Full Judgment Text
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PETITIONER:
ALIMENTA S.A. ETC.
Vs.
RESPONDENT:
NATIONAL AGRICULTURAL CO-OPERATIVEMARKETING FEDERATION OF IN
DATE OF JUDGMENT09/01/1987
BENCH:
DUTT, M.M. (J)
BENCH:
DUTT, M.M. (J)
MISRA RANGNATH
CITATION:
1987 AIR 643 1987 SCR (1) 957
1987 SCC (1) 615 JT 1987 (1) 117
CITATOR INFO :
RF 1989 SC 818 (4)
ACT:
Arbitration Act, 1940, s.2--Arbitration Agreement--Con-
struction of--Contract for supply of goods--Whether arbitra-
tion clause must form part of such contract--Parties enti-
tled to choose other method for resolving dispute--When
incorporation clause refers to certain particular terms and
conditions only those to be incorporated--Not arbitration
clause.
HEADNOTE:
The appellant and the respondent entered into two con-
tracts on two different dates for supply of HPS groundnut
Kernels jaras. After the usual terms as to quality, quanti-
ty, price etc., the first contract provided in clause II
thereof "that other terms and conditions as per FOSFA--20
contract terms." However, clause 9 of the second contract
did not make any mention of FOSFA--20 contract and all that
was stated was that all other terms and conditions for
supply not specifically shown and covered therein should be
as per previous contract signed between the parties for
similar supply of HPS groundnut. The ’FOSFA-20 contract’
contained an arbitration clause to the effect that any
dispute arising out of this contract, including any question
of law arising in connection therewith, shall be referred to
arbitration and neither party, hereto, nor any persons
claiming under either of them shall bring any action or
other legal proceedings against the other in respect of any
such dispute until such dispute shall first have been heard
and determined by the arbitrators.
Disputes and differences arose between the parties. The
appellant in Civil Appeal No. 1755/1982 alleged that the
respondent therein committed breach of their obligations
under both the contracts and sought to commence arbitration
proceedings. The respondent on the other hand filed a peti-
tion in the High Court under s.33 of the Arbitration Act,
1940 alleging that there was no valid arbitration agreement
between the parties and contended that when it agreed in
clause 11 of the first contract that the parties would be
governed by the terms and conditions of ’FOSFA-20 contract’,
it only had in mind such terms and
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958
conditions as would govern the relationship between the
parties and the fact that there was an arbitration clause in
FOSFA-20 contract came as a complete surprise to the re-
spondent. This petition was opposed by the appellant.
A Single Judge of the High Court held that in view of
the fact that the respondent had been nominated the canalis-
ing agent for export of HPS groundnut, it would not be
unjustified to assume that the respondent was well aware of
the foreign trade in groundnut and the implications of
reference to ’FOSFA-20 contract’ when he put his signatures
to the contract in question; that the arbitration clause in
FOSFA-20 contract was incorporated into the first contract
by virtue of clause 11 providing ’other terms and conditions
as per FOSFA-20 contract terms’. With regard to the second
contract it was held that it did not make any mention of
FOSFA-20 contract and all that was stated in clause-9 there-
of was that all terms and conditions for supply not specifi-
cally shown and covered therein should be as the previous
contract signed between the parties for similar supply of
HPS.
It was accordingly held that there existed no arbitra-
tion agreement between the parties and, as such, none of
them was entitled to seek reference to arbitration; and that
a term about arbitration was not incidental to supply of
goods and it was difficult to read from the provisions of
clause 9 of the contract that the arbitration clause was
lifted from there and made a part of the same.
The applications under s.33 of the Arbitration Act was
allowed in so far as it related to the second contract, and
disallowed so far as the first contract was concerned. Both
parties filed appeals to this Court.
Dismissing the appeals,
HELD: 1(i) The arbitration clause of an earlier contract
can, by reference, be incorporated into a later contract
provided however, it is not repugnant to or inconsistent
with the terms of the contract in which it is incorporated.
[962F-G]
1(ii) Where the parties are aware of the arbitration
clause of an earlier contract, the subject-matter of which
is different from the contract which is being entered into
by them, incorporating the terms of the earlier contract by
reference by using general words, there would be no bar to
such incorporation merely because the subject-matters of the
two contracts are different, unless however, the incorpora-
tion of the
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arbitration clause will be insensible or unintelligible.
[965G-H; 966A]
1 (iii) There is no proposition of law that when a
contract is entered into for supply of goods, the arbitra-
tion clause must form part of such a contract. The parties
may choose some other method for the purpose of resolving
any dispute that may arise between them. But in such a
contract the incidents of supply generally form part of the
terms and conditions of the contract. [966F-G]
1 (iv) When the incorporation clause refers to certain
particular terms and conditions, only those terms and condi-
tions are incorporated and not the arbitration clause.
[967A]
2. The normal incidents of terms and conditions of
supply are those which are connected with supply, such as,
its mode and process, time factor, inspection and approval,
if any, reliability for transit, incidental expenses etc. An
arbitration clause is not a term of supply. [966E-F]
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In the instant case, there is a good deal of difference
between clause 9 of the second contract and clause 11 of the
first contract. Clause 11 has been couched in general words,
but clause 9 refers to all other terms and conditions for
supply. The first contract includes the terms and conditions
of supply and as clause 9 refers to these terms and condi-
tions of supply, it is difficult to hold that the arbitra-
tion clause is also referred to and, as such, incorporated
into the second contract. [966C-D]
Dwarkadas & Co. v. Daluram Gaganmull, AIR 1951 Cal 10
F.B., approved.
Hamilton & Co. v. Mackie & Sons, [1889] 5 TLR 677
(C.A.),The Annefield, [1971] 1 All. E.R. 394 & The Njegos,
[1935] All ER Rep. 863, held inapplicable.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1755 &
1756 of 1982
From the Judgment and Order dated 11.12.1981 of the
Delhi High Court inC.M.P.No. 41 to 1981.
P.R. Andhyarjina, D.N. Misra and M.P. Baroocha for the
Appellant.
G. Ramaswamy, Additional Solicitor General, V.P. Singh
and Miss Sushma Relan for the Respondents.
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The Judgment of the Court was delivered by
DUTT, J. These two appeals by special leave--one pre-
ferred by the National Agricultural Co-operative Marketing
Federation of India Ltd (for short ’NAFFD’) and the other by
Alimenta S.A. (for short ’Alimenta’), a Swiss Company--are
both directed against the judgment of the Delhi High Court
dated December 11, 1981 whereby the application of NAFFD
under section 33 of the Arbitration Act, 1940, has been
allowed in part.
A contract dated January 12, 1980 was entered into by
and between the parties, namely, NAFED and Alimenta for the
sale and supply of 5,000/8,000 M.T. of HPS groundnut kernels
Jaras. After the usual terms as to quality, quantity, price,
etc., the contract provided in clause 11 thereof as
follows:-
"Other terms and conditions as per FOSFA-20 contract terms."
The expression ’FOSFA’ means the Federation of Oils, Seeds
and Fats Association Ltd. Subsequently, another contract
dated April 3, 1980 was entered into between the parties in
respect of 4,000 metric tonnes of groundnut kernels. Clause
9 of this contract provided as follows:-
"All other terms and conditions for supply not specifically
shown and covered hereinabove shall be as per previous
contract signed between us for earlier supplies of H.P.S."
The FOSFA-20 contract contains an arbitration clause
which is as follows:-
"ARBITRATION: Any dispute arising cut of this contract,
including any question of law arising in connection there-
with, shall be referred to arbitration in London (or else-
where if so agreed) in accordance with the Rules of Arbitra-
tion and Appeal of the Federation of Oils, Seeds and Fats
Association Limited, in force at the date of this contract
and of which both the parties hereto shall be deemed to be
cognizant.
Neither party hereto, nor any persons claiming under either
of them shall bring any action or other legal proceedings
against the other of them in respect of any such dispute
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until such dispute shall first have been heard and deter-
mined by the arbitrators, umpire or Board of Appeal (as the
case may be) in accordance with the Rules of Arbitration and
Appeal of the Federation, and it is hereby expressly agreed
and declared that the obtaining of an Award from the arbi-
trators, umpire, or Board of Appeal (as the case may be),
shall be a condition precedent to the right of either party
hereto or of any person claiming under either of them to
bring any action or other legal proceedings against the
other of them in respect of any such dispute."
Disputes and differences arose between the parties.
Alimenta alleged that NAFED committed breach of their obli-
gations under both the contracts and sought to commence
arbitration proceedings. On the other hand, on March 19,
1981, NAFED filed a petition in the Delhi High Court under
section 33 of the Arbitration Act, 1940 alleging, inter
alia, that there was no valid arbitration agreement between
the parties. It was contended by NAFED that when it agreed
in clause 11 of the first contract that the parties would be
governed by the terms and conditions of FOSFA-20 contract,
it only had in mind such terms and conditions as would
govern the relationship between the parties. Further, the
fact that there was an arbitration clause in FOSFA-20 con-
tract came as a complete surprise to NAFED. In other words,
it was sought to be contended that NAFED was not at all
aware of any arbitration clause in FOSFA-20 contract and,
accordingly, it could not agree to incorporate any such
arbitration clause in the contracts in question. The said
petition under section 33 of the Arbitration Act was opposed
by Alimenta.
A learned Single Judge of the High Court came to the
finding that in view of the fact that NAFED had been nomi-
nated as the canalising agent for export of HPS groundnut
under the provisions of the Export Control Order by the
Central Government, it would not be unjustified to assume
that the Senior Manager of NAFED was well aware of the
foreign trade in groundnut and the implications of reference
to FOSFA-20 contract when he put his signature to the con-
tract in question. The learned Judge could not believe that
the Manager of NAFED was not aware of the terms of FOSFA-20
contract. Accordingly, the plea of NAFED that it was not
aware of the existence of an arbitration clause in FOSFA-20
contract was overruled. The learned Judge held that the
arbitration clause in FOSFA-20 contract was incorporated
into the first contract dated January 12, 1980 by virtue of
clause 11 thereof providing "other terms and conditions as
per FOSFA-20 contract terms".
962
So far as the second contract dated April 3, 1980 is
concerned, it was pointed out by the learned Judge that it
did not make any mention of FOSFA-20 contract and all that
was stated in clause 9 thereof was that all other terms and
conditions for supply not specifically shown and covered
therein should be as per previous contract signed between
the parties for similar supply of HPS. The learned Judge
took the view that only those terms and conditions which
were referred to or connected with and germane to the sup-
ply, ,had been made applicable from the earlier contract
that is to say, the first contract dated January 12, 1980.
Further, it was observed that a term about arbitration was
not incidental to supply of goods and it was difficult to
read from the provisions of clause 9 of the second contract
that the arbitration clause was lifted from there and made a
part of the same. Upon the said findings, the learned Judge
allowed the petition under section 33 of the Arbitration Act
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in so far as it related to the second contract dated April
13, 1980. It was held that no arbitration agreement existed
between the parties and, as such, none of them was entitled
to seek reference to arbitration with regard to the first
contract, and that the same was governed by the arbitration
clause as having been incorporated therein from the FOSFA-20
contract. The petition under section 33 was disallowed so
far as the first contract was concerned. Hence, these two
appeals--one by NAFED against the judgment of the learned
Judge disallowing the petition under section 33 in respect
of the first contract and the other by Alimenta in so far as
it allowed the petition relating to the second contract.
We may at first deal with the appeal preferred by the
appellant NAFED relating to the first contract. The question
is whether by clause 11 in the first contract, the arbitra-
tion clause in FOSFA-20 contract can be said to have been
incorporated into the contract. It is now well established
that the arbitration clause of an earlier contract can, by
reference, be incorporated into a later contract provided,
however, it is not repugnant to or inconsistent with the
terms of the contract in which it is incorporated. Mr. G.
Ramaswamy, learned Additional Solicitor General appearing on
behalf of the appellant, has strenuously urged that the High
Court was wrong in holding that the arbitration clause in
the FOSFA-20 contract was incorporated into the first con-
tract by virtue of the incorporation clause. He has drawn
our attention to the second illustration at page 46 of
Russell on Arbitration, Twentieth Edition. The illustration
refers to the decision of Lord Esher M.R. in Hamilton & Co.
v. Mackie & Sons, [1889] 5 TLR 677 (C.A.). We have looked
into that decision as much reliance has been placed thereon
on behalf of NAFED. In that case a bill of lading
963
contained the words "all other terms and conditions as per
charterparty". The charterparty contained an arbitration
clause. It was contended on behalf of the ship-owners that
the arbitration clause in the charterparty was incorporated
into the bill of lading. In overruling the said contention
Lord Esher M.R. Observed:-
"Where there was in a bill of lading such a condition as
this, ’all other conditions as per charterparty’, it had
been decided that the conditions of the charterparty must be
read verbatim into the bill of lading as though they were
there printed in extenso. Then if it was found that any of
the conditions of the charterparty on being so read were
inconsistent with the bill of lading they were insensible,
and must be disregarded. The bill of lading referred to the
charterparty, and therefore, when the condition was read in,
’All disputes under this charter shall be referred to arbi-
tration, ’it was clear that condition did not refer to
disputes arising under the bill of lading, but to disputes
arising under the charterparty. The condition therefore was
insensible, and had no application to the present dispute,
which arose under the bill of lading."
According to Lord Esher M.R., the arbitration clause in
charterparty "all disputes under this charter shall be
referred to arbitration", if incorporated into the bill of
lading would be quite insensible because of the words "under
this charter". The arbitration clause was, therefore, meant
only for the charterparty and not for the bill of lading.
In a Full Bench decision of the Calcutta High Court in
Dwarkadas & Co. v. Daluram Gaganmull, AIR 1951 Cal 10 F.B.,
the said observation of Lord Esher M.R. was considered by
Harries, CJ. The learned Chief Justice also took the view
that if the arbitration clause in the charterparty was
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imported into the bill of lading it would be quite meaning-
less because no dispute under the charter could arise in the
contract evidenced by the bill of lading. According to the
learned Chief Justice, if the words of the arbitration
clause in the charterparty had read "all disputes under this
contract shall be referred to arbitration", then if that
term was transported into the bill of lading, it would be a
perfectly sensible and reasonable term, for, once it had
imported the phrase "all disputes under this contract", it
would refer to all disputes arising under the bill of lad-
ing. There would, therefore, be nothinhg inconsistent be-
tween such a term and the terms of the bill of
964
lading and that being so, cases similar to the case of
Hamilton & Co. v. Mackie & Sons (supra) would have no appli-
cation to the case. This view was also taken by the other
learned Judges of the Full Bench.
In our opinion, Harries, C J, had taken a very reasona-
ble and sensible view. It is true, as pointed out by Lord
Esher M.R., that the expression "all disputes under this
charter", if incorporated into the bill of lading, would be
quite insensible. But if, the clause had been "any dispute
under this contract", then after incorporation into the bill
of lading the words "this contract" would only mean the bill
of lading into which it had been incorporated. In the in-
stant case, as has been already noticed, the arbitration
clause in the FOSFA-20 contract provides "any dispute aris-
ing out of this contract" and, as such, there is no diffi-
culty in the incorporation of the arbitration clause into
the first contract, for, the words "this contract" would
mean the first contract into which it has been incorporated.
Such incorporation would be quite intelligible and not
inconsistent with the terms of the first contract. There is,
therefore, no substance in the contention made on behalf of
the appellant on the basis of the decision in Hamilton & Co.
v. Mackie & Sons, (supra).
It is next contended by the learned Additional Solicitor
General that the arbitration clause in FOSFA-20 contract not
being germane to the subject-matter of the first contract,
it cannot be said to have been incorporated therein. It is
pointed by him that the FOSFA-20 contract is a CIF contract
relating to cost, insurance and freight, while the first
contract is a f.o.b. contract. It is, accordingly, submitted
by the learned Counsel that the arbitration clause is not
germane to the subject matter of the first contract. In
support of his contention he has placed much reliance upon
the decision of the Court of Appeal in the case of The
Annefield, [1971] 1 AII.E.R. 394. In that case the question
was whether the arbitration clause in the charterparty was
incorporated into the bill of lading by’ virtue of the
incorporation clause. Clause 39, which was the arbitration
clause, contained the words "All disputes from time to time
arising out of this contract". In considering the question
Lord Denning M.R., referred to the decision in The N]egos,
[935] AII.E.R. Rep. 863, where in the course of the discus-
sion, it transpired that these clauses in the charterparty
and bill of lading had been in existence since 1914 and, it
had always been held that the arbitration clause was not
incorporated in the bill of lading. On behalf of the ship-
owners in that case it was argued that if the arbitration
clause 39 was incorporated into the bill of lading, the
expression "this contract" in clause 39 would then be the
contract evidenced by the bill
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of lading. In other words, the arbitration clause must be
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read in its bill of lading context. This contention was made
on the basis of the observation made by Lord Esher M.R., as
extracted above. The contention also finds support from the
observation of Harries, C J, in Dwarka Das’s case (supra).
Lord Denning M.R. took the view that a clause which is
directly germane to the subject-matter of the bill of lading
that is, to the shipment, carriage and delivery of goods,
could and should be incorporated into the bill of lading
contract, even though it might involve a degree of manipula-
tion of the words in order to fit exactly the bill of lad-
ing. But, if the clause was one which was not thus directly
germane, it should not be incorporated into the bill of
lading contract unless it was done explicitly in clear words
either in the bill of lading or in the charterparty. It was,
however, held by Lord Denning M.R. that an arbitration
clause was not directly germane to the shipment, carriage
and delivery of goods. So, it was not incorporated by gener-
al words in the bill of lading.
Relying upon the decision in The Annefteld, it is sub-
mitted on behalf of the appellant that the arbitration
clause in FOSFA-20 contract is not germane to the subject-
matter of the first contract and, accordingly, it was not
incorporated into the first contract. We are unable to
accept the contention. It has already been noticed earlier
that there has been a long continued practice in England
that the arbitration clause is not incorporated into the
bill of lading by general words, unless it is explicitly
done in dear words either in the bill of lading or in the
charterparty. In the instant case, we are not, however,
concerned with a charterparty and a bill of lading contract.
Even assuming that the subject-matters of FOSFA-20 contract
and the f.o.b. contract are different, we do not think that
any question as to the germaneness of the arbitration clause
to the subject-matter would be relevant. It has been found
by the learned Judge of the High Court that the Manager of
NAFED, who had signed the first contract, was aware of the
terms of the FOSFA-20 contract inducting the arbitration
clause contained therein. It is, therefore, manifestly dear
that by the incorporation of clause 11 in the tint contract,
the appellant intended to incorporate into it the arbitra-
tion clause of FOSFA-20 contract. Thus where, as in the
instant case, the parties are aware of the arbitration
clause of an earlier contract, the subject-matter of which
is different from the contract which is being entered into
by them, incorporates the terms of the earlier contract by
reference by using general words, we do not think there
would be any bar to such incorporation merely because the
subject-matters of the two contracts are different, unless,
however, the incorporation of the arbitration clause will be
966
insensible or unintelligible, as was in Hamilton & Co. v.
Mackie & Sons, (supra). In the instant case, the arbitration
clause in FOSFA-20 contract will fit in the first contract.
In other words, it will not be either insensible or unintel-
ligible. In our opinion, therefore, the High Court was tight
in holding that the arbitration clause in FOSFA-20 contract
was incorporated into the first contract.
In the other appeal which has,been preferred by Alimen-
ta, it has been held by the High Court that there has been
no incorporation of the arbitration clause into the second
contract. In the second contract, clause 9 provides "all
other terms and conditions for supply not specifically shown
and covered hereinabove shall be as per previous contract
signed between us for earlier supplies of HPS". There is a
good deal of difference between clause 9 of this contract
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and clause 11 of the first contract. Clause 11 has been
couched in general words, but clause 9 refers to all other
terms and conditions for supply. The High Court has taken
the view that by clause 9 the terms and conditions of the
first contract which had beating on the supply of HPS were
incorporated into the second contract, and the term about
arbitration not being incidental to supply of goods, could
not be held to have been lifted as well from the first
contract into the second one.
It is, however, contended on behalf of the appellant
that the High Court was wrong in its view that a term about
arbitration is not a term of supply of goods. We do not
think that the contention is sound. It has been tightly
pointed out ’by the High Court that the normal incidents of
terms and conditions of supply are those which are connected
with supply, such as, its mode and process, time factor,
inspection and approval, if any, reliability for transit,
incidental expenses etc. We are unable to accept the conten-
tion of the appellant that an arbitration clause is a term
of supply. There is no proposition of law that when a con-
tract is entered into for supply of goods, the arbitration
clause must form part of such a contract. The parties may
choose some other method for the purpose of resolving any
dispute that may arise between them. But in such a contract
the incidents of supply generally form part of the terms and
conditions of the contract. The first contract includes the
terms and conditions of supply and as clause 9 refers to
these terms and conditions of supply, it is difficult to
hold that the arbitration clause is also referred to and, as
such, incorporated into the second contract. When the incor-
poration clause refers to certain particular terms and
conditions, only those terms and conditions are incorporated
and not the arbitration clause. In the present case, clause
9 specifically refers to the terms and conditions of supply
of the first
967
contract and, accordingly, only those terms and conditions
are incorporated into the second contract and not the arbi-
tration clause. The High Court has taken the correct view in
respect of the second contract also.
In the result, the judgment of the High Court is af-
firmed and both these appeals are dismissed. There will,
however, be no orders as to costs.
M.L.A Appeals dis-
missed.
968