SC Says Arbitration Clause Applies If Later Contract Fully Adopts Earlier Terms

New Delhi, May 15 (KNN) A Division Bench of Justice Sanjay Kumar and Justice K. Vinod Chandran held that when a later contract fully adopts the terms of an earlier agreement that includes an arbitration clause, disputes arising under the subsequent contract may still be referred to arbitration, even if the clause is not expressly restated.

The dispute arose from a redevelopment project involving Hirani Developers and members of Nehru Nagar Samruddhi CHS Ltd.

The original development agreement signed in 2011 contained an arbitration clause under Clause 36. Later, individual society members entered into Permanent Alternate Accommodation Agreements with the developer in 2023 and 2024. 

Later Agreements Incorporated Earlier Terms 

While these agreements did not include a separate arbitration clause, Clause 14 stated that all terms and conditions of the earlier agreement would form part of the later contracts.

When disputes emerged, some members approached consumer forums, while the developer sought arbitration. The respondents argued that no arbitration agreement existed under the later contracts, a view accepted by the Bombay High Court.

SC Cites Earlier Arbitration Precedent 

Reversing the decision, the Supreme Court said the later agreements clearly incorporated the earlier contract ‘in its entirety,’ including the arbitration clause.

The court clarified that this was not a mere reference to an earlier agreement but a clear intention to make all its clauses binding on the parties. 

It relied on its earlier ruling in M.R. Engineers and Contractors Private Limited vs. Som Datt Builders Limited to hold that such incorporation is sufficient to invoke arbitration.

The apex court said the High Court erred in rejecting the arbitration plea and held that a valid arbitration agreement existed between the parties through incorporation.

(KNN Bureau)