On 05.01.2018, the Supreme Court of India delivered an important judgement on the law on incorporation of arbitration clause by reference. The question before the Supreme Court was whether the arbitration clause forming a part of standard form of contract of a party is binding on the contracting parties if the standard form is incorporated by reference to govern their contract. The court was of the view that the previous decision of the Supreme Court in MR Engineers & Contractors Pvt. Ltd. v. Som Datt Builders Ltd. (2009) 7 SCC 696 restricted incorporation only to standard forms of terms of trade associations/ professional bodies, and not to standard terms of a party. The court held that English law (which was relied on by the court in MR Engineers has since evolved and that a mere reference in the contract to the standard terms of one of the parties to the contract is sufficient to treat the arbitration clause containing in such standard terms as binding between the parties. This presentation critically evaluates the decision and raises significant questions on the efficacy of the current law on the subject. While it agrees with the conclusion of the Supreme Court on the main aspect before the case, it raises questions on the manner in which the change of law has been achieved without reference of the question to a larger Bench. The presentation also argues that the position on the law as regards incorporation in general is not satisfactory and requires detailed consideration by a larger Bench.

1. Incorporation of Arbitration
Clause by Reference: Inox
Wind Ltd. v. Thermocables
Ltd. (2017: SCI)
(10.01.2018)
Badrinath Srinivasan, LL.M., A.I.I.I., M.C.I. Arb.
lawbadri@gmail.com
http://in.linkedin.com/pub/badrinath-srinivasan/13/604/916
www.practicalacademic.blogspot.in
http://ssrn.com/author=665603

2. Question Involved
• Law as it stood before: a reference to a standard form of
contract of a trade association or professional institution
was sufficient to incorporate the arbitration clause
contained in the standard form.
• Question: whether the arbitration clause forming a part of
standard form of contract of a party is binding on the
contracting parties if the standard form is incorporated by
reference to govern their contract?

3. Case Information
• Civil Appeal No. 19/2018 arising out of SLP (Civil) No.
31049 of 2016
• Date of decision: 05.01.2018
• Bench: L Nageshwara Rao, J. for SA Bobde & L
Nageshwara Rao, JJ.
• Case: Appeal against judgement of the High Court
(Allahabad) dismissing the application of Inox Wind Ltd.
for appointment of arbitrator under Section 11(6) of the
Arbitration & Conciliation Act, 1996.
• Link to the judgement

4. Facts
• Inox Wind Ltd. (Inox) issued Purchase Orders on
Thermocables Ltd. (TC) for cables for wind turbines
• Standard Terms & Conditions of Inox was made a part of the
Purchase Order in the below manner: “Important Instructions:
1) This order is subject to our terms and conditions given
above and in the Standard terms and
• conditions (attached).”
• Standard T&C contained arbitration clause
• Due to defects in cables supplied, Inox invoked arbitration in
October 2014.
• Since there was no response, Inox approached the High
Court for appointment of arbitrators

5. Proceedings before the
High Court
• High Court dismissed the Petition on the ground that there was
no arbitration agreement (judgement).
• High Court relied on MR Engineers & Contractors Pvt. Ltd. v.
Som Datt Builders Ltd. (2009) 7 SCC 696 and held: “Clearly
the purchase order does not contain a clear or special
reference of any matter, which may be referred to arbitration
and for that reason the applicant would not be entitled to seek
appointment of an arbitrator on the basis of any stipulation
contained in the purchase order.”
• Thus, HC felt that unless there was a specific reference to the
arbitration clause, mere incorporation of Standard T &C was
not sufficient to read in an arbitration agreement.

6. MR Engineers v. Som Datt
• MR Engineers & Contractors Pvt. Ltd. v. Som Datt Builders
Ltd is the precedent holding the field
• Supreme Court summarised the law on incorporation of
arbitration agreement by reference.
• On incorporation of standard forms of professional bodies, the
SC held: “(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.”

7. MR Engineers v. Som Datt (2)
• On the implications of incorporation of standard/ general
conditions (containing arbitration clause) of one of the
parties to the agreement, party forms of professional
bodies, the SC held: “(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”.

8. Decision
• In the instant case, the court heavily relied on MR
Engineers.
• Traced the evolution of the English law on the issue,
which can be summarised:
o where the contract between parties seek to incorporate standard
industry terms or those of a party (with which the other is familiar), such
incorporation also includes the arbitration clause forming a part of the
terms.
o The same result will ensue in a contract which incorporates terms of a
previous contract between the same parties.
o Specific reference to arbitration clause is required when parties seek to
incorporate terms of contract between other parties or between one of
the parties and another
• Habas Sinai etc. AS v. Sometal SAL [2010] EWHC 29
(Comm.)

9. Decision (2)
• Court noted that MR Engineers relied on a previous
edition of the work Russell on Arbitration (23rd ed. 2007)
while the latest work (24th ed. 2015) which updates the
English law on the subject.
• Fundamentally, English law does not draw a distinction
between standard forms of trade
associations/professional bodies and those of one of the
parties to the contract.
• Court opined that MR Engineers restricted applicability of
arbitration clause only when the standard forms of trade
associations/ professional bodies were incorporated by
reference.

10. Decision (3)
• Court was of the view that that English law had evolved
to the effect that general reference in a contract to a
standard form of one of the parties will incorporate the
arbitration clause contained in the standard form.
• On facts, the TC was aware of the arbitration clause
contained in INOX’s Standard T & C, which was attached
to the Purchase Order.
• Therefore, arbitration clause was binding and the
decision of the High Court was liable to be set aside.

11. Critique
• Para 24(v) of MR Engineers contemplates a situation
where the contract stipulates that Conditions of Contract
of one of the parties to the contract shall form a part of
the contract (See, slide 7). In such a case, MR
Engineers states, the arbitration clause therein would
apply.
• Doesn’t this mean MR Engineers even covers the
situation before the court in the instant case and treats
the arbitration clause as binding?
• If so, the entire analysis of English law by the court was
an unnecessary exercise?

12. Critique (2)
• Having agreed with the decision of the English Commercial
Court in Habas, that where A & B made a contract
incorporating terms previously made between them in another
contract, a general reference to the previous contract will bind
the parties to arbitration clause in that contract, why did the
Supreme Court in the present case state: “We are of the
opinion that though general reference to an earlier contract
was 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.”
(Para 24) (note that this is in line with MR Engineers.

13. Critique (3)
• The Court did not agree with the restrictive view of
incorporation by reference in MR Engineers on the
ground that such restrictive view was inconsistent with
English law.
• But why did the court stick on to MR Engineers as
regards the restrictive view of incorporation of terms of
an earlier agreement between the parties, when English
law as held in Habas only mandates a general reference
to the earlier terms for treating the arbitration clause
contained therein as binding?

14. Critique (4)
• Look at what the court has done in this case.
• The contracts between the parties are of December
2012 and February 2013.
• On those dates, the decision of the SC in MR Engineers
governed the field.
• By relying on the English case of Habas, the Court has
applied English law to the parties when the Indian law
should have governed the transaction!

15. Critique (5)
• MR Engineers is a decision rendered by a two-judge
bench of the Supreme Court.
• If the two judge Bench in the instant case disagreed with
MR Engineers, the ideal course would have been to refer
the matter to the Chief Justice for constituting a larger
Bench to decide the important issue.
• Instead, the court has now sought to modify MR
Engineers, which may not the correct approach.

16. Critique (6)
• The decision in the instant case insofar as treating as
binding the arbitration clause in the standard form of a
party to the contract is correct.
• But the decision as regards requiring specific
incorporation of arbitration clause, not merely the
incorporation to the previous terms of the contract
containing the arbitration clause requires
reconsideration.
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