Incorporation of Arbitration Clause by Reference is Valid if Contract Expressly Adopts All Terms of Prior Agreement

In brief

The question

1. Whether an arbitration clause contained in a primary Development Agreement can be incorporated by reference into subsequent individual agreements (PAAA) under Section 7(5) of the Arbitration Act

The court held

The Court answered the issue in the affirmative, holding that an arbitration agreement existed between the Appellant and the individual members by way of incorporation

It also directed

The Supreme Court set aside the High Court’s common order dated 26.06.2025 and allowed the appeals. The Court appointed a Sole Arbitrator to resolve the disputes and directed the arbitrator to make a declaration under Section 12 of the Act within fifteen days

01Facts

The Appellant, a real estate firm, entered into a Development Agreement (DA) with Respondent No. 1 (a Housing Society) on 20.12.2011 for a redevelopment project

¶ 4

Clause 36 of the DA contained an arbitration agreement for resolving disputes

¶ 4

Subsequently, the Appellant entered into individual Permanent Alternate Accommodation Agreements (PAAA) with five society members (Respondents)

¶ 5

Clause 14 of the PAAA stated that all terms of the DA "shall be construed to form a part of these presents" and shall be "binding on the parties hereto"

¶ 5

Following consumer complaints filed by the members, the Appellant invoked arbitration under Section 21 of the Arbitration and Conciliation Act, 1996

¶ 6

The High Court of Bombay dismissed the Appellant’s Section 11 applications, holding that there was no specific arbitration agreement between the Appellant and individual members, as the DA reference was merely generic

¶ 7

02Issues

i.1. Whether an arbitration clause contained in a primary Development Agreement can be incorporated by reference into subsequent individual agreements (PAAA) under Section 7(5) of the Arbitration Act

¶ 2, 8

03Law Applied

The Court applied Section 7(5) of the Arbitration and Conciliation Act, 1996, which permits the incorporation of an arbitration clause from another document provided the reference makes that clause part of the contract

¶ 8

It relied on the precedent set in M.R. Engineers and Contractors Private Limited v. Som Datt Builders Limited, which established that if a contract provides that all terms and conditions of a referred document shall be read as part of the contract, the arbitration clause in the referred document is "bodily lifted" and incorporated

¶ 9

It further applied NBCC (India) Limited v. Zillion Infraprojects Private Limited, holding that incorporation requires a clear intention to assimilate the arbitration clause into the new contract and that the clause must be applicable to the current dispute

¶ 10

Provisions in the judgment · 5 · Linked ones open on LawLens

Arbitration and Conciliation Act, 1996 Section 7 Section 11 Section 12 Section 21 Section 4

04Reasoning

The Supreme Court disagreed with the High Court’s finding that the reference was "generic." The Court observed that Clause 14 of the PAAA did not merely refer to the DA but unequivocally recorded that all terms and conditions of the DA "shall be construed to form part" of the PAAA

¶ 11

Under the illustration provided in paragraph 17 of M.R. Engineers, such wording indicates a conscious acceptance of the entire document, not just specific portions

¶ 11

The Court reasoned that by affirming all clauses of the DA were "binding on the parties" to the PAAA, the parties intended to import the DA "body and soul" into the individual agreements

¶ 12

Consequently, Clause 36 (the arbitration clause) was successfully incorporated by reference into the PAAA in compliance with Section 7(5)

¶ 12-13

05Holding

The Court answered the issue in the affirmative, holding that an arbitration agreement existed between the Appellant and the individual members by way of incorporation

¶ 13

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