[Case Brief] M/s Inox Wind Ltd. v/s M/s Thermocables Ltd., 2018

Case M/s Inox Wind Ltd. v/s M/s Thermocables Ltd.
Case NumberCivil Appeal Number 19 of 2018
CourtSupreme Court of India
BenchJustice L. Nageshwar Rao and Justice S.A. Bobde
Author of the judgmentJustice L. Nageshwar Rao
Decided On January 5, 2018
Author of the briefLavanya Gupta

Brief Facts and Procedural History:

M/s Inox Wind Ltd. manufactured Wind Turbine Generators (WTGs) and M/s Thermocables Ltd. manufactured wind power and other types of cables. M/s Inox Ltd. placed two orders with M/s Thermocables Ltd. for the supply of cables. As per the Purchase Order, supply was to be according to the terms mentioned in the order and Standard Terms and Conditions that were attached thereto. The Standard Terms and Conditions, among other conditions, contained a clause pertaining to dispute resolution which said that any dispute shall be resolved by a sole arbitrator in accordance with the provisions of the Arbitration and Conciliation Act, 1996. M/s Thermocables Ltd. accepted all the terms and conditions except the delivery period, which they informed M/s Inox Wind Ltd. by a letter. M/s Thermocables Ltd. supplied the order contents but while laying the cables, M/s Inox Wind Ltd. discovered that outer sheaths of cables were cracked due to which their work was aborted. M/s Thermocables did not replace the cables. M/s Inox Wind was forced to propose the name of the sole arbitrator for dispute resolution as per the aforesaid terms.  When M/s Thermocables Ltd. did not reply, M/s Inox Wind Ltd. moved to Allahabad High Court to file an application under Section 11(6) of the Arbitration and Conciliation Act, 1996. The court dismissed the application by holding that an arbitrator cannot be appealed as M/s Inox Wind Ltd. could not prove the existence of an arbitration agreement.

Issues before the Court of Law:

Whether a general reference to a standard form of contract, is sufficient for incorporation of the arbitration clause?

Ratio given by the author:

Yes, a general reference to a standard form of contract is sufficient enough for incorporation of the arbitration clause. As per precedents, it is well settled that usually an arbitration clause in an earlier contract cannot be incorporated by a general reference. Yet an exception to the rule is that in cases involving parties (which are trade associations or professional institutions) entering into a contract incorporating terms previously agreed between the parties in another contract(s) to which they both were parties, a general reference would suffice for incorporation of an arbitration clause from a standard form of contract. The case in hand is a ‘single contract’ case, i.e., the standard form of contract of one party (here, M/s Inox Winds Ltd.) and so the exception to the rule applies.

Decision Held:

The accepted rule is that a general reference to a standard form of contract cannot make incorporation of arbitration clause successful. Yet, by virtue of various cases, an exception, which is applicable in the case in hand, arose. Thus, applying the exception, the Supreme Court allowed the appeal and rejected Allahabad High Court’s decision and subsequently appointed an arbitrator for dispute resolution in accordance with the contract.

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