Now i’ll discuss another new case of 2019, which is that of Giriraj Goel v. Coal India Limited and Others, (2019) 5 SCC 192.

BRIEF FACTS:

Now, if I tell you about the brief facts of the case—Here the Respondent 1 issued the 2007 Scheme, whereby coal distribution would be conducted through e-auction i.e. electronic auction, with a view to provide access to coal for buyers, who were not able to source coal through the available institutional mechanism, available to them. This system would provide an equal opportunity to purchase coal through a single window service to all intending buyers and facilitate country-wide access to booking coal online for all sections of coal buyers, through a simple transparent system. 

Now, Clause 11.12 of the 2007 Scheme contained an arbitration clause also. The appellant, who was a registered buyer as per the terms and conditions of the 2007 Scheme, participated in the e-auction for the purchase of coal for several sale orders issued under the 2007 Scheme.

The appellant was declared successful with respect to various coal orders and sale orders were issued in favour of the appellant, pursuant to which he deposited the earnest money deposit and coal value as per the 2007 Scheme. 

As per the terms of the Scheme, a period of 45 days was allowed to the appellant from the date of issue of the delivery order, to lift the coal. The appellant, for some reason was not able to lift the booked quantity of coal. The Respondent 1 considered this to be a breach of the terms and conditions of the 2007 Scheme and forfeited the earnest deposit by the appellant under the 2007 Scheme.

As a consequence, a dispute arose between the parties. The appellant issued a notice invoking arbitration clause under the 2007 Scheme, which the respondent failed to respond to. 

The appellant filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 before the Jharkhand High Court. The Court rejected the application on the ground that the dispute related to different transactions entered into between the parties under the 2007 Scheme. The sale orders did not contain an arbitration clause. The Court further held that even though the 2007 Scheme contained an arbitration clause, none of the individual sale orders made reference to the applicability of the terms and conditions of the Scheme to the Scheme of the sale orders. Hence, arbitration clause could not be incorporated in this case. Aggrieved by the order of the High Court of Jharkhand, the appellant moved the Supreme Court.

ISSUE:

The issues that arose in this case were—whether arbitration agreement can be incorporated by reference to a parent agreement or a standard form of contract?

HELD:

Now in this case, the Supreme Court held that the principle of incorporation by reference of an arbitration clause from another contract or document is a well-established principle in arbitration jurisprudence. The arbitration agreement need not necessarily be in the form of a clause in the substantive contract itself. It could be an independent agreement or it could be incorporated by reference either from a parent agreement or by reference to a standard form of contract.

The Court referred to a 2010 case the citation of which I have provided over here—Habas Sanai Ve Tibbi Gazlar Isthisal Endustri AS v. Sometal SAL 2010 Bus LR 880: 2010 EWHC 29 (Comm), wherein it was held that a general reference to a contract containing an arbitration clause is sufficient for incorporation from a standard form of contract. In that case, a distinction was also made between “a single contract case” and “two contract case”, wherein a single contract case is one where the arbitration clause is contained in a standard form contract to which there is a general reference in the contract between the parties. 

On the other hand, where the arbitration clause is contained in an earlier contract/some other contract, and a reference is made to incorporate it in the contract between the parties then it is a two-contract case. The Court had held that incorporation by general reference in a single contract case is valid. However, in a two-contract case, where reference is made to an arbitration clause in a separate contract, the reference must be specific to the arbitration clause.

In the instant case, the Supreme Court observed that the individual sale orders emanate out of the 2007 Scheme. The Court also observed that the sale orders specifically state that they would be governed by the guidelines, circulars, office orders, notices, instructions, relevant law, etc. issued from time to time by Coal India Limited or Bharat Coking Coal Ltd.

The Court interpreted the phrase “in relation thereto” used in Clause 11.12 of the 2007 Scheme and held that it indicated that the clause would apply to all transactions which took place under the 2007 Scheme.

It was held that the arbitration clause in the 2007 Scheme would stand incorporated in the sales order issued by the respondents.

RATIO:

Now let’s derive the ratio from this case. 

Arbitration agreement can be incorporated by reference either from a parent agreement or by reference to a standard form of contract.

Incorporation by general reference in a single contract is valid, but in a two-contract case, the reference to the arbitration clause of the referenced contract must be made specific.