19 March 2024 Arbitration Law >> Business & Commercial Law   |   Business Laws >> Business & Commercial Law  

Imagine you're awarded a dream construction project, but a disagreement erupts with the client. How do you resolve it? This was the dilemma facing Zillion Infraprojects in a recent court battle against giant NBCC (National Buildings Construction Corporation). The crux of the dispute? A missing arbitration clause that could have drastically altered how their construction contract disagreement was settled.

The Project and the Dispute:

NBCC awarded a construction project to Zillion Infraprojects through a Letter of Intent (LOI). This LOI mentioned that certain terms and conditions from tender documents issued by Damodar Valley Corporation (DVC) would apply, with some modifications. However, a key point of contention arose. Clause 7.0 of NBCC's LOI clearly stated that any disputes between the two parties would be settled through civil courts in Delhi.

Invoking Arbitration and the Court Challenge:

Zillion Infraprojects sought to settle the disagreement through arbitration, citing the arbitration clause present in the DVC tender documents. NBCC disagreed with this approach, arguing that the arbitration clause wasn't included in their contract with Zillion Infraprojects. They took the matter to the High Court, challenging the applicability of the arbitration clause.

Conclusion:

The court sided with NBCC. The crux of the judgment was the distinction between incorporating and referencing a clause from another document. The court explained that incorporating a clause requires a clear intention to include it as part of the new contract. Simply mentioning another document with general terms wouldn't be sufficient.

Furthermore, Clause 7.0 of NBCC's LOI explicitly outlined using civil courts for dispute resolution. Since this was a two-contract scenario (LOI and DVC tender documents), a specific reference to the arbitration clause within the LOI itself was necessary for it to apply. The court's decision effectively overturned the High Court's order requiring arbitration. As a result, the dispute between NBCC and Zillion Infraprojects will be settled through civil courts in Delhi, as specified in Clause 7.0 of the LOI.

  Indian Contract Act, 1872    Arbitration and Conciliation Act, 1996