In the present case, the Apex Court drew the distinction between ‘reference’ and ‘incorporation’ of arbitration clause in agreements. The Court discussed the law laid down in the case of MR Engineers and Contractors Private Limited vs. Som Datt Builders Limited and discussed its points of distinctions from Inox Wind Limited vs Thermocables Limited.
Based on the judgment passed in the case of MR Engineers and Contractors Private Limited [supra], the Court observed that sub-section (5) of Section 7 of the Arbitration Act and opined that a reference to the document in the contract should be such that it shows intent to incorporate the arbitration clause contained in the document into the contract. In Inox Wind Limited, though the Apex Court agreed with the view held in MR Engineers and Contractors Private Limited, it has differed and held that though a general reference to an earlier contract is not sufficient for the incorporation of an arbitration clause in the later contract, a general reference to a standard form would be enough for the incorporation of the arbitration clause. Further, in Inox Wind Limited, the Apex Court held that it was a case of a ‘single-contract’ and not ‘two-contract case’ and, therefore, the arbitration clause as mentioned in the terms and conditions would be applicable.
The Apex Court opined that the present case was was a ‘two-contract’ case and not a ‘single contract’ case. It is not a case of ‘incorporation’ but a case of ‘reference.' As such, a general reference would not have the effect of incorporating the arbitration clause of the other contract, especially since Clause 7.0 of the LOI i.e. the first contract clearly stated that the redressal of the dispute between the parties has to be only through civil courts having jurisdiction of Delhi alone. Consequently, the Delhi High Court's decision was overturned and the Appeals were allowed.