REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 1695  OF 2019

(Arising out of SLP (Civil) No. 28693 of 2018)

Giriraj Garg   …Appellant

Versus

Coal India Ltd. & Ors.      …Respondents

J U D G M E N T

INDU MALHOTRA, J.

Leave granted.

1. The  present  Civil  Appeal  arises  out  of  an Order  dated

21/18.05.2018 passed by a learned Single Judge of the

Jharkhand High Court at Ranchi, in Arbitration

Application No. 11 of 2016. The Appellant filed an

Application u/S. 11(6) of the Arbitration and Conciliation

Act, 1996 (hereinafter referred to as the “1996 Act”) for

appointment of an independent arbitrator to adjudicate

1

the disputes that had arisen between the Petitioner and

Respondent No. 2.  2. The factual matrix of the present case, briefly stated, is

as under:  2.1. Respondent No. 1 issued the 2007 Scheme,

whereby coal distribution would be conducted through

e­Auction,  with a view to  provide access  to  coal for

buyers, who were not able to source coal through the

available institutional mechanism. This system would

provide an equal opportunity to purchase coal through

a single­window service to all  intending buyers, and

facilitate country wide access to booking coal online

for all sections of coal buyers, through a simple,

transparent system.

Clause  11.12  of the  2007  Scheme contains  an

arbitration clause which reads as under ­

“11.12     In the event of any dispute, Bidder/Buyer is necessarily required to represent in  writing to the  General  Manager (Sales and Marketing)  of the concerned Coal Company, who would deal with the same in a period  of  1  month from such  representation. Thereafter, if required the matter be determined by the Director­In Charge of Marketing of the concerned Coal Company. Any interpretation of this Clause will be subject to  clarification by CIL,  which will  be deemed as firm and final. All disputes arising

2

out of this scheme or in relation thereto in any form whatsoever shall be dealt exclusively by way of arbitration in terms of the Arbitration and Conciliation Act, 1996.  The arbitration shall be conducted at Kolkata at a place to be notified by CIL. The arbitrator shall be appointed by the Chairman and Managing Director, CIL upon written request in this behalf. The award rendered by the arbitrator shall be final and binding on the parties. (The place of arbitration and nomination of arbitrator  be  varied appropriately in  view of the Coal Company involved).

(emphasis supplied)

2.2. From 2012 to 2015, the Appellant, being a

registered buyer as per the Terms and Conditions of

the  2007  Scheme,  participated in the e­Auction for

purchase of coal for several sale orders issued under

the 2007 Scheme. 2.3. The Appellant was declared successful with

respect to various coal orders. Sale orders were issued

in favour of the Appellant, pursuant to which he

deposited the Earnest Money Deposit (hereinafter

referred to as “EDM”) and the coal value as per Clause

2.5 and 5.2 of the 2007 Scheme respectively. 2.4. As per Clause 7.2 of the 2007 Scheme, a period of

45 days was allowed to the Appellant from the date of

issue of the delivery order, to lift the coal. The

3

Appellant for  certain reasons was unable to lift the

booked quantity of coal. 2.5. Respondent No. 1 considered this to be a breach

of the Terms and Conditions of the 2007 Scheme, and

forfeited the EMD deposited by the Appellant  under

Clause 9.2 of the 2007 Scheme. 2.6. As a consequence, disputes arose  between the

parties. The Appellant served a Notice dated

21.03.2016 invoking the arbitration Clause 11.12

under the 2007 Scheme. The Respondents failed to appoint an arbitrator

as per Clause 11.12 of the 2007 Scheme. 2.7. The Appellant was therefore constrained to file

an  Application  u/S.  11  before the  Jharkhand  High

Court at Ranchi, for appointment of an independent

arbitrator. 2.8. The  learned Single  Judge  vide  impugned Order

dated 21/18.05.2018 rejected the Application on the

ground that the disputes relate to different

transactions entered into between the parties, under

the 2007 Scheme. The sale orders did not contain an

arbitration clause. It was held that even though the

2007 Scheme contains an arbitration clause, none of

4

the individual sale orders make reference to the

applicability of terms and conditions of the 2007

Scheme to the sale orders. Hence, the arbitration

clause could not be incorporated by reference.  3. Aggrieved by the aforesaid Order, the Appellant has filed

the present Appeal. We have heard learned Counsels Dr. Kedar Nath

Tripathy,  Mr.  B.  B.  Pradhan,  Mr.  Susanta Kr.  Muduti,

and Mr. M. A. Aleem Majid for the Appellants and Mr.

Anupam Lal Das, Mr. Anirudh Singh and Mr. Krishanu

Barua for the Respondents and perused the documents

on record. 3.1.  A copy of a Sale Order issued by Respondent No.

2 was brought to our notice, which contains Standard

Terms  and  Conditions  at the end.  Clause  7 of the

Terms and Conditions state that the sale orders would

be governed by the Guidelines, Circulars, Notices, and

Instructions issued by Coal India Ltd., Bharat Coking

Coal Ltd. etc.  Clause 7 is set out hereinbelow for ready reference ­

“7.  The sale order will be governed by guidelines – circulars – office orders – notices – instructions, relevant law etc. issued from time to time by  Coal India Ltd., Bharat Coking Coal Ltd., State Govts.,  Central Govt. and other statutory

5

bodies.  This is also subject to any future escalation in prices and or levies/or duties­taxes  etc.  which  may be imposed from time to time.”

(emphasis supplied)

4. The short question before this Court is whether the

arbitration clause contained in the 2007 Scheme, would

stand incorporated by reference in each of the sale

orders. 4.1.  The principle of incorporation by reference of an

arbitration clause, from another document or contract

is  a  well­established  principle  in arbitration

jurisprudence.1  This  principle has  been followed  by

the courts in India, and has been given statutory

recognition in sub­section (5) of Section 7 of the 1996

Act.  4.2. Section 7(5) states that 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.

1 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 All ER 331, 334 : [1952] 1 Lloyd’s Rep 12 (CA).

6

4.3. 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.  

4.4. Section  7(5) of the  1996  Act, closely replicates

Article 7(2)2  of the UNCITRAL Model Law as it stood

prior to the 2006 amendment. Dr Peter Binder in his

Commentary titled “International Commercial

Arbitration and Conciliation in UCITRAL  Model Law

2 Art. 7. Definition and form of arbitration agreement.— (1) ‘Arbitration  agreement’ is  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. An arbitration agreement may be in 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 is contained 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 an agreement is alleged by one party and not denied by another. The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement provided that the contract is in writing and  the reference is  such as  to  make that clause part of the contract.

7

Jurisdictions”  3 has interpreted Article 7(2) to include

incorporation by reference in the following words:  

“(d) Reference to a document containing an

arbitration clause

The third  sentence of  art. 7(2) is concerned with a contract containing a reference to a document that contains an arbitration clause. Provided that the main 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 of including this provision arose from problems and divergent court decisions on this issue in the context of the New York Convention.  The travaux explain that it is sufficient if the reference only refers to the document; specific mention of the arbitration clause therein is not necessary.”

(emphasis supplied)

4.5. Section 6(2) of the  English  Arbitration Act, 1996

is  pari  materia  to  Section 7(5) of  the  1996  Act,  and

reads as under: “6. Definition of arbitration agreement. (1)….. (2) The reference in an agreement to a written form of  arbitration  Clause  or to  a  document containing an arbitration Clause constitutes an  arbitration agreement if the reference is such as to make that Clause part of the agreement.”

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

8

The Queen's Bench Division,  Commercial  Court

in  Sea Trade Maritime Corporation  v.  Hellenic Mutual

War Risks Association (Bermuda) Limited, The Athena4

held that the general words of incorporation  of a

standard form contract were enough to incorporate an

arbitration clause. 4.6. 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 Ve Tibbi

Gazlar Isthisal  Endustri  AS  v.  Sometal  SAL5. In  this

case,  the Court  followed the  judgment  in the case of

Sea Trade Maritime Corporation (supra), and held that

a general reference  to a contract containing an

arbitration clause is sufficient for incorporation from a

standard form of contract. The Court recognized  the

following broad categories in which the parties

attempt to incorporate an arbitration clause:

“  (1) A and B make a contract in which they incorporate standard terms. These may be the standard terms of  one  party  set  out  on the back of an offer letter or an order, or contained

4 [2006] EWHC 2530 (Comm) 5 [2010] EWHC 29 (Comm)

9

in another document to which reference is made; or terms embodied in the Rules of an organization of which A or B or both are members; or they may be terms standard in a particular trade or industry.

(2) A and  B  make a contract incorporating terms previously agreed between A and B in another contract or contracts to  which they were both parties

(3) A and  B  make a contract incorporating terms agreed between A (or B) and C. Common examples are a bill of lading incorporating the terms of a charter to which A is a party; reinsurance contracts incorporating the terms of an underlying insurance; excess insurance contracts incorporating the terms of the primary layer of insurance; and building or engineering sub contracts incorporating the terms of a main contract or sub­sub contracts incorporating the terms of a sub contract.

(4) A and  B  make a contract incorporating terms agreed between C and D. Bills of lading, reinsurance and insurance contracts and building contracts may fall into this category. ”

In Habas (supra) a distinction was made between

a  ‘single  contract  case’  and a ‘two­contract  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

10

incorporate it in the contract between the parties, it is

a ‘two­contract case’. The Court held that

incorporation by general reference in a single contract

case is valid. However, in a ‘two­contract case’, where

reference is made to an arbitration clause in a

separate  contract, the reference  must  be  specific to

the arbitration clause. The judgment in Habas (supra)

has recently been affirmed by the Queen’s Bench

Division in SEA2011 Inc. v. ICT Ltd.6

4.7. Russell in  his commentary on arbitration7  has

commented on the single and two contract cases, and

reference to standard form terms, in the following

passage, which is instructive :  “  Reference to standard form terms, single and two­contract cases.  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. In Sea Trade Maritime Corporation v.  Hellenic  Mutual  War Risks Association (Bermuda) Ltd., (The "Athena")  No. 2 the Court  drew a distinction between what is described as a "two contract case", that is where the arbitration Clause is contained in a secondary document which is a contract to which at least one party is different

6 [2018] EWHC 520 (Comm) 7  Russell on Arbitration (24th Edn. ,2015, Sweet & Maxwell) pp. 52 –  54, para 2­049

11

from  the  parties to the  contract in  question, and "a single contract case" where the arbitration Clause is in standard terms to be found in another document. Relying on dictum of Bingham LJ in Federal Bulk Carries Inc v. C. Itoh & Co. Ltd. (The "Federal Bulker"), Langley J stated that:

"In principle, English law accepts incorporation of standard terms by the use of general words and, I  would  add,  particularly so  when  the terms are readily available and the question arises in the context of dealings between established players  in a well­known market. The principle, as the dictum makes clear, does not  distinguish between a  term which  is  an arbitration Clause and one which addresses other issues. In contrast, and for the very reason that it concerns other parties, a "stricter rule" is applied in charterparty/bills of lading cases. The reason given is that the other party may have no knowledge nor ready means of knowledge of the relevant terms. Further, as the authorities illustrate, the terms of an arbitration Clause may require adjustment if they are to be made to apply to the parties to a different contract."

The Court  therefore reinforced the distinction between incorporation by reference of standard form terms  and  of the terms  of  a different contract, and concluded that in a single contract case general words of incorporation are sufficient, whereas by its nature a two contract case may require specific reference to the other contract, unless the secondary document is stated to be based on standard form terms containing an arbitration agreement. In that case, presumably specific reference to the arbitration  Clause  would  not  be  needed.  As discussed below, this approach has been endorsed in subsequent cases, albeit drawing a slightly different but "material" distinction between incorporation of the terms of a separate contract ­ standard or otherwise ­

12

made between the same parties  which are treated as "single contract" cases, even where there  is  in  fact  more  than one contract;  and those where the terms to be incorporated are contained in a contract between one or more different parties which are treated as the "two contract" cases.  Extension of the single contract cases. Recently, the courts appear to have extended the "single contract" principle applicable to standard form contracts, where general words of incorporation will suffice, to other types of contract where the same rationale can be said to apply.  Thus, if the document sought to be incorporated is a bespoke contract between the same  parties, the courts have accepted this as a "single contract" case where general words of incorporation will suffice, even though the other contract  is not on standard terms and constitutes an entirely separate agreement.  The rationale for this approach is that the  parties  have  already contracted  on the terms said to be incorporated and are therefore even more likely to be familiar with the term relied on than a party resisting incorporation of a standard term. Put another way, if general words of incorporation are sufficient for the  latter, they should be even more so for the former. The courts also appear to have accepted as a "single contract" case a situation where the contract referred to is between one of the parties to the original contract and a third party, where the contracts as a whole "were entered into in the context of a single commercial relationship.”

(emphasis supplied)

4.8. An early  case  in Indian arbitration  on  the

doctrine of  incorporation by reference  under the

Arbitration Act,  1940  (hereinafter referred  to  as the

“1940 Act”),  was  Alimenta SA  v.  National  Agriculture

13

Co­op Marketing Federation of India Ltd.8 Though there

was no specific provision on an arbitration agreement

being based on the 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 that 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.  4.9. In the 1996 Act, the doctrine of incorporation by

reference is provided in the statue itself under Section

7(5) of the Act. In  M.R. Engineers & Contractors Pvt.

Ltd.  v.  Som Datt  Builders Ltd.,9  this  Court held that

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

8 (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.

14

part of the contract. The court explained the doctrine

of incorporation in the following words –

“24. The scope and intent of Section 7(5) 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 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.

15

(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 & 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 Government is a party), the arbitration clause forming part of such General Conditions of contract will apply to the contract between the parties.”

(emphasis supplied)

4.10. This Court in  Inox  Wind Ltd.  v.  Thermocables

Ltd.10   while adopting the ‘single contract case’ and

‘two­contract case’ principle laid down by  Habas

(supra), held 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 contract of one party, would be

sufficient for incorporation of the arbitration clause. In

10 (2018) 2 SCC 519

16

this case, the Court expanded the application of this

doctrine by holding that 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. 5. In the instant case, the learned Single Judge in the

impugned Order has erroneously taken the view that an

arbitration clause  would not  stand  incorporated  in  the

individual sale orders entered into by the Respondent No.

2 – Coal Company and the Appellant. The individual sale

orders emanate out of the 2007 Scheme. The sale orders

specifically state that they  would be governed by the

guidelines, circulars, office orders, notices, instructions,

relevant law etc. issued from time to time by Coal India

Limited or Bharat Coking Coal Limited etc. As a

consequence, the arbitration clause (i.e. Clause 11.12) in

the 2007 Scheme would stand incorporated in the sale

orders issued thereunder. Clause 7 in the sale orders falls under the ‘single

contract case’  where the arbitration clause is contained

in a standard form document  i.e.  the 2007 Scheme, to

17

which there is a reference in the individual sale orders

issued by Respondent No. 2 – the Coal Company.  5.1. The arbitration clause in the 2007 Scheme clearly

states that : “All disputes  arising out of this scheme or in relation thereto in any form whatsoever  shall be dealt exclusively by way of arbitration in terms of the Arbitration and Conciliation Act, 1996.”

(emphasis supplied)

Russell in his commentary on arbitration11  has

interpreted these words as follows : “Disputes “in connection with”, “in relation to”, or “regarding” a contract. These words, which are frequently encountered and are to be given the same meaning, were at one time given a restricted interpretation, but are now well established as having a broad meaning…..They may also be sufficient to catch disputes arising under another contract related to the contract containing the arbitration clause.”

(emphasis supplied)

In  Renusagar Power Co. Ltd.  v.  General Electric

Company and Anr.,12  this Court observed that

expressions such as “arising out of”, or “in respect of”, or

“in connection with”, or “in relation to”, the contract are

of the widest amplitude, and content.

11 Russell on Arbitration (24th Edn. ,2015, Sweet & Maxwell) pg. 82,  para 2­103 12 [1985]1SCR432

18

In  Doypack  Systems  Pvt.  Ltd.  v.  Union  of India  and

Ors.,13  this  Court  observed that  expressions such as  –

“pertaining to”, “in relation 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

the 2007 Scheme indicate that the clause would apply to

all transactions which took place under the 2007

Scheme. This would include the sale transactions in the

present case.

5.2. In view of the above discussion, the view taken by

the learned Single Judge is erroneous, and is hereby

set­aside. The appeal is allowed.

6. At the conclusion of the hearing, the parties consensually

agreed to appoint Mr. Justice Pranab Kumar

Chattopadhyay (Retired Judge of the Calcutta High

Court; Address: P­29/3, Jotish Roy Road, Kolkata –

700053) as Sole Arbitrator to adjudicate the disputes

which have arisen between the Appellant and Respondent

No. 2, under the 2007 Scheme.  

13 1988 (36) ELT 201 (SC)

19

The appointment of Mr. Justice Chattopadhyay will be

subject to the disclosure and declaration made, as per the

Sixth Schedule to the Arbitration and Conciliation Act, 1996

(as amended by the 2015 Amendment Act).  

The proceedings will be conducted in Kolkata.

Ordered accordingly.

.…..........................J. (UDAY UMESH LALIT)

…...……………………J. (INDU MALHOTRA)

New Delhi, February 15, 2019.

20