NBCC (INDIA) LIMITEDversusZILLION INFRAPROJECTS PVT. LTD.

                 [2024] 3 S.C.R. 812 : 2024 INSC 218

                          NBCC (India) Limited
                                    v.
                     Zillion Infraprojects Pvt. Ltd.
                  (Civil Appeal Nos. 4417-4418 of 2024)
                                19 March 2024
               [B.R. Gavai* and Sandeep Mehta, JJ.]

                           Issue for Consideration
       When there is a general reference in the second contract to the
       terms and conditions of the first contract, whether the arbitration
       clause in the first contract would ipso facto be applicable to the
       second contract.

                                  Headnotes
       Arbitration & Conciliation Act, 1996 – The appellant issued
       an invitation for tender – Respondent submitted its techno
       bid- vide L.O.I. appellant awarded the contract to Respondent
       – Respondent approached High Court under Sec. 11(6) – High
       Court appointed sole arbitrator – Order of the High Court set aside
       Held: General reference will not lead to incorporation of the
       arbitration clause – Reference to arbitration clause in another
       contract ought to be specific. [Paras 3 and 21-23]
       Arbitration – When will an arbitration clause from a second
       contract be incorporated in the first contract
       Held: Conscious acceptance of arbitration clause – Reference and
       incorporation are different – Reference does not ipso fact lead to
       incorporation. [Paras 12-13 and 21-23]
       Arbitration & Conciliation Act, 1996 – Sec. 7(5) – Arbitration
       clause will not be incorporated by a general reference –
       Conscious Acceptance – In absence of specific reference,
       only execution/performance terms will apply – If no specific
       reference, arbitration clause will not apply – Reference not
       incorporation in the present case- General reference does not
       lead to incorporation.
       The Appellant had issued an invitation for tender for “Construction
       of Weir with Allied Structures across river Damodar at DVC, CTPS,
       Chandrapura, Dist – Bokaro, Jharkhand in response whereto, the
* Author
[2024] 3 S.C.R.                                                              813

          NBCC (India) Limited v. Zillion Infraprojects Pvt. Ltd.


     Respondent submitted its Techno Commercial Bid. The contract for
     the construction of weir was awarded to the Respondent whereafter
     due to certain disputes, the Respondent issued a notice in terms
     of Clause 3.34 of Section III Volume II of the Tender Documents
     invoking arbitration and further seeking consent of the appellant
     for the appointment of a former Judge of a High Court, as Sole
     Arbitrator. The Respondent, while invoking the arbitration, had
     taken recourse to Clause 2 of the Letter of Intent (L.O.I.) issued
     by the Appellant while awarding the contract. Clause 2 stated thus:
     “All terms and conditions as contained in the tender issued by
     DVC to NBCC shall apply mutatis mutandis except where these
     have been expressly modified by NBCC.” Since the Appellant did
     not respond to the notice, the Respondent approached the High
     Court under Section 11(6) of the Arbitration and Conciliation Act,
     1996. High Court allowed the petition preferred by the Respondent.
     Held: A perusal of sub-section (5) of Section 7 of the Arbitration Act
     itself would reveal that before an arbitration clause could be read
     as a part of the contract, there must be a conscious acceptance of
     the arbitration clause from another document by the parties – It is
     thus clear that a reference to the document in the contract should
     be such that shows the intention to incorporate the arbitration clause
     contained in the document into the contract. [Paras 12 and 13]
     While setting aside the order of the High Court, the Supreme
     Court held that a general reference to the terms and conditions
     of another contract would not have the effect of incorporating
     the arbitration clause – It is pertinent to note that clause 7.0 of
     the L.O.I. specifically uses the word “Only” before the words “be
     through civil courts having jurisdiction of Delhi alone” – When
     there is a reference in the second contract to the terms and
     conditions of the first contract, the arbitration clause would not
     ipso facto be applicable to the second contract unless there is
     specific mention/reference thereto – The present case is not a
     case of ‘incorporation’ but a case of ‘reference’ – As such, a
     general reference would not have the effect of incorporating the
     arbitration clause – Clause 7.0 of the L.O.I, which is also a part
     of the agreement, makes it amply clear that the redressal of the
     dispute between NBCC and respondent has to be only through
     civil courts having jurisdiction of Delhi alone – Delhi High Court
     has erred in allowing the application of the respondent. [Paras
     21 to 24]
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                               Case Law Cited
            Inox Wind Limited v. Thermocables Limited [2018] 1
            SCR 86 : (2018) 2 SCC 519- Distinguished.
            M.R. Engineers and Contractors Private Limited v. Som
            Datt Builders Limited (2009) 7 SCC 696- Relied on.
            Duro Felguera, S.A. v. Gangavaram Port Limited [2017]
            10 SCR 285 : (2017) 9 SCC 729; Elite Engineering and
            Construction (Hyderabad) Private Limited represented
            by its Managing Director v. Techtrans Construction India
            Private Limited represented by its Managing Director
            [2018] 4 SCR 585 : (2018) 4 SCC 281 – Referred to.

                                 List of Acts
       The Arbitration & Conciliation Act, 1996.

                              List of Keywords
       Arbitration, Arbitration Agreement, lis, Letter of Intent (L.O.I),
       Invitation for tender, Mutatis Mutandis, Res Integra, Ipso Facto,
       Incorporation, Reference.

                             Case Arising From
       CIVIL APPELLATE JURISDICTION : Civil Appeal Nos.4417-4418 of
       2024
       From the Judgment and Order dated 12.03.2021 and 09.04.2021 in
       ARBP No.44 of 2021 of the High Court of Delhi at New Delhi
                          Appearances for Parties
       Gopal Shankarnarayan, Sr. Adv., Debarshi Bhadra, Ms. Jhanvi Dubey,
       Sunil Mund, Kiran Kumar Patra, Advs. for the Appellant.
       Sumit Kumar, Ms. Kumari Supriya, Bharath Kumar, Ms. Sakshi
       Sharma, Advs. for the Respondent.
                  Judgment / Order of the Supreme Court

                                  Judgment
       B.R. Gavai, J.
1.     Leave granted.
2.     The present appeals challenge the interim order dated 12th March
       2021 and final judgment & order dated 9th April 2021, passed by the
[2024] 3 S.C.R.                                                            815

           NBCC (India) Limited v. Zillion Infraprojects Pvt. Ltd.


     learned Single Judge of the High Court of Delhi (hereinafter, “High
     Court”), in Arbitration Petition (Arb. P.) No. 44 of 2021, whereby
     the High Court allowed the application under Section 11(6) of the
     Arbitration & Conciliation Act 1996 (hereinafter referred to as, “the
     Arbitration Act”) and appointed the Sole Arbitrator to adjudicate the
     dispute between the parties to the present lis, arising from the Letter
     of Intent dated 4th December 2006.
3.   Facts, in brief, giving rise to the present appeals are as follows:
     3.1     The appellant, NBCC (India) Limited (Formerly known as
             National Buildings Construction Corporation Ltd.), is a Public
             Limited Company and Government of India undertaking,
             engaged in construction of power plants and other infrastructure
             projects on EPC and/or PMC basis.
     3.2     The respondent, M/s Zillion Infraprojects Pvt. Ltd. (Formerly
             known as Durha Constructions Pvt. Ltd.), is a Private Limited
             Company, engaged in the construction and infrastructure
             sector.
     3.3     The appellant issued an invitation for tender, being NIT No.
             01-WEIR/06 dated 3rd November 2006, for “Construction of
             Weir with Allied Structures across river Damodar at DVC,
             CTPS, Chandrapura, Dist – Bokaro, Jharkhand – Package
             “A” (hereinafter referred to as, “Construction of the Weir”),
             containing inter-alia, the General Conditions of Contract,
             Special Conditions of Contract, Bill of Quantity, etc. (collectively
             referred to as, “Tender Documents”).
     3.4     In response to the aforementioned tender, the Respondent
             submitted its Techno Commercial Bid on 16th November 2006.
     3.5     On fulfilment of the tender criteria, vide Letter of Intent
             No. AGM/RAN/CTPS-AWARD/06/1660 dated 4th December
             2006, the appellant awarded the contract for Construction
             of the Weir to the respondent for a total value of Rs.
             19,08,46,612/-.
     3.6     With the passage of time, certain disputes arose between
             the parties to the present lis & as a result, the respondent
             issued a notice dated 6th March 2020, in terms of Clause
             3.34 of Section III Volume II of the Tender Documents (GCC),
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              thereby invoking arbitration and further seeking consent of
              the appellant for the appointment of a former Judge of a High
              Court, as Sole Arbitrator.
       3.7    The appellant did not respond to the aforementioned notice
              invoking arbitration, so the respondent filed an application
              at the High Court under Section 11(6) of the Arbitration Act.
       3.8    Vide interim order dated 12th March 2021, the High Court
              allowed the Arbitration Petition and proposed the appointment
              of a former Judge of the High Court, as the Sole Arbitrator, to
              adjudicate the dispute between the parties.
       3.9    Vide final judgment & order dated 9th April 2021, the High Court
              confirmed the proposed appointment of the former Judge of
              the Delhi High Court, as the Sole Arbitrator.
       3.10 Aggrieved by the orders of the learned single judge of the
            High Court, the appellant filed the present appeals thereby
            challenging both the interim order and the final judgement &
            order.
       3.11 This Court vide order dated 23rd July, 2021, issued notice and
            stay of further proceedings of the arbitration was granted.
4.     We have heard Shri Gopal Sankaranarayanan, learned Senior
       Counsel appearing on behalf of the appellant & Shri Sumit Kumar,
       learned counsel appearing on behalf of the respondent.
5.     Shri Gopal Sankaranarayanan, learned Senior Counsel appearing for
       the appellant submits that the High Court has grossly erred in invoking
       its power under Section 11(6) of the Arbitration Act. It is submitted that
       Clause 2.0 of the Letter of Intent dated 4th December 2006 (“L.O.I.”
       for short) though states that all terms and conditions as contained
       in the tender issued by the Damodar Valley Corporation (“DVC” for
       short) to the NBCC shall apply mutatis mutandis, it also makes it clear
       that where the terms and conditions have been expressly modified
       by the NBCC, the same would not be applicable. It is submitted that
       Clause 1.0 of the L.O.I. specifically states that various conditions,
       i.e., contractual, financial and technical mentioned in the documents
       contained therein shall be binding on the respondent for execution
       of works and they shall form part of the agreement. Clause 10.0
       also states that the L.O.I. shall also form a part of the agreement.
[2024] 3 S.C.R.                                                          817

            NBCC (India) Limited v. Zillion Infraprojects Pvt. Ltd.


      It is submitted that the intention is amply clear from Clause 7.0 of
      the L.O.I., which states that the redressal of dispute between the
      NBCC and the respondent shall only be through civil courts having
      jurisdiction of Delhi alone. It further states that the laws applicable
      to the contract between the parties shall be the laws enforceable in
      India. It is submitted that merely on account of reference in the L.O.I.
      to the terms and conditions as contained in the tender issued by the
      DVC to the NBCC, Clause 3.34 of the Additional Terms & Conditions
      of Contract would not apply in view of specific modification as stated
      in Clause 2.0 of the L.O.I.
6.    Learned Senior Counsel submits that a mere reference to the
      terms and conditions without there being an incorporation in the
      L.O.I. would not make the lis between the parties amenable to the
      arbitration proceedings. Relying on the judgment of this Court in
      the case of M.R. Engineers and Contractors Private Limited
      vs. Som Datt Builders Limited1, he submits that unless the L.O.I.
      specifically provides for incorporation of the arbitration clause, a
      reference to the arbitration proceedings would not be permitted
      in view of the provisions of sub-section (5) of Section 7 of the
      Arbitration Act.
7.    Shri Sumit Kumar, learned counsel appearing for the respondent,
      on the contrary, submits that there is a specific reference in Clause
      2.0 of the L.O.I. to the terms and conditions in the tender issued by
      the DVC to the NBCC. He submits that the only modification is that
      under Clause 3.34 of the Additional Terms & Conditions of Contract,
      the jurisdiction is vested with the Court in the City of Kolkata only,
      whereas in the L.O.I. the jurisdiction would be vested in the civil
      courts having jurisdiction of Delhi alone. It is submitted that the
      learned single judge of the Delhi High Court has rightly considered
      this aspect and as such, no interference would be warranted in the
      impugned order.
8.    Sub-section (5) of Section 7 of the Arbitration Act reads thus:
             “7. Arbitration Agreement.-1)……………….
                    xxx		   xxx		      xxx



1    (2009) 7 SCC 696
818                                                            [2024] 3 S.C.R.

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            (5) The reference in a contract to a document containing
            an arbitration clause constitutes an arbitration agreement
            if the contract is in writing and the reference is such as to
            make that arbitration clause part of the contract.”
9.     The issue is no more res integra. The provisions of sub-section (5)
       of Section 7 of the Arbitration Act have been considered by this
       Court in the case of M.R. Engineers and Contractors Private
       Limited (supra). After considering the relevant passages from
       Russell on Arbitration and various English judgments, this Court
       held thus:
            “24. The scope and intent of Section 7(5) of the Act 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
[2024] 3 S.C.R.                                                           819

          NBCC (India) Limited v. Zillion Infraprojects Pvt. Ltd.


                 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.
           (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 and 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 the Government is a party),
                 the arbitration clause forming part of such general
                 conditions of contract will apply to the contract
                 between the parties.”
10. It could thus be seen that this Court has held that 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. It has been held that 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. It has further been held that 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
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       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.
11. This Court further held that where the contract provides that the
    standard form of terms and conditions of an independent trade or
    professional institution 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. It has been held that 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. It has also been held that 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, the
    arbitration clause forming part of such general conditions of contract
    will apply to the contract between the parties.
12. A perusal of sub-section (5) of Section 7 of the Arbitration Act itself
    would reveal that it provides for a conscious acceptance of the
    arbitration clause from another document, by the parties, as a part
    of their contract, before such arbitration clause could be read as a
    part of the contract between the parties.
13. It is thus clear that a reference to the document in the contract should
    be such that shows the intention to incorporate the arbitration clause
    contained in the document into the contract.
14. The law laid down in the case of M.R. Engineers and Contractors
    Private Limited (supra) has been followed by this Court in the
    cases of Duro Felguera, S.A. vs Gangavaram Port Limited 2
    and Elite Engineering and Construction (Hyderabad) Private
    Limited represented by its Managing Director vs Techtrans
    Construction India Private Limited represented by its Managing
    Director3.
15. No doubt that this Court in the case of Inox Wind Limited vs
    Thermocables Limited4 has distinguished the law laid down in the


2   [2017] 10 SCR 285 : (2017) 9 SCC 729
3   [2018] 4 SCR 585 : (2018) 4 SCC 281
4   [2018] 1 SCR 86 : (2018) 2 SCC 519
[2024] 3 S.C.R.                                                             821

          NBCC (India) Limited v. Zillion Infraprojects Pvt. Ltd.


     case of M.R. Engineers and Contractors Private Limited (supra).
     In the said case (i.e. Inox Wind Limited), this Court has held that
     though general reference to an earlier contract is not sufficient for
     incorporation of an arbitration clause in the later contract, a general
     reference to a standard form would be enough for incorporation of
     the arbitration clause. Though this Court in the case of Inox Wind
     Limited (supra) agrees with the judgment in the case of M.R.
     Engineers and Contractors Private Limited (supra), it holds that
     general reference to a standard form of contract of one party along
     with those of trade associations and professional bodies will be
     sufficient to incorporate the arbitration clause. In the said case (i.e.
     Inox Wind Limited), this Court found that the purchase order was
     issued by the appellant therein in which it was categorically mentioned
     that the supply would be as per the terms mentioned therein and in
     the attached standard terms and conditions. The respondent therein
     by his letter had confirmed its acceptance. This Court found that the
     case before it was a case of a single-contract and not two-contract
     case and, therefore, held that the arbitration clause as mentioned
     in the terms and conditions would be applicable.
16. The present case is a ‘two-contract’ case and not a ‘single-contract’
    case.
17. It will be relevant to refer to Clause 3.34 of the Additional Terms &
    Conditions of Contract as contained in the tender issued by the DVC
    to the NBCC. Clause 3.34 reads thus:
           “3.34      SETTLEMENT OF DISPUTES & ARBITRATION
           Any dispute(s) or difference(s) arising out of or in connection
           with the contract shall to the extent possible be settled
           amicably between the owner and supplier/contractor.
           In the event of any dispute or difference whatsoever arising
           under the contract or in connection therewith including any
           question relating to existence meaning and interpretation of
           the contract or any alleged breach thereof the same shall
           be referred to the sole arbitration of the Secretary, CEO
           of Damodar Valley Corporation, Kolkata-54 or to a person
           appointed by him for that purpose. The arbitration shall be
           conducted in accordance with the provisions of arbitration
           and conciliation law 1996 and the decision/judgment of
           Arbitrator shall be final and binding on both the parties.
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          All suits arising out of this enquiry and subsequent purchase
          order, if any, are subject jurisdiction of court in the City of
          Kolkata only and no other door when resolution/settlement
          through mutual discussion and arbitration fails.”
18. No doubt that Clause 3.34 provides for a reference of the dispute
    to the sole arbitration of the Secretary, CEO of Damodar Valley
    Corporation, Kolkata-54 or to a person appointed by him for that
    purpose.
19. It will also be apposite to refer to Clauses 1.0, 2.0, 7.0 and 10.0 of
    the L.O.I., which read thus:
          “1.0 The work shall be executed you on contractual,
               financial and technical conditions of contract as
               contained in the following documents which shall be
               applicable and binding on you for execution of works
               and shall form part of agreement with you as also
               mentioned in the above mentioned NIT-01/WEIR/06
               dated November 3, 2006.
               (a)   Notice Inviting Tender
               (b)   General Conditions of Contract
               (c)   Special Conditions of Contract
               (d)   Bill of Quantity
          2.0 All terms and conditions as contained in the tender
              issued by DVC to NBCC shall apply mutatis mutandis
              except where these have been expressly modified
              by NBCC.
          7.0 The redressal of dispute between NBCC and you
              shall only be through civil courts having jurisdiction
              of Delhi alone. The laws applicable to this contract
              shall be the laws enforceable in India.
          10.0 This letter of intent shall also form a part of the
               agreement.
20. In view of Clause 1.0, the documents stated therein shall also form
    part of the agreement. In view of Clause 2.0, all terms and conditions
    as contained in the tender issued by the DVC to the NBCC shall apply
    mutatis mutandis except where these have been expressly modified
[2024] 3 S.C.R.                                                        823

          NBCC (India) Limited v. Zillion Infraprojects Pvt. Ltd.


     by the NBCC. Clause 7.0 specifically provides that the redressal of
     dispute between the NBCC and the respondent shall only be through
     civil courts having jurisdiction of Delhi alone. Clause 10.0 further
     provides that the L.O.I. shall also form a part of the agreement.
21. It is thus clear that the intention between the parties is very clear.
    Clause 7.0 of the L.O.I. which also forms part of the agreement
    specifically provides that the redressal of the dispute between the
    NBCC and the respondent shall only be through civil courts having
    jurisdiction of Delhi alone. It is pertinent to note that Clause 7.0 of
    the L.O.I. specifically uses the word “only” before the words “be
    through civil courts having jurisdiction of Delhi alone”.
22. As already discussed herein above, when there is a reference in the
    second contract to the terms and conditions of the first contract, the
    arbitration clause would not ipso facto be applicable to the second
    contract unless there is a specific mention/reference thereto.
23. We are of the considered view that the present case is not a case of
    ‘incorporation’ but a case of ‘reference’. As such, a general reference
    would not have the effect of incorporating the arbitration clause.
    In any case, Clause 7.0 of the L.O.I., which is also a part of the
    agreement, makes it amply clear that the redressal of the dispute
    between the NBCC and the respondent has to be only through
    civil courts having jurisdiction of Delhi alone.
24. In that view of the matter, we find that the learned single judge of
    the Delhi High Court has erred in allowing the application of the
    respondent. The appeals are accordingly allowed. The impugned
    orders are quashed and set aside. There shall be no order as to costs.
25. Pending applications, if any, shall stand disposed of.


     Headnotes prepared by:                              Result of the case:
     Himanshu Rai, Hony. Associate Editor                 Appeals allowed.
     (Verified by: Kanu Agrawal, Adv.)