Holding

A written arbitration agreement must be contained in the original signed contract; a clause present only in a later copy does not create a valid arbitration agreement.

Summary

M. Dayanand Reddy, a Class I contractor, entered into a contract with A.P. Industrial Infrastructure Corporation Ltd on 11‑December‑1986 for constructing a sewer line. When disputes arose, Reddy invoked an arbitration clause he claimed existed in Clause 3 of a copy of the agreement (Ex A‑3) that referenced the standard specifications. The original signed agreement (Ex B‑1) contained no arbitration clause. The City Civil Court held the copy’s clause binding and appointed a sole arbitrator, but the Andhra Pradesh High Court reversed, ruling that only the original signed contract governs and there was no arbitration agreement. The Supreme Court, applying the Indian Arbitration Act, 1940, held that only a written arbitration agreement contained in the original contract is enforceable, dismissed the appeal and upheld the High Court’s decision.

Issues considered

Whether an arbitration agreement must be in writing and be part of the original signed contract to be enforceable under the Arbitration Act, 1940.
Whether a clause appearing only in a copy of the agreement, and not in the original signed document, can be deemed to form a valid arbitration agreement.
Whether the court can infer an arbitration agreement from the parties' conduct or from standard specifications in the absence of an explicit clause.

Legislation cited

Arbitration Act, 1940s. 11, s. 12, s. 3, s. 5, s. 8, s. 9

Subjects

arbitration agreementwritten contractArbitration Act 1940contract interpretationcourt jurisdictionappointment of arbitratorgovernment contract

Judgment

M. DAYANAND REDDY A
v.
A.P. INDUSTRIAL INFRASTRUCTURE CORPORATION LTD.
AND ORS.

+ MARCH 24, 1993
B
•
(M.N. VENKATACHALIAH, CJ., AND G.N. RAY, J.)

Indian Arbitration Ac4 1940: Sections 3, 5, I 1 and 12 read with Sections
8 and 9-Scope of-Removal and Appointment of Arbitrator by Civil
Court-Power thereto-Original agreement vis-a- vis copy of agreement- c
Preferability.
r
Whether the existence of an arbitration agreement to refer the dispute
to arbitrator can be ascertained in the focts and circumstances of the case.
And, whether in the absence of an arbitration clause, it was necessary to find
out the terms agreed between the partie:r-Whether un - written arbitration D
agreement can be recognised under the Act.

Arbitration Agreement and other agreement-Distinct features-Mode
of enforcement-Whether the Courts have discretionary power of dispensation
•). of a valid arbitration agreement vis-a-vis other agreements-Obligations of the E
Parties.

The appellant, entered into an agreement witli the first respondent
on December 11, 1986 for construction of sewer line. On June 27, 1988 he
requested the Chairman to refer the dispute to arbitration as per the
preliminary specification of the A.P. Standard specifications. As the first F
-·-" respondent refused to settle the claims, the appellant sent a claim petition
dated October 3, 1988 to the named arbitrator. He sent a reminder but the
named arbitrator did not enter the reference. The appellant gave further
notice dated January S, 1989 calling upon the first respondent to concur
for the appointment of an arbitrator to adjudicate the disputes and
G
differences arising between the parties.
~
On January 18, 1989 the first respondent informed the appellant that
there was no arbitration clause in the agreement between the parties, so
the question of entertaining the request to appoint an arbitrator did not
arise. The appellant then filed an application in the Civil Court praying H
629
630 SUPREME COURT REPORTS [1993] 2 S.C.R.

A for removal of the named arbitrator in the agreement and appointment of
the sole a~bitrator in his place.

The respondent contested the application contending that the appel-
lant completed only a part of the work within the stipulated time though
the site was handed over to him. But the accounts were settled before the
B completion of work and the final bill of the appellant was paid, while the
balance of work was got completed through other agencies. The respondent
also contended that the original agreement signed between the parties did
not provide for any arbitration clause and such fact was known to the
appellant.
c The Civil Court found that the agreement did not contain any
arbitration clause. However, it held that the agreement was silent about
the mode of settlement of the disputes, if any, while every agreement of
civil contract contains an arbitration clause. However, since there was
clause 3 in the copy of the agreement supplied to the appellant sub-
D sequently under a covering letter with the seal and signature of the second
respondent, which provided for reference to arbitration in accordance with
standard specification and since the copy of agreement was not fabricated
by the appellant, the respondents were bound by the arbitration clause.

The respondents had neglected to refer the matter to arbitration
E
despite the agreement, so the civil court appointed the sole arbitrator.

The respondents assailed the order of the civil court in Civil
Revision before the High Court. The High Court also found that the
original agreement did not contain any arbitration agreement at all. Since
F there was no arbitration clause in the original agreement, it was not
necessary to consider other material or circumstances. The High Court
rejected the contention that the existence of such a clause should be
assu1ned because the government contractors were governed by the stand·
ard speci!ication. Therefore the High Court set aside the order appointing
G the arbitrator.

This Court granted special leave to appeal to the appellant and on
consideration of respective contentions of the parties, this Court dismiss·
ing the appeal.

H HELD: Only an arbitration agreement in writing isrecognised under
M.D. REDDY v. A.P. IND. CORPN. 631
~
the Arbitration Act, 1940. [635-G) A
Law is well settled that arbitration clause may be incorporated by
reference to a specific document which is in existence and whose terms are
easily ascertainable. However, the question whether or not the arbitration

-+ clause contained in another document has been incorporated in the coo·
tract, is always a question of coostructioo.{636 C-DI B

The arbitration clause is quite distinct from the other clauses of the
contract. While other clauses of agreement impose obligation which the
parties undertake towards each other, arbitration clause does not impose
on any of the parties any obligation in favour of the other party. Such
arbitration agreement embodies an agreement between the parties that in
c
case of dispute, such dispute shall be settled by arbitrator or umpire of
~
·their own constitution or by an arbitrator to be appointed by the court in
appropriate cases. [636-E)

There is a material difference in an arbitration agreement inasmuch D
as in an ordinary contract the obligations orthe parties to each other cannot
be specifically enforced and breach of such terms of contract results only in
damages, but the arbitration clause can be speciOcally enforced by the
machinery of the Arbitration Act. While the courts have discretionary
-~ power of dispensation of a valid arbitration agreement, there is no such
E
power of dispensation of other terms of contract. An arbitration agreement
in no way classifies the right of the parties under the contract but it relates
wholly to the mode of determining the rights. [636 F-H, 637 A)

lo the instant case, it is the specific finding of the High Court and
civil court that there is no arbitration clause in the original agreement F
signed by botL the parties. Therefore it is not necessary to make any effort
.. -I.,
for the purpose of finding out as to what were the terms agreed between
the parties. In the absence of clear intention of both the parties, agreement
for arbitration cannot and should not be inferred, more so when the
specific case of the respondent is that by mistake the clause relating to
arbitration crept in the copy of agreement. (637 C-D, 638 DJ
G

y The High Court was justified in holding on facts that only the
original agreement and not the copy, was binding between the parties and
no reference to arbitration could thus be made. In the aforesaid cir·
cumstances, no interference in called for. (638 ff, 639 A) H
632 SUPREME COURT REPORTS [1993) 2S.C.R.
.)-._
A CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1427 of
1993.

From the Judgment and Order dated 13.2.1992 of the Andhra
Pradesh High Court in Civil Revision Petition No .2269 of l991.

B S.K. Mehta for the Appellant. +
•
K. Ram Kumar for the Respondents.

The Judgment of the Court was delivered by

c G.N. RAY, J. Leave granted.

Pursua11t to the notice issued on the Special Leave Petition No.7575
of 1992, the respondents have appeared and have filed counter affidavits
and the appellant has also filed affidavit of rejoinder. The special leave
petition out of which this appeal arises is directed against Order dated
D February 13, 1992 passed by the Andhra Pradesh High Court in Civil
Revision No.2269 of 1991. The said Civil Revision was filed by the respon·
dents against Order dated May 10, 1991 by which the learned Vth Addi-
tional Judge, City Civil Court of Hyderabad allowed the application filed
under Section-s 3, 5, 11 and 12 read with Sections 8 and 9 of the Indian
E Arbitration Act for removal of the named Arbitrator in the agreement ""~
dated December 11, 1986 and to appoint the sole arbitrator in his place.

The learned Judge, City Civil Court, inter alia came to the finding
that it was a lit case where the sole arbitrator should be appointed for
adjudicating the disputes and differences between the parties arising out
F
of the agreement in question and the learned judge appointed a retired
)..._
District Judge as the sole arbitrator for adjudicating the disputes and
differences arising out of the arbitration agreement for entering upon the
reference and sign and p;.·,, the award according to law.

G The case of the appellant in short is that the appellant is a Class I
Contractor. He entered into an agreement with the respondent No.1, AP.
Industrial Infrastructure Corporation Lld., for the construction of main ...,.....
sewer line from Point (H) near C.C. Building IDA Nacharam to the
disposal units of Nallacheru (near Uppal) on December 11, 1986. Pursuant
H to such agreement, the appellant completed the work in question. Since
M.D. REDDYv. AP. IND. CORPN. (RAY,J.J 633
~

certain disputes and differences had arisen between the appellant and the A
said Corporation during the execution and completion of the contract, the
appellant by notice dated June 27, 1988 requested the. Chairman of the
Corporation to refer the dispute for arbitration as per Clause 73 of the
preliminary specifications of A.P. Standard specifications, hereinafter
-~
referred to as the standard specifications. As the first respondent refused B
to settle the claims, the appellant sent a claim petition dated October 3,
1988 to the named arbitrator which was received by the said named
arbitrator on October 5, 1988. As the appellant did not receive any com-
munication from the named arbitrator, he sent a reminder under registered
post on November 28, 1988 to the named arbitrator. The named arbitrator,
however, did not enter upon the reference within a period of one month
c
-~ and also did not pass any award within a period of four months as
contemplated in the Indian Arbitration Act. The appellant also contended
in the said application for appointment of arbitrator in place of the named
arbitrator that the Chairman of the Corporation, namely, the first respon-
dent had sent an undated letter signed on November 8, 1988 informing the D
appellant that para 3 of the article of the agreement since referred to by
the appellant was erroneous and while making copies of the arbitration
agreement entered into between the parties, wrong sheets were enclosed
-y but in the original agreement, since signed between the parties; there was
no arbitration clause for the work in question. The appellant, however, gave E
a further notice dated January 5, 1989 through his learned Advocate calling
upon the said respondent to concur for the appointment of any one of the
three persons named in the said notice to act as an arbitrator to adjudicate
the disputes and differences arising between the parties. On receiving such
notice, the first respondent by his letter dated January 18, 1989 informed F
_....._ the learned Advocate of the appellant that as there was no arbitration
'
clause in the agreement entered into between the parties, the question of
entertaining the request to appoint arbitrator did not arise. In view of such
failure on the part of the respondent to refer the dispute to the arbitration
in terms of the said agreement between the parties, the appellant made a
prayer for removing the named arbitrator in respect of the works in G
.__,,, question and to appoint any one of the three persons named in the
application as sole arbitrator to adjudicate the disputes and differences.
On such applicatio'} made by the applicant in the Court of the Yth
Additional Judge, City Civil Court, Hyderabad, the proceeding being O.P. H
634 SUPREME COURT REPORTS [1993) 2 S.C.R.

A No.132 of 1989 arose.

The respondent No.l opposed the said application and filed counter
to the said application inter alia contending therein that the appellant
entered into the agreement dated December 11, 1986 with the A.P. In-
dustrial Infrastructure Corporation for the said work and the time stipu-
B
lated for the construction of the work was six months from the date of
handing over of the site. The appellant, however, completed only a part of
the work although the. site was handed over to him. But before the
completion to the entire work, the account. were settled between the
parties and the final bill was· also paid to the appellant and the balance of
C work was got completed through other agencies. It was further contended
that the original agieement signed between the parties did not provide for
any arbitration clause and such fact was made known to the appellant. In
view of the aforesaid position, the question of referring the matter to the
arbitration or to the named arbitrator or to any other arbitrator did not arise.
D
The learned Judge inter alia came to the finding that the original
agreement dated December 11, 1986 executed between the parties in
relation to the contract work did not contain any arbitration clause and the
articles of the agreement only provided for various terms and conditions
E of the work and such agreement containing the aforesaid terms was also
signed by b-Oth the parties. The learned Judge, however, held that con-
spicuously the agreement was silent about the mode of settlement of the
disputes, if any, arising between the parties in respect of the work. General-
ly, every agreement of civil contract between the government and the
contractors or between the local bodies and the contractors contains an
F arbitration clause for settling the disputes between the parties. In the copy ,..__
of the agreement which was supplied to the appellant since marked as Ex.
A-3, the clauses. appearing in the agreement were similarly entered without
variation. In the copy of agreement since furnished to the applicant, there
was a clause being clause 3 which provided for reference to arbitration in
G accordance with the standard specifications. It was further held by the
learned Judge that the copy since supplied to the applicant had the stamp
of the respondent No.2 and the covering letter under which the copy of the
agreement was forwarded to the applicant also bore the seal and signature
of the second respondent. Since the said copy of the agreement had not
H been fabricated by the applicant, the respondents were bound by the said
M.D. REDDYv. AP. IND. CORPN. [RAY,J.] 635

Clause (3) as referred to in the copy of the agreement. As, despite such A.
agreement, the respondents failed and neglected to refer the matter for
arbitration, the learned Judge was of the view that the application should
be allowed. The learned Judge, therefore, appointed Sri J. Venauopal Rao,
a retired District Judge, as the sole arbitrator for adjudicating all the
-+' disputes and differences between the parties and for entering upon the B
reference and thereafter sign and pass the award in accordance with law.

The .respondents being aggrieved by the aforesaid order of the
learned Civil Additional Judge, moved the Andhra Pradesh High Court for
revision. The learned Judge inter a/ia came to the finding that the original
agreement Ex.B-1 since signed by the parties did not contain any arbitra- c
tion clause at all. A copy of the agreement (Ex.A-3) was, however, for-
warded to the applicant eleven days after the original agreement and the
clause relating to arbitration as contained in Ex.A-3 was absent in the
original agreement. The learned Judge was of the view that only the terms
contained in original agreement since signed by the parties and not the D
terms contained in the copy forwarded to the applicant were binding
between the parties. The learned Judge was also of the view that as in the
original agreement, (Ex.B-1) signed by both the parties, there was no
........ arbitration clause at all, it was not necessary to look into the other material
or to consider other circumstances for the purpose of finding that the
f:
parties had also agreed for arbitration. The contention on behalf of the
applicant that in the absence of any specific clause for reference of disputes
to arbitration in the original agreement (Ex.B-1) the existence of such a
clause should be, assumed because the government contractors are
governed by the standard specifications, was not accepted by the High
F
Court. In that view of the matter, the revis!on application was allowed by
-~
the High Court inter a/ia holding that the impugned order appointing an
arbitrator was erroneous and not sustainable in law. As aforesaid, such
order of the Andhra Pradesh High Court is impugned in the instant appeal.

Under the Arbitration Act, 1940, only an arbitration agreement in G
writing is recognised by the Act. In has been held by this Court in JugaJ
-r'
( Kisltore Rameslnvardas v. Mrs. Goo/bai Honnusji, (1955) 2 SCR 857 that it
is not necessary that the contract between the parties should be signed by
both the parties. But it is necessary that the terms should be reduced in
writing and the agreement between the parties on such written terms is H
_,

'
636 SUPREME COURT REPORTS (1993) 2 S.C.R. t
~

A established It has also been held by this Court in Rallia Ram v. Union of
India, (1964) 3 SCR 164 that it is not necessary that all the terms of the
agreement should be contained in one document. Such terms may be
ascertained from the correspondence consisting of number of letters. In
Smt. Rukmanibai Gupta v. The Collector, labalpur & Ors., AIR 1981 SC 479
r
B this Court has laid down that an arbitration clause is not required to be
~ \
stated in any particular form. If the intention of the parties to refer the
dispute to arbitration can be clearly ascertained from the terms of the
agreement, it is immaterial whether or not the expression arbitration or
'arbitrator' or 'arbitrators' has been used in the agreement. It is also not

c necessary that agreement to arbitration should appear in the document ' .
containing the other terms of agreement between the parties. Law is well
settled that arbitration clause may .be incorporated by reference to a ___.,,
specific document which is in existence and whose terms are easily ascer-
tainable. It is to be noted, however, that the question whether or not the
arbitration clause contained -in another document is incorporated in the
D contract, is always a question of construction. It should also be noted that
the arbitration clause is quite distinct from the other clauses of the con-
tract. Other ·clauses of agreement impose obligation which the parties
undertake towards each other. But arbitration clause does not impose on
any of the parties any obligation in favour of the other party. Such arbitra-
E tion agreement embodies an agr'eement between the parties that in case of -I-
a dispute, such dispute shall be settled l>y arbitrator, or umpire of their "
own constitution or by an arbitrator to be appointed by the Court in an
appropriaie case. It is pertinent to mention that there is a material dif-
ference in an arbitration agreement inasmuch as in an ordinary contract
F the obligation of the parties to each other cannot, in general, be specifically
enforced and breach of such terms of contract results only in damages. The
~-
arbitration clause however can be specifically enforced by the machinery
of the Arbitration Act. The appropriate remedy for breach of an agreement
to arbitrate is enforcement of the agreement to arbitrate and not to damage
arising out of such breach. Moreover, there is a further significant dif-
G ference between an ordinary agreement and an arbitration agreement. In
an arbitration agreement, the Courts have discretionary power of dispen- y
sation of a valid arbitration agreement but the Courts have no such power ~

of dispensation of other terms of contract entered between the parties. This
very distinctive feature of an agreement for arbitration has been highlighted
H
M.D. REDDYv. AP. IND. CORPN.[RAY,J.) 637

in the decision in Heyman v. Dlll'Wins Ltd, 1942 AC 356. It has been held A
in North Western Rubber Company, 1908 2 KB 907 (over-ruled in (1961 (1)
AC 1314) on other points), that an arbitration agreement in no way
classifies the right of the parties under the Contract but it relates wholly

\
J
+ to the mode of determining the rights. In the backdrop of such position in
law relating to an agreement for arbitration, it is to be decided whether the B
existence of an agreement to refer the dispute to arbitraiion can be clearly
ascertained in the facts and circumstances of the case. This, in turn,
depends on the interaction of the parties to be gathered from the relevant
documents and surrounding circumstances. In the instant case, it is the
specific finding of the learned Judge of the City Civil Court, Hyderabad
and also the Andhra Pradesh High Court that in the original "agreement
c
""'r - signed by the parties, there is no clause for referring the disputes to
arbitration. The agreement between the parties in this case has been
reduced in writing and has been signed by both the parties. It is therefore
not necessary to make any effort for the purpose of finding out as to what
were the terms agreed between the parties. The learned Judge, City Civil D
Court, allowed the application for appointment of arbitrator simply on the
ground that a copy of the agreement was forwarded to the appellant with
the seal and signature of a competent officer of the Corporation, namely,
-\- the respondent No2 and in such copy, which was not fabricated by the
applicant there was a reference for arbitration as contained in the standard E
specifications. The learned Judge, City Civil Court, also proceeded on the
footing that usually in the agreements relating to the nature of the contract,
. a provision for arbitration is made. As in the original agreement signed
between the parties there was no such provision and the agreement was
~ silent on the question as to what would happen if the· disputes would arise F
,,,.,., between the parties, it should be presumed that the parties had really
J
intended to refer the dispute to arbitration in accordance with the standard
specifications and in the copy of the agreement which was forwarded to
') the applicant the provision for arbitraiion was included. The High Court
however, was not inclined to accept this view of the learned Judge of the

-- City Civil Court. The High Court was of the view that it was the signed
G
agreement between the parties which was binding on the parties and only
such written terms in the original agreement signed by the parties ~d
be taken into consideration and not the terms contained in the copy of the
agreement which was forwarded to the applicant after some time. H
638 SUPREME COURT REPORTS [1993) 2 S.C.R.

A It has been indicated hereinbefore that the case of the respondent is
that through mistake the clause containing the arbitration agreement was
not scored out in the copy of the agreement since forwarded to the
applicant. The attention of the appellant was drawn to such mistake by the
respondents before initiation of the proceedings before the City Civil
B Court. It also appears that on April 9, 1984, which is long before the
agreement dated December 11, 1986, the respondent No.1, Corpotation,
came to the decision that arbitration was not really necessary as the
aggrieved party to the agreement could always seek redress in a court of
law. It was, therefore, decided th;it the arbitration clause in the standard
specifications should be deleted altogether and the agreement was to be
c finalised in respect of engineering work without any provision for arbitra-
tion. It was also indicated that the instruction for deleting the arbitration
clause should be followed with immediate effect. If inspite of such policy
decision, the original agreement entered betweenthe parties had cont~ined
the arbitration clause there is no manner of doubt that the, parties to the
D agreement would have been bound by such arbitration agreement. Admit-
tedly, in the instant case, in the original agreement signed between the
parties, there is no clause for arbitration and the reason for absence of
arbitration clause can be well explained by the aforesaid policy decision of
the Corporation. An arbitration clause may be incorporated by reference
E to a specific document but the intention to refer to arbitration by such
incorporation must be clear and specific. In the instant case, the original
,agreement signed beiween the parties does not contain any clause for
arbitration. It is not the case of the applicant that the applicant had no
occasion to know the terms of the agreement since singed by the parties
F and there was any clear representation that the copy of agreement was to
be followed by the parties and terms contained in the copy were to be
treated as the terms of agreement between the parties. Hence, it cannot be
held that after the signed agreement the parties had clearly intended to
include arbitration clause in the standard specifications. In the absence of
G clear intention of both the parties, agreement for arbitration cannot and
should not be inferred more so when the specific case of the respondents
is that by mistake the clause relating to arbitration crept. in the copy of
agreement. In our view, the High Court was justified in holding that in the
facts of the case, only the original agreement, and hot the copy, was binding
H between the parties. Hence, no reference to arbitration could be made. In
M.D. REDDYv. AP. IND. CORPN. [RAY, J.) 639

the aforesaid circumstances, no interference is called for in the instant A
appeal and the appeal. therefore, fails and is dismissed, without, however,
any order as to costs.

S.P.S. Appeal dismissed.

-