against Zillion Infra.
The dispute centered around Section 11(6) of the Arbitration Act, invoked by Zillion after NBCC (India) did not respond to its request to appoint a sole arbitrator. The Delhi High Court had appointed a former judge as the arbitrator, a decision NBCC contested.
Senior Counsel Gopal Sankaranarayanan, representing NBCC, argued that the High Court misapplied its authority under Section 11(6) of the Arbitration Act. He highlighted that Clause 2.0 of Damodar Valley Corporation’s (DVC) Letter of Intent (LOI) specified that terms from DVC’s tender would apply to NBCC unless explicitly modified.
Consequently, Clause 3.34 of the Additional Terms and Conditions, referring to arbitration, should not apply.
Sankaranarayanan referenced the Supreme Court’s decision in MR Engineers and Contractors Private Limited vs Som Datt Builders, emphasizing that arbitration clauses need explicit inclusion in the LOI to be enforceable, as outlined in sub-section (5) of Section 7 of the Arbitration Act.
The Supreme Court upheld this argument, reiterating three key principles under Sub-section (5) of Section 7:
1. If a contract states that its execution follows another contract, only the execution terms apply unless the arbitration clause is explicitly mentioned.
2. Standard form terms from a professional institution, including arbitration provisions, are incorporated by reference.
3. Conscious acceptance of an arbitration clause from another document is necessary before it can be considered part of the contract.
This ruling underscores the necessity for clear and conscious agreement to arbitration clauses in contractual arrangements.
