Telecommunications Consultants India Ltd. vs K.S. Nair, Sole Proprietor, Sree Sarithe Enterprise, Revathi Bhavan Elavanmoodu Neyyattinkara Aralummoodu P.O.

K.B.K. Vasuki, J.—This application is filed by the sole Defendant to refer the case for Arbitration u/s 8 of the Arbitration and Conciliation

Act, 1996. The few facts, which are relevant for consideration of this Court, are as follows:

(i) The Plaintiff and the Defendant, Telecommunications Consultants India Limited (hereinafter referred to as ''TCIL'') are carrying on business as

approved Contractors. During 2004, the Defendant entered into a contract with M/s. Power Grid Corporation of India Limited (herein after

shortly referred to as ""PGCIL"") for executing Optical Fibre Laying work at different places in Southern, Eastern and Northern Regions. In order to

carry out the work, the Defendant engaged the Plaintiff herein as one of its Sub-Contractors and the Plaintiff was entrusted with certain work

relating to trenching and pipe laying for Optical Fibre Cables. The Plaintiff expressed his willingness on 3.6.2004 to execute the said work and on

15.6.2004, the Plaintiff was issued with Work Order.

(ii) According to the Plaintiff, the Plaintiff executed the job, as per the time schedule prescribed and in accordance with the specifications contained

in the Work Order dated 15.6.2004 and the work executed by the Plaintiff was also duly certified by the Defendant through their representative

and the Defendant raised bills for the work executed and the value of the bills so raised by the Plaintiff was also included in the corresponding bill

and M/s. Power Grid Corporation of India Limited passed and sanctioned the same to the Defendant. However, the Defendant did not settle the

bill in full to the Plaintiff but made only part payment and the Defendant had been evading to make payment despite personal meeting held between

the officials of the Plaintiff and the Defendant on 17.10.2007. The Defendant by their Letter dated 30.10.2007 addressed to the Plaintiff admitted

its liability for release of payment towards the work executed. On 31.10.2007, the Plaintiff Company addressed a letter to the Project Director of

the Southern Region of the Defendant recommending release of the payment of the bill so raised by the Plaintiff. On 28.05.2008, the Plaintiff

issued a legal notice to the Defendant claiming full payment, even thereafter, the Defendant having admitted its liability to pay the same, did not pay

any amount, which compelled the Plaintiff to come forward with the present Suit for recovery of Rs. 6,02,080/- with interest at 24% p.a. on Rs.

12,51, 000/- from the date of Plaint till date of realisation. The Defendant after having duly entered appearance in the Suit, has come forward with

this Application for referring the matter for Arbitration.

The learned Counsel for the Applicant/Defendant would vehemently contend that the Plaintiff has been an approved Contractor from 1993

onwards and the Plaintiff has been regularly participating in the tender, floated by the Defendant and with full knowledge of the Terms and

Conditions of the contract and the work was awarded to the Plaintiff, as per the Form of Proposal, forming part of the Work Order, as per which

any dispute arises in relation to execution of the work between the Plaintiff and the Defendant has to be referred for arbitration and in terms of

General Agreement entered into between the Plaintiff and the Defendant, alternative remedy by way of arbitration is available and the Suit is not

maintainable.

The Defendant has come forward with this Application to refer the matter for arbitration only on the strength of Clauses 10 & 11 of the Work

Order, dated 15.6.2004, the copy of which order is enclosed at pages 10 to 13 of the main typed set of papers. Whereunder it is stated, as

follows; ""all the Terms and Conditions mentioned in the Tender Schedule and Form of Proposal shall also form part of this award"". It is sought to

be contended by the learned Counsel for the Applicant/Defendant that as per Form of Proposal, enclosed at pages 1 & 2 of the same typed set of

papers, the settlement of dispute shall be referred before the sole Arbitrator appointed by the Engineer and as the present dispute raised relates to

non-payment of amount due to the Plaintiff for the execution of the work under the contract, the same ought to have been referred to the Arbitrator

and the Plaintiff ought not to have raised any claim by way of Civil Suit and the same is not maintainable to decide the dispute between the Plaintiff

and the Defendant.

Per contra, the learned Counsel for the Respondent/Plaintiff would seriously oppose the relief sought for on the ground that mere incorporation

of any clause in the Work Order without special reference of the Arbitration clause is not enough to invoke Arbitration clause and by reason of

absence of special reference to Arbitration Agreement in the Work Order, the Civil Court jurisdiction does not stand ousted.

Heard the rival submissions made on either side.

As already referred to, the main contract referred in the present Suit is admittedly between M/s. Power Grid Corporation of India Limited and

the Defendant-M/s Telecommunications Consultants India Limited. Whereas, the sub-contract is between the Defendant and the Plaintiff in respect

of part of the project work. It may be true that the contract between the principal employer and the principal contractor contains specific clause for

adjudication through arbitration of disputes arising between the parties to the contract. It is also not in dispute that the Plaintiff had on earlier

occasion entrusted with specific project work by the Defendant and the Plaintiff as Sub-Contractor on the strength of written contract or Work

Order executed the earlier projects. The details of such earlier projects and the copies of earlier written contracts are enclosed at pages 4 to 9 of

the additional typed set of papers filed by the Defendant.

The contract, so entered into between the Plaintiff and the Defendant contain specific clauses to the effect that the standard documents referred

to therein shall be deemed to form and be read and be construed as part of the Agreement entered into between the parties and one of such

standard documents referred to in the earlier contract is Form of Proposal which is general in nature. It may be true that no such separate

Agreement is entered into between the parties in the present case. Though as per Clause 10 of the Work Order, dated 15.6.2004, the Plaintiff was

called upon to attend the office of the Defendant for signing one such formal Agreement for submission of Bank guarantee, admittedly, no such

Agreement is signed between the parties and the work was executed only on the strength of Work Order dated 15.6.2004. That being so, the

point for consideration before this Court is, whether clause in the said Work Order can be construed as special reference for settlement of disputes

through arbitration and is sufficient enough to invoke Arbitration clause.

For the purpose of appreciating the contention raised on both sides in this regard, the relevant provision of law, in the light of which the Work

Order, dated 15.6.2004, to be appreciated, is Section 7 of the Arbitration and Conciliation Act. Section 7 of Arbitration and Conciliation Act

which defines Arbitration Agreement is extracted hereunder:

Section 7. Arbitration Agreement.--(1) In this part, ''Arbitration Agreement'' means an Agreement by the parties to submit to arbitration all or

certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.

(2) An Arbitration Agreement may be in the form of an Arbitration clause in a contract or in the form of a separate Agreement.

(3) An Arbitration Agreement shall be in writing.

(4) An Arbitration Agreement is in writing, if it is contained in-

(a) a document signed by the parties;

(b) an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the Agreement; or

(c) an exchange of statements of claim and defence in which the existence of the Agreement is alleged by one party and not denied by the other.

(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.

As there is no separate Agreement in the present case, the Award Letter, dated 15.6.2004, can be treated as the written contract between parties

in respect of the work entrusted to the Defendant.

In the Judgment reported in M.R. Engineers and Contractors Pvt. Ltd. Vs. Som Datt Builders Ltd., similar Work Order is treated as a contract

containing Arbitration clause. In the case cited above the Public Works Department, Government of Kerala entered into an Agreement with the

Respondent therein and the same contained a provision for Arbitration. The Appellant before the Supreme Court is Sub-Contractor of the

Respondent like that of the Plaintiff in present case. The similar Work Order is issued to the said Sub-Contractor by the contractor on with a

direction that the contract work shall be carried out as per the tender specifications and drawings issued for construction by the client and the sub-

contract shall be carried out on Terms and Conditions as applicable to the main contract unless otherwise mentioned in the order letter. Thereafter,

the work was entrusted to the Sub-Contractor and the Sub-Contractor executed the work. Similar dispute arose between the parties and the Sub-

Contractor filed an Application u/s 11 of the Arbitration Act on the strength of the Terms and Conditions mentioned in the Work Order dated

4.5.1994 to the effect that the sub-contract shall be carried out on the Terms and Conditions as applicable to the main contract. According to the

Sub-Contractor, entire Terms and Conditions of the main contract including Arbitration clause stands incorporated into the Work Order dated as

such the Arbitration clause is automatically made applicable to the execution of work entrusted to the Sub-Contractor, as such the present dispute

has to be necessarily referred for arbitration. Such contention was aggressively denied by the Respondent, as such the question that arose for

consideration before the Supreme Court was whether the provision for Arbitration contained in the contract between the Principal Employer and

the Contractor was incorporated by reference in the sub-contract between the Contractor and the Sub-Contractor.

The Supreme Court in the same Judgment explained the manner of including Arbitration clause in the contract between the parties. It is

observed by the Supreme Court that it can be by two ways. Firstly Arbitration clause contained in independent document will be imported and

engrafted in the contract between the parties. Secondly by making reference to such independent document in the contract, in such a manner as to

make the Arbitration clause in the main contract to be part of the subsequent contract. The difference between the two clauses is in unequivocal

terms explained in Para 16 of its Judgment by the Supreme Court (i) in the first case, the parties intend to adopt only specific portion or part of the

document for the purpose of the contract, whereas (ii) in the second case the parties intend to incorporate the referred document in entirety into the

contract in order and in order to ascertain the intention of the parties in the second case, what is further required to be done is as to whether the

reference to the document is with an intention to incorporate the contents of that document in entirety into the contract or with the intention of

adopting or borrowing specific portions of the said document for application to the contract.

The Supreme Court has also in Paragraph 17 given certain instances of incorporation and references to explain the position. Paragraphs 16 &

17 of the Judgment are for better understanding and appreciation usefully as follows:

There is a difference between reference to (another document in a contract and incorporation of another document in a contract, by reference.

In the first case, the parties intend to adopt only specific portions or part of the referred document for the purposes of the contract. In the second

case, the parties intend to incorporate the referred document in entirety, into the contract. Therefore when there is a reference to a document in a

contract, the Court has to consider whether the reference to the document is with the intention of incorporating the contents of that document in

entirety into the contract, or with the intention of adopting or borrowing specific portions of the said document for application to the contract.

We will give a few instances of incorporation and mere reference to explain the position (illustrative and not exhaustive). If a contract refers to

a document and provides that the said document shall form part and parcel of the contract, or that all Terms and Conditions of the said document

shall be read or treated as a part of the contract, or that the contract will be governed by the provisions of the said document, or that the Terms

and Conditions of the said document shall be incorporated into the contract, the Terms and Conditions of the document in entirety will get bodily

lifted and incorporated into the contract. When there is such incorporation of the Terms and Conditions of a document, every term of such it,

document (except to the extent it is inconsistent with any specific provision in the contract) will apply to the contract. If the document so

incorporated contains a provision for settlement of disputes by Arbitration, the said Arbitration clause also will apply to the contract.

If the present case is viewed in the light of the illustration given in Paragraph 17 of the Apex Court Judgment, the same would support the

contention of the Defendant that the subsequent contract i.e. Work Order refers to other documents i.e., Tender Schedule and Form of Proposal

with an intention to incorporate the document in its entirety. If that is so all the Terms and Conditions of the documents referred to in Clause 11 in

its entirety will get bodily lifted and get incorporated into the subsequent contract and if the document so referred to contains the provision for

settlement of disputes by arbitration, the said Arbitration clause will also apply to the contract. In order to show that the documents referred to in

Clause 11 contains Arbitration clause, the learned Counsel for the Defendant produced the Form of Proposal which is enclosed at pages 1 & 2 of

the typed set of papers filed on 1.2.2012. Likewise the Agreements entered into between the Plaintiff and the Defendant on earlier occasions in

respect of earlier works which is equivalent to Agreement referred to in Clause 10 are also enclosed at pages 4 to 9 of the typed set of papers

dated 20.2.2012 filed by the Defendant The reading of Form of Proposal reveals that Clause 71 of the same deals with mode of settlement of

dispute through arbitration. Clause 71 is as follows:

Settlement of disputes except where otherwise provided for in the contract all questions and disputes relating to the meaning of the

specification, designs, drawings, and Instructions herein before mentioned and as to the quality of workmanship or materials used on the work or

as to any other question, claim, right matter or thing whatsoever in any way arising out of or relating to the contract designs, drawings,

specifications, instructions, orders or these conditions or otherwise concerning the works, or the execution or failure to execute the same whether

arising during the progress of the work or after the completion or abandonment thereof shall be referred to the sole Arbitrator, to be appointed by

the Engineer. No claims shall be entertained after the expiry of 90 days from the date of completion of work.

Even in the earlier Agreement entered into during 1993 between the parties, the factum of which is not denied by the plaintiff, the document

(i.e.) Form of Proposal, is referred to in such a manner that the Form of Proposal in its entirety, is incorporated. For instance, Clause 2 of the

Agreement dated 10.1.1997 entered into between the Plaintiff and the Defendant enclosed at page 4 of the typed set of papers states as follows:

The following standard documents in addition to the documents attached with NIT shall be deemed to form and be read and constructed as part of

this Agreement viz.,

(a) Form of Proposal

(b) The specification

(c) The drawings

(d) The letter of acceptance

The Arbitration clause in the Form of the Proposal is not specifically and independently incorporated in the Agreement, but there is a reference

to the entire document and when other document referred to in the contract contains Arbitration clause, the Form of Proposal so referred to also

forms part of the subsequent contract and the parties are hence, bound by ""the Terms and Conditions of the same, as per which any dispute arising

between the parties out of contract shall be resolved only through arbitration.

As rightly argued by the learned Counsel for the Defendant, the documents referred to in the contract explicitly indicate the mutual intention of

the parties and incorporation of another document in its entirely into the contract. Even otherwise the Supreme Court in the judgment, as above

referred to observed that the requirement of special reference is not applicable to the document which is standard form of Terms and Conditions

published by Trade Association or Regulatory Institution, which publish or circulate such standard Application for the benefit of the members or

others, who want to adopt the same. The specific clause in the earlier Agreement entered into between the parties would reveal that the standard

document referred to are Form of Proposal, the Specification, the Drawings and the Letter of Acceptance. The same Form of Proposal having

separate Arbitration clauses is specifically referred to in the Work Order, dated 15.6.2004 relating to the present project as such the logical

conclusion to be arrived as is that all the Terms and Conditions of Form of Proposal are agreed to be treated as part of the present contract,

amounting to incorporating the documents in entirety. As one of the Terms and Conditions being settlement of dispute through arbitration, the

parties are bound by the same and are bound to have settlement of their dispute through arbitration, and not by way of Civil Suit before Civil

Court, as such, the relief sought for in this Application is to be necessarily decided in favour of the Applicant/Defendant. In the result, this

Application is ordered as prayed for.