Case Note & Summary
The litigation involved a challenge to the appointment of an arbitrator under Clause 14 of a tender form in a supply contract between a registered partnership firm and Delhi Development Authority. The appellant firm had obtained a tender form on 16.11.1982 and submitted a tender on 18.11.1982 for supply of steel bars. After negotiations, the tender was accepted for 10,000 metric tonnes, and a formal agreement was executed. Thereafter a dispute arose, and the respondent Authority by letter dated 23.10.1984 rescinded and annulled the contract for the balance quantity of 3512.285 tonnes. The Engineer Member of the Authority, purportedly under Clause 14 of the agreement, appointed an arbitrator to adjudicate the disputes. The appellants filed an Original Miscellaneous Petition before the Delhi High Court, contending that they were not party to any arbitration agreement. A learned Single Judge dismissed the petition, and the Division Bench upheld the dismissal, finding that Clause 14 of the agreement required disputes to be referred to an arbitrator appointed by the respondent. The appellants then approached the Supreme Court. The central legal question was whether Clause 14 of the tender form, which provided for arbitration, formed part of the contract between the parties, thereby constituting a valid arbitration agreement under Section 2(a) of the Arbitration Act, 1940. The appellants argued that the tender form was merely general guidance for contractors and that the actual document referred to in the agreement was form No.9, which did not contain an arbitration clause. The respondent maintained that the tender form with Clause 14 was attached to the main agreement and signed by both parties, and the agreement expressly stated that the terms and conditions contained in the tender form were binding. The Supreme Court examined the original agreement and the attached documents. It found that the tender form headed 'Tender and Contract for supply of materials' contained Clause 14, the arbitration clause. The agreement stated that the terms and conditions contained in the tender form and conditions of contract attached to the deed and the letter of acceptance dated 27.12.1982 shall be binding between the parties. Both parties had signed each page of the tender form, including the page containing Clause 14. Thus the arbitration clause was incorporated by reference into the main agreement. The Court reiterated the settled law that an arbitration agreement in writing need not be signed by the parties, and it is sufficient if the terms are reduced to writing and the agreement of the parties thereto is established. It cited Jugal Kishore Rameshwardas v. Mrs. Goolbai Hormusji, Banarsi Das v. Cane Commissioner and Union of India v. A.L. Rallia Ram. The Court also referred to Mustill & Boyd on Commercial Arbitration to explain that an arbitration clause can be incorporated by reference to a standard form or set of trade terms. In the present case, the arbitration clause was not included in the main agreement itself, but it became part of the agreement because the agreement specifically stated that the terms and conditions in the tender form were binding. The special feature was that each page of the tender form was signed by the appellant on behalf of the firm and by the Executive Engineer on behalf of the respondent. A mere denial of the existence of the contract of arbitration by one party does not denude the arbitrator of jurisdiction. The arbitrator derives jurisdiction from the agreement itself, not from its acceptance or denial. Accordingly, the Supreme Court held that Clause 14 of the tender form was a valid arbitration agreement between the parties. The appeal was dismissed, and there was no order as to costs.
Headnote
A) Arbitration Law - Arbitration Agreement - Incorporation by Reference - Arbitration Act, 1940, Section 2(a) - The main agreement expressly stated that the terms and conditions contained in the tender form and conditions of contract attached to the deed and the letter of acceptance dated 27.12.1982 shall be binding between the parties; the tender form with clause 14 was attached and each page signed by both parties, so the arbitration clause was incorporated by reference. Held that clause 14 constituted a binding arbitration agreement even though not repeated in the main deed (Paras Not mentioned). B) Arbitration Law - Existence of Arbitration Agreement - Written Agreement Without Formal Signature - Arbitration Act, 1940, Section 2(a) - To constitute an arbitration agreement in writing, it is not necessary that it be signed by the parties or be contained in a formal agreement; it is sufficient if the terms are reduced to writing and the agreement of the parties thereto is established. Held that the signed tender form and incorporation clause satisfied this requirement (Paras Not mentioned). C) Arbitration Law - Jurisdiction of Arbitrator - Effect of Denial of Arbitration Agreement - Arbitration Act, 1940, Section 2(a) - A mere denial by one party of the existence of a contract of arbitration does not denude the arbitrator of jurisdiction; the arbitrator gets jurisdiction from the agreement itself, not from its acceptance or denial. Held that the appellants' challenge to jurisdiction failed because the arbitration agreement existed through incorporation (Paras Not mentioned).
Issue of Consideration
Whether clause 14 of the tender form, incorporating arbitration, formed part of the agreement between the parties so as to constitute a valid arbitration agreement under Section 2(a) of the Arbitration Act, 1940, despite not being expressly set out in the main deed.
Final Decision
The appeal fails and is dismissed. There shall be no order as to costs. The Supreme Court upheld the validity of the arbitration clause and confirmed the arbitrator's jurisdiction.
Law Points
- Arbitration agreement need not be signed if terms reduced to writing and accepted
- incorporation by reference of tender terms makes arbitration clause part of contract
- signature on tender form and main agreement binds parties
- denial of arbitration agreement does not denude arbitrator jurisdiction
- Section 2(a) Arbitration Act 1940
