The Supreme Court has held that an arbitration clause contained in an earlier agreement can be enforced between parties to a later contract if the subsequent agreement clearly incorporates the earlier contract in its entirety, setting aside a Bombay High Court order that had refused to appoint an arbitrator in a redevelopment dispute.
A Bench of Justices Sanjay Kumar and K. Vinod Chandran ruled in favour of Hirani Developers, holding that the arbitration clause contained in a 2012 development agreement with a cooperative housing society stood validly incorporated into later Permanent Alternate Accommodation Agreements executed with individual society members.
The dispute arose after several society members initiated consumer proceedings against the developer under the Consumer Protection Act, 2019. Hirani Developers then invoked arbitration, relying on Clause 36 of the original development agreement, which provided for dispute resolution through arbitration. However, the respondent members opposed arbitration, arguing that they were not directly parties to the original agreement and that their individual agreements did not contain an independent arbitration clause.
The Bombay High Court had accepted this contention, holding that a mere reference to an earlier document was insufficient under Section 7(5) of the Arbitration and Conciliation Act, 1996 to incorporate an arbitration clause, unless the later contract expressly demonstrated a clear commitment to arbitration.
Disagreeing, the Supreme Court drew a distinction between a mere reference to an earlier document and full incorporation by reference. The Court held that the wording in the Permanent Alternate Accommodation Agreements made the parties’ intention unmistakably clear: the original development agreement had been imported in its entirety.
“This was not a case of mere reference to an earlier agreement but a case where the parties to the later contract clearly intended to import the Development Agreement, body and soul, into the later agreements,” the Court observed
The Bench distinguished between a mere reference to an earlier document and full incorporation by reference, relying on its earlier rulings in M.R. Engineers and Contractors Pvt Ltd v Som Datt Builders Ltd. (2009) 7 SCC 696 and NBCC (India) Ltd v Zillion Infraprojects Pvt Ltd, (2024) 7 SCC 174. It held that where contractual language clearly indicates that the earlier agreement is incorporated “body and soul,” the arbitration clause contained in that agreement becomes binding as well.
Holding that the High Court had misapplied the law, the Supreme Court allowed the appeals and appointed Advocate Vishal Kanade as sole arbitrator to adjudicate the disputes between the developer and the respondent members.
