Delhi High Court has held that where there are two contracts and the parties in both agreements are not identical, an express reference to the arbitration clause of an earlier agreement is required in order to conclude that the new party has agreed to such method of dispute resolution.
A petition was filed under section 11(6) of the Arbitration and Conciliation Act, 1996, by Murari Lal Agarwal (MLA) in reference to the arbitration of disputes that have allegedly arisen out of an agreement dated 31 October 2013, involving the petitioner, KMC Construction, Pink City Expressway and ETA Star Infrastructure.
The petitioner stated the 31 October agreement makes reference to an agreement dated 5 October 2013 between the petitioner and ETA, which contains an arbitration clause. The petition was opposed by KMC, contending that there was no arbitration agreement between the petitioner and KMC.
The issue brought before the high court was whether the arbitration clause of a previous contract could be invoked for a dispute under a future contract between newer parties, without express mention of the previous agreement.
The high court the petition and relegated the parties to the remedies available to them with respect to their claims. It held that the matter in question was examined in several decisions by the Supreme Court and the high court.
The principal authorities relied upon by the counsel for both sides included (2009) and (2024).
The court observed that the case at hand was factually similar to the Mac Associates judgment, which was also a “two-contract case”, where the arbitration clause was incorporated by a reference to standard terms and conditions.
In the MLA case, KMC is a party only to the agreement dated 31 October, which does not contain an express arbitration clause. It also does not include any specific reference to the incorporation of the arbitration clause from any previous agreement.
The cited judgments clarified that if the array of parties in both agreements is not identical, an express reference to the arbitration clause of a previous contract is required to infer the consent of the new party to such a method of dispute resolution.
The court held that the 31 October contract does not contain an express reference to the arbitration clause of a previous agreement. The contract also indicates a contrary intention by stating that disputes under it would be subject to the “jurisdiction of courts in Delhi, India alone”.
The court rejected the petition that the reference to “all terms and conditions” is sufficient to incorporate the arbitration clause from the previous agreement.
The dispute digest is compiled by Numen Law Offices, a multidisciplinary law firm based in New Delhi & Mumbai. The authors can be contacted at support@numenlaw.com. Readers should not act on the basis of this information without seeking professional legal advice.
